For starters you should get some sort of agreement in writing on who will do what, who will put it the money, when to sell, what if one party wants out etc. have a look at http://www.lawcentral.com.au for the agreement of purchasing property together.

Hi Kuade

You can just approach your existing lender and ask for a LOC or an increase on your existing loan. Your existing loan can continue as normal.

Deductibility does not depend on the security, but on what the money is used for. Therefore redrawing on your PPOR loan will be deductible if you use the funds for investment purpose – but only on this portion. that is why a separate loan is good as it keeps things easy when workin out how much to claim at tax time.

The only way it could apply is if the lender would lend to the trust without a guarantee. Over the years I have asked around and have yet to find a lender willing to do this.

Another way is to not tell the new lender about the previously guaranteed loans. Whether you would get away with it would depend on the wording of the application form and how stringent the new lender was in looking at the client's credit report. All enquiries for loans guaranteed will usually be listed on the guarantor's personal credit report.

If he has a signed contract with all the conditions fulfilled, then I believe the other party cannot pull out without penalty.

I would suggest IO on all loans as it reduces cashflow enabling you to service more debt. Any spare funds should be diverted to pay off non-deductible debt first.

Hi again.

Yes, it was Steele v FCT in 1999. Since then the ATO has released a tax ruling:
TR 2004/4
Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities
http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR20044/NAT/ATO'&PiT=99991231235958

See this legal newsletter for a brief explanation
http://www.kdjohns.com.au/files/briefly_in_tax_mar2006.pdf

The case is
Steele v. Deputy Commissioner of Taxation (Cth) – (4 March 1999)
http://law.ato.gov.au/atolaw/Browse.htm?ImA=folder&Node=4~3~8~8&OpenNodes=,4~3~8,4~3,4&DBTOC=05%3ALRP%3AHigh%20Court%3A1999%3ASteele%20v.%20Deputy%20Commissioner%20of%20Taxation%20(Cth)%20-%20(4%20March%201999)#4~3~8~8

I believe that you can probably claim the interest if you intend to rent the property out. There is legal precedent, I think it is "steele's case" where they were able to claim interest and costs such as rates etc on vacant land.

Hi Tugger

Becareful about paying down the existing loan. In a few years you may wish you hadn't if you decide to buy an main residence. The money will be trapped in the old loan and, although it could probably be redrawn, withdrawing it will create tax problems. A far better way to do it would be to put the money in a 100% offset account linked to the loan.

All loans should also be IO to reduce expenses and help you growth faster.

Hi Mark

Looks like your on a very good salary, so you should be able to save a heap – especially if you are only paying $15 rent.

I would suggest you not put the spare money into the home loan as it can cause problems if you wanted to take it out later (from a tax POV). Why not look at using the equity in the existing house to buy a new house for ivnestment and then get an offset account attached to this one. Keep saving into the offset and keep repeating the process. In the meantime you may want to stash your cash in an ING or a high interest account. BTW, all loans should ideally be IO.

Sounds like a good idea Don.

Micman, maybe you could sell your shares, place the money into the home loan, and then borrow to buy similar shares – watch out for ATO though. This would help reduce non deductible debt.