Hi All,
I have one small property earning $1400 a month in rental income. The loan is on interest only and the renter pays me once a month on the 14th. The bank takes out loan repayment every month on the 13th.
That means I have $1400 a month not used till the 14th next month. If I were to put these funds into my own home loan which has a 100% offset account. Is there going to be any tax implications on my PPOR?
Your thoughts will be much appreciated.
V
Hi V
No it would be the way forward and should have been set up like this from day 1.
Just make sure that your offset account is a true 100% offset account and not a typical quazi offset account or you may have issues down the track if you ever rented out your own PPOR.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi richard, if you re read this thread would you mind elaborating somewhat on "quazi" offset account?
many thanks
Ben
G’Day V,
350pw in rentals is pretty good for a “small property”
Money put in your Offset Account will be deducted from the balance of your PPOR home loan and reduce interest payable. If it’s 100% offset, then the interest payable will be based on: (Current Loan Balance – Balance in Offset) x Interest Rate. The interest is typically calculated daily so the sooner you have that spare cash in the offset, the better. What you propose is good idea.
As far as Tax Implications are concerned, there won’t be any since you’re paying off a non-deductible debt.
Cheers
Hi Ben,
I believe “Quazi” means an Offset Account where only a portion of the balance is used to reduce the balance of the loan (as opposed to the whole lot – 100% offset).
Cheers
btw –
reducing the interest payable = more goes into the Principal = sooner you’ll build more equity = opportunity to leverage and buy more
(assuming you’re on a PI loan)
Investment pupil,
Thank you for your response, i will be sure to make any offset accounts in the near future 100 % as opposed to "quazi" – is this the default offset account set up by banks unless you request otherwise? do they do this for their own benefit ie; minimising the principle you pay down on your loan?
look forward to learning more
Ben
I have the same Set Up:
1) Rent from the IP goes into the 100% Offset account lnked to the PPOR.
2) Loan of the IP is Interest Only, and the Interest Only Repayments gets debited from the LOC on PPOR.
3) LOC is Interest Only, and the Interest Only Repayments gets debited from the 100% Offset account lnked to the PPOR.
If the IP is -vely geared, the deficit will get added on to the LOC. ( Eg: IP Loan Repayment = $1800 taken out from LOC; Interest Only Repayment on $1800 taken out from 100% Offset linked to the PPOR)
Do we put money back into a Tax Deductible Debt ??
AM2778
this is going to sound stupid, but would you please tell me what LOC is?
Ben – I believe so, otherwise they won’t be called a Bank and but instead a Pot-of-Gold-Free-4-All
AM2778 – Not sure why you’re not having your repayments coming direct from your offset instead? (if you’re paying off your LOC loan with your LOC, you’re capitalizing interest are you not?). I think ATO does not like that…(could be wrong)
Investment pupil, thank you bud, very valid point by the way thanks for the response
Ben
LOC – Line of Credit.
It’s when you take out an overdraft facility up to an approved amount based on the available Equity in your Property (minus the amount owing).
For example, if you property is worth 300K and you owe 200K, and you take out a LOC. You have up to 80K to use ((300K-200k)*80%). That 80K is just like a credit card but secured against your property. if you default on payment, they take your property and sell it.
i was going to pm you to say thank you but since i cant,
Thank you for the explanation on LOC and quazi offset accounts mate
Ben
Ben Kelleher wrote:this is going to sound stupid, but would you please tell me what LOC is?LOC = Line of Credit
http://www.investorwords.com/5606/home_equity_line_of_credit.html
Usually up to 80% LVR (loan to Value Ratio) can be borrowed. A line of Credit is a loan limit set up on a facility that lets you borrow money up to the limit – on call borrowing – once set up you can borrow the money when you need it.
80% LVR = (existing loan + applied for LOC) / current property value = 0.80a
Does the same rule apply if say I have 3-4 rental properies? This sounds a pretty good way of getting my PPOR loan down.
I am currently getting $290 per week for the property exactly (Not $1400 as previously indicated), my purchase price is $253000 for a small 2 x 1 (67sqm) within 6kms of Perth CBD (Victory Park). Just wondering, on the current market trend, have I paid too much for this property? With all fees and expenses inlcuded its about $265000, I am a first time investor which means I only want to start small and slowly moving into bigger directions. Especially with the talk of interest rate going up I have been hearing from people with other rental properites saying realestate will go down if interest rate went up another 2%. I am not too nervous about that due to the fact I have got a good tenent always paying on time. And realestate is for the long run.
Love to hear people with their thoughts on this.
Yes certainly does apply.
I have many a client with a dozen or so properties and all of the rental income is being diverted into the offset account.
When the PPOR has been paid down nothing to stop you linking the offset account to one of the PPOR loans and repeating the process.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
InvestmentPupil wrote:Ben – I believe so, otherwise they won't be called a Bank and but instead a Pot-of-Gold-Free-4-All AM2778 – Not sure why you're not having your repayments coming direct from your offset instead? (if you're paying off your LOC loan with your LOC, you're capitalizing interest are you not?). I think ATO does not like that…(could be wrong)I have structured the Loans like this:
1) Rental Income goes into the Offset ($1400)
2) LOC Pays for all the IP Expenses including the Interest Only Loan. ($1800)
3) LOC Interest Only Repayments get debited from the Offset Account. ($126)Leaves a deficit of $1674 on LOC.. Do I pay the $1674 back in to the LOC??
AM2778
Hi Duckster, thank you for that, i do know what a LOC is actually i just hadnt heard that term before (always learning the lingo on here!)
i did have a question relating to the LOC however,
is it considered personal credit ie: non deductible if i was to draw down on it even for a motgage deposit or reno/repairs?
ben
AM2778 wrote:InvestmentPupil wrote:Ben – I believe so, otherwise they won't be called a Bank and but instead a Pot-of-Gold-Free-4-All AM2778 – Not sure why you're not having your repayments coming direct from your offset instead? (if you're paying off your LOC loan with your LOC, you're capitalizing interest are you not?). I think ATO does not like that…(could be wrong)I have structured the Loans like this:
1) Rental Income goes into the Offset ($1400)
2) LOC Pays for all the IP Expenses including the Interest Only Loan. ($1800)
3) LOC Interest Only Repayments get debited from the Offset Account. ($126)Leaves a deficit of $1674 on LOC.. Do I pay the $1674 back in to the LOC??
AM2778
This strategy is a great way of paying off your home loan sooner, but you need to be careful how it is set up. Best to talk to your accountant about this and restructure it if necessary.
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
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