Advice in buying our first IP, account structuring, gearing, tax and risk

Hi Paulie

Yes you are right you certainly have a fair amount of equity so need to structure it correctly to maximise the use.

Depending on how active you want to be in your investing path will determine the strategy for going forward.

I would be looking at taking out a line of credit against the security of your PPOR from which you will draw down the 20% deposit and acquisition costs for each new IP.

Then probably with a separate lender you would look to fund 80% of the new purchase price on interest only.

Structuring the deal you would look to buy either in your sole name or as tenants in common with you holding say 99% of the shares.

There are a few other strategies depending on your future income whether the property will be positively / negatively geared etc etc but unfortunately it is not a matter of one hat fits all.

Each client has individual requirements.

I would set up a LOC and concentrate on repaying the remaining $80,000. Once you have done that then you will have some spare cash left over each month. So I would look at using a discretionary trust. You can start gifting to the trust so that it builds up some funds and then start buying new investment properties. Use interest only loans with 100% offset account with the trust's cash in there saving interest. The properties will hopefully start becoming positive geared very quickly and this income can be distributed to the lower income tax earner.

If you start buying in your name now for negative gearing benefits, then you are just creating a time bomb. You may save a little but of tax for 1 or 2 years, but then suffer by paying top tax rate tax on your rental incomes and CGT after that.

Rather than put it in your wifes name why not put it in a Discretionary Family Trust as this will give you extra options as well as good asset protection.

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