Hi everyone!. Been doing a bit of homework on which vendor and which loan type to go for. As far as i can see an equity or line of credit loan is the way to go. My wife and i are very good at at budgeting and sticking to the budget. So I can’t see any reason why not to go for this loan type. I have seen examples of people go seriously wrong with this type of loan but as far as i could tell they couldn’t budget properly. Can anyone tell me any other cons of this loan type.
Cheers.Here for a good time not a long time, just do it!.
Hi Cremin
Yes a line of credit is the best option. I find that by having this type of facility it can give you more bargining power when submitting offers for IP’s. You don’t have to buy subject to finance, you can pay cash, you can do a quick settlement. Then finance the property after you have touched it up – you can get 80% LVR of a higher valuation. The 80% then goes back into line of finance account to start all over again with your next deal.
Cheers
NessieIt depends.
If you are just using the LOC for deposits on further IPs then it will work fine.
However if you intend to use it as a day to day account when related to investing, then watch out. The ATO considers any deposit to be a repayment. This means when you withdraw the money again, the interest may not be taxable.
Eg you purchase a $100,000 IP using your LOC. You deposit all your salary etc into this account and withdraw it out to live on. If you get $4000 salary put into your account, the balance goes down to $96,000. Now if you need $2000 for living expenses it will go back up to $98,000. The ATO will consider the balance for the investment to be $96,000 and the $2000 to be non investment related. Therefore you could only claim the interest on the $96,000 portion.
If this kept going on for months, years, then you could end up with a $0 IP loan and a huge non deductible debt.
A better way in this case would be to use a 100% offset account to keep them totally separate. Using the LOC for deposits and other IP stuff is OK, just pay the interest, don’t put all salary into that loan.
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
To add to Terry’s comments you can get a line of credit that allows you to split the debt so a portion is for personal use and the balance relates to the investment debt. As long as all you transactions are run through the personal portion then the tax man will have no problem.
This is how I operate mine. St George, Macquarie Bank, Suncorp all have this type of LOC.
Hope this helps
Davo70I found LOC is very tempting to spend more. Eg spend another $500 to buy a better/next upper range purchase in white good/electrical good. This was my experience.
What I did was I asked the bank to give me a separate account for the LOC limit. And I only touch the account for investment purposes. This way I don’t throw away my investment fund for personal purchase. And another thing I am doing is direct credit $100 per week to this LOC account from my personal account so it does grow even more.
It works for me now.
Ta, Paul
Thanks everyone! some great advice there. [
]Here for a good time not a long time, just do it!.
Contrary to what most people say I think LOC just cost extra for little benefit.
Consider a standard variable loan with 5 years interest only period. Lets say you borrow $100,000. Most loans will allow you to make extra repayments and allow redraw free of charge, or others have offset accounts (same net effect). Having got the $100,000 make a lump sum payment of $99,900. DO NOT repay the whole $100,000 or the loan closes. As you need the cash just redraw.
Using this method you may actually save money on the interest vs a LOC. There is another catch you must renegotiate the loan every 5 years. This is not so bad considering LOC’s get reviewed between 1 and 5 years anyway.
Regards
David
[email protected]Please refer to previous discussion on this, to which I contributed.
Its a fantastic product in terms of flexibility.
Ours is used 95% of the time for inivestment.
We have a separate business account we mainly draw wages from, for our usual cost of living expenses.
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