Hi all,
I’ve noticed a few posts that have stated that a cash deposit would be better than using equity from your PPOR.
Steve also recommends this in his book.
While i agree with this if you have payed off your PPOR in full, i believe that if you still owe money on it you would be better off putting all of your savings in an offset account and using some of your equity to fund deposits.
Any interest you payed on the equity loan would be recouped by the interest saved in the offset account and you would be able to claim the interest payed as a tax deduction as the purpose of the loan was for an investment property.
Also i think that the reasons that Steve recommends using cash are that:
A) At the time of writing the book he didn’t have a PPOR loan
He didn’t want people risking their family home by using it to secure investment properties.On the second point i believe that if you are not comfortable with the risk of any possible investment, don’t proceed. There will always be some risk associated with investing you just have to decide what you are comfortable with.
This is just a theory and it may be off the mark, so i welcome any feedback as it is the way i was thinking off proceeding, and would like to know if i am missing something.[?]
Cheers,
Jay.Jay
I think your reasoning for Steve suggesting that people use only cash savings as the deposit is spot on. Why risk the family home if you don’t need to. But you need to be aware that if you default on your IP then the bank has every right to come after your other assets.
The structure you’ve outlined is definitely the most tax effective. You should always maximise the borrowings for your IPs and minimise your borrowing for you home.
What about being a little more creative and put the positive cashflow from you IP into paying off your home loan. If you put this in a redraw facility you can always draw against it when the next opportunity arises.
Hi Dingo,
Thanks for the reply.
I agree about the risk but a little planning and due diligence can eliminate most (not all) of the risks.
As for putting any positive cashflow back into the mortgage. Thats the main advantage of using the offset account. Ideally you would have all of your available money and savings in this account and would have instant access to it if need arises.
[
][]
Cheers,
Jay.
He didn’t want people risking their family home by using it to secure investment properties.
][The topic ‘Cash deposits V’s Equity?’ is closed to new replies.
