If you sell IP 1 you may end up with $80k before CGT. This could be put off your home loan saving you non-deductible interest – but if your plan is to buy another property again you will have stamp duty and buying costs etc. I think selling can be good if you can reduce private debt in some cases.

Yes, i can't see any point in investing in something without a capital gain either. You will also have entry and exit costs – not to mention difficulty selling and the low leverage.

Since you will be only renting out for 5 years you need to determine if the LMI will end up cheaper than the extra tax deductions to be gained by borrowing more.

You also said you may sell the current PPOR to the wife, so maybe consider paying off this loan and reborrowing the deposit so you can claim the interest on this portion and reduce the non-deductible loan. Consider setting up a LOC on the PPOR to borrow the 20% deposit and costs and then get the remaining 80% from the other bank.

If you just take the money from the offset you non-deductible interest will increase and you will have a lower loan on the IP so will lose out on tax.

Thats true. No good having an offset account if you are a spender.

Westpac is my fav lender at the moment.

St G is good, but their offset accounts are confusing. There are a few different versions. One version actually reduces the principle of the loan. I even have one client on the offset that reduces the interest rather than the principle and he tells me the loan still also reducing.

If you enter into a rent to buy type agreement (as the renter) you will be purchasing an option on the property – ie entering into a separate option contract. This enables you to register a caveat on the title.

If the owner stops making repayments on the loan the 1st mortgagee will start recovery action. They will have the right of sale under the mortgage agreement. so the property can be sold and they can recover their money. If you have an option this will complicate things. They will no doubt offer it to you, but what if you are not in a position to purchase at that stage?

And what if the value of the property had dropped?

I think it is a question of priorities and the first mortgage would be a high priority than the equitable interest of the option agreement.

it could be messy.

The option agreement will also cover the purchase price – whether a fixed amount or an amount to be calculated by some sort of formula.

Thanks Dan, I was looking for that one.

better seek the advice of a specialist lawyer too or you could get yourself into some trouble. eg. imagine if you have the shares of the company owned by yourself. you are sued and go bankrupt – the shares of the company are property which can be seized by the trustee.

Mortgages are registered at the land titles office. You would probably need a loan agreement and mortgage document.

Funny IP!

I think you will need a bit more than $10k these days – unless buying a really cheap property (and then you may not qualify because of the location!).

You will generally be required to have 5 to 10% (more likely) deposit and money for costs.

Hi Penny

I would suggest you look at setting up a LOC on your current home. You can then use this as 20% deposit on the new house and borrow the remaining 80% as a separate loan.

You can also pay expenses from the LOC – both initial purchase costs such as stamp duty, legals etc and on gong costs such as rates.

Then you will free up more money to place into your offset account to save you even more non-deductible interest.

Some LOCs allow the interest to be capitalised, others require the interest (at least) to be paid each month.