All Topics / Help Needed! / Slightly unsure – IO with loan offset account?

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  • Profile photo of bullet46bullet46
    Participant
    @bullet46
    Join Date: 2011
    Post Count: 51
    April 15, 2012 - 9:34 pm

    Hey Guys

    I read something on here last night that has left me questioning myself and wondering if I have the correct information or not…

    Lets say I own my PPOR… I decide to go out and buy an investment property which would be my first one. The investment property is purchased for $200000 with tennants paying $250 per week and is set up on an IO loan (obviously negative geared) as loan acquired is 95%… Now with my income, I decide to sit my spare cash into the offset account. After 3 or so years I have built up quite the nest egg in that offset account and for the purpose of this example, lets say I have $100000 in that account offsetting the interest. NOW THIS IS THE PART WHERE I GET A LITTLE CONFUSED…… Have I turned a negative gearing property into a positive cash flow OR isnt this possible OR isnt it the way to successfully build equity?

    Thanks

    Jamie

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    April 15, 2012 - 10:04 pm

    You would have to add up all the expenses and see if these are less than the rent. If rent exceeds expenses then it would be cashflow positive.

    If you had $100k in the offset you would be saving around $6,500 in interest pa so it probably would be cashflow positive.. But if you removed the money it may turn into negative.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

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