All Topics / Help Needed! / investment structure for investment property

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  • Profile photo of AC78AC78
    Participant
    @ac78
    Join Date: 2012
    Post Count: 10

    We have just bought an investment property for $385K and are looking at different loan structures to maximise our tax break. We currently have our principal residence which has almost been paid off (a nominal amount is outstanding to keep the loan still open).

    We are considering the four following options (trying to avoid LMI)

    1) pay the 20% deposit and stamp duty out of our own cash reserves, thus eliminating LMI

    2) borrow the whole loan amount including stamp duty and cross collaterise the loan with our PPOR.

    3) Take out a separate loan of $324K (80%) with the remainder of the loan redrawn from our original loan PPOR. We have been told the whole loan amount is tax deductible, as the redraw is put towards another asset to earn income (almost like redrawing on the loan to buy shares – the interest on the shares loan is tax deductible). We understand that any redraw is not tax deductible if our PPOR became an investment property and earned interest.

    4) We also have the option of setting up an offset account attached to an investment loan account, but are unsure how to avoid the MI.
    With an offset account, is the whole original interest still deductible and the interest 'earned' from the offset considered taxable income?

    Hope anyone can help.

    Profile photo of gibbo1gibbo1
    Participant
    @gibbo1
    Join Date: 2008
    Post Count: 152

    Hi,

    With the various options
    1) you will loose some tax deductability, but not a bad option depending on various circumstances.
    2) BAD option, search the forums – plenty of comments
    3) Redrawing the money off the existing loan will then contaminate the loan as it mixes deductable and non deductable loans into one.  This is close to the option I list below.
    4) Still be a 100% LVR even though there is the cash offset.

    With option 3 take your 80% loan as suggested against the new property but the other 20% comes from a new loan secured against your PPOR.  That way the loan is 100% for investment purposes.  Both loans can be setup as IO and you can have a cash offset account against one of them.

    Regards

    Gibbo

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069
    gibbo1 wrote:
    With option 3 take your 80% loan as suggested against the new property but the other 20% comes from a new loan secured against your PPOR.  That way the loan is 100% for investment purposes.  Both loans can be setup as IO and you can have a cash offset account against one of them.

    What Gibbo said. Your total borrowings remain tax deductible and you avoid crossing your properties.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of mattstamattsta
    Participant
    @mattsta
    Join Date: 2011
    Post Count: 604

    i agree that it would be a very bad idea to borrow the whole amount.
    If you plan to borrow more, then try and lower your LVR… the 80% LVR would be better

Viewing 4 posts - 1 through 4 (of 4 total)

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