Hi, I’m looking for advice from more experienced property investors on how best to structure bank accounts when owning 4+ investment property’s with the following priorities
1. Transparency (ease of checking if rent has come in etc)
2. Budgeting
3. Keeping everything as simple as possible and
4. Making tax time as easy as possible.
We currently have a credit card that we pay off in full each month, a spending account which my partners pay goes into along rent and repayments for a CF+ property and we use this for all daily, monthly and annual spending and a savings account that my pay goes into which we’ve been using to fund deposits/stamp duty. All accounts are offset onto the property that’s owned by the current lowest income earner but we will change this when/if incomes change.
The second of our properties I own with a friend so we transfer an amount each fortnight from our spending account to a different bank account that’s owned by my friend and I and it covers all repayments, insurance, rates along with extra that we use for maintenance. Transferring the specific amount that covers everything has worked really well and I’m thinking of creating a transaction account for each IP and transferring the funds needed from our spending each week that covers everything (all accounts well be offset against the specific IP). Although that means I’ll end up having 11 accounts!!! (including loans & the credit card).
So I’d like to know if this is how experienced property investors work their accounts or if anyone had better suggestions?
We are about to own a total of 4 properties, 2 are owned by my boyfriend & I (they actually both settle next week), one in just his name and one in my and my friends name, all loans are separately secured.
Thanks in advance!
Hi Claire (assuming name is Claire based on your username)
I'm not currently invested in property yet but am saving up for my first property (due to purchase late this year) and this is how me and my fiance have restructured our finances almost 2 years ago and the improvements are excellent over our previous 1 account each.
This has limited our spending as we only get $80 a week to live on including going out and keeps our hands away from our savings.
we could put both saving account 2 and 3 together to increase interest paid to us …but i find the separation is great and the need to block our access to the money works well.
We now use this;
1 Online Saving Account – My Fiance and my pay go in here, all bills come out of here with a buffer of about $1000 for any inconsistent bills. (labeled as Pay/Bills)
1 Online Saving Account – $X000.00 per month automatically transferred from bills to here every 15th (labeled as House Deposit Account) – accessible only in branch with signature from both parties
1 Online Saving Account – $X00.00 per month automatically transferred from bills to here every 15th (labeled as Holiday/Large purchase/Education)
1 Transaction Account – $80.00 per week automatically transferred every Monday (labeled as MINE! …..and HERS!) 1 card (black)
1 Transaction Account – $80.00 per week automatically transferred every Monday (labeled as HERS!) 1 card (Pink)
1 Transaction Account – $X00.00 per month automatically transferred every 15th (labeled as Groceries) – 1 card each (blue)
I'd assume when i buy the first property we'd add 1 more account with automatic payments to cover costs etc…. but ill have to see when that time comes, someone else will surely answer this part
This may not suit you and your partner or answer your exact question but may help another forum lurker/member with structuring their own accounts.
Regards
Scott
Thanks for the reply Scott, I love the colour coded cards, what a great idea!
Ps I really should have grammar checked before posting..
Simple really
Have an offset account on your PPOR. Get all rents paid into this account and all wages and income.
Then just direct debit out to the various loans when interest is charged.
Ideally also have a LOC in there somewhere. You can then borrow to pay all expenses related to the property, except interest. This will help you save non deductible interest.
Use a credit card to pay for the expenses first and earn points and take advantage of the interest free period to save yourself even more non deductible interest. Before this card incurs interest you pay it off from the LOC (refinancing one loan with another).
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
Thanks Terry, I really appreciate your time taken to offer advice!
We rent (cheap accommodation that's subsidized by our employer) so don't have a PPOR therefore have our savings offset by the loan that's in the name of the person on the lowest tax bracket, that's one of the reasons I thought of having an transaction account for each property that's an offset for that specific property so we can switch when it makes sense tax wise.
I would really appreciate more info on getting a LOC, below is more info on my situation, which loan would we be best off getting a LOC for and can you only get a LOC if the LVR is more then 80%, is it correct that you get the LOC up to 80% LVR?
Property 1 – own with friend, tenets in common, split loan (I have my own loan number) Loan is 124k/ My share of recent val is 150k. – probable want to leave this one along so not to complicate things. Currently paying PI but am about to change this!
Property 2 – In my partners name, Loan 277k recent val 385k – this one is positively geared (mining town that we also live in) currently all our savings offset this one. Also currently pay PI & some more but are am about to change this too although being in a mining town what is your advice with just paying it town in case something was to go pear shaped?
Property 3 – Inner city Brisbane house Loan 526k Val 575k Want to pay PI until be bring it down to 80% LVR. (We will transfer savings to offset this one when it makes sense tax wise)
Property 4 – Bayside Brisbane house Loan 317k Val 370k Also want to pay PI until it's brought down to 80% LVR
Can you tell me what your thoughts are on bringing them all down to 80% LVR? My bank will reduce the interest the moment their at 80%.
Also why I've got your attention can you tell me your thoughts on prepaying interest, I'm currently at 46% tax bracket but likely will be at 40% next year, it's very unpredictable as more of my wage is commission that can change month to month, I need to make the a decision the next few days whether to pay more deposit on property No4 (it settles in a week) to avoid LMI or use that money to prepay interest on IP No1 & 3.
Again thank you so much for your time!!!!!
Claire
ps Our strategy is Buy & hold/ Buy, renovate & hold and goal is to have a very positively geared portfolio in 10 years hence paying P&I right now. Another reason behind paying P&I right now is we're on good money right but this will change when we move out of mining in a couple of years and/or go to living on one income (in maybe 2 years) so thinking do P&I while we can very comfortably afford it and go to IO when our salary change so our cash flow doesn't change much. Also worth mentioning the more money we have in savings/offset the more we end up spending on liabilities however if on the loan and less in savings/offset the better we seem to be with money…
Hi Claire,
How long will the cheap accomodation last?
Have you ever lived in one of these properties? Thinking main residence CGT exemption.
Will you or is it likely that any of these would ever be lived in?
Generally get a LOC on the one with the most equity. You can go to 90%, but as all of your debt is deductible this may not be so much of an issue.I generally am not in faviour of prepaying as:
1. You need to fix for 1 year
2. You are really only bring forward deductions so could have a biigger problem next year if not much to claim.But it will depend on your interest rate and outlook, the numbers and the situation.
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
Hi Terry
Cheap accom will last as long as my partner is employed and if anything happened with that I'm sure my employer would help us out, then when we leave this town (12-24 months) we'll have accom for as long as we need at his parents place. The current plan is to stay with them until either we find our own place or if we decide to move into one of the properties we'll need to wait for the tenents to vacate. We may end up living in either property No3 or 4 or but not 100% as there are so many variables.
I lived in IP No1 from 2008 when it was purchased it until late 2010 so I'm still treating it as my PPOR for CGT purposes. My partner lived in IP No2 for 8 months when he purchased at the start of 2011 (8 months of renovating) so he's still treating it as his PPOR for CGT purposes, we have talked about selling it before 2018 or before will move into a new PPOR to avoid CGT and because having a property in this town isn't a long term strategy, especially when we've been so lucky for the value to go up in the last couple of years (thank you qld gov for announcing lifting the ban on uranium).
We might move into property No3 to renovate then move into property No4 before purchasing another one to renovate (especially if the dates lined up so we'd reduce any potential land tax).
Any more advice with the above info? Again.. really appreciate it Terry!!!
Claire, both you are your partner can only claim one CGT exemption between you (if you mean spouses, defacto included).
If as above then probably best to just keep IO with all cash going into 1 offset account. Take the cash with you when changing residences – make a new offset on the one you are living in.
You may also want to consider your different taxable incomes. Maybe better to keep the cash in the offset account on the house which is owned by the lowest income earner.
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
Just did research re CGT haven't yet sold property so hadn't looked into it myself, was just going off what our tax accountant told us!! Thank you very much for this information, does make more sense having all as IO, I've just been putting it off as I liked seeing all the loans go down but it's not going to help up when we buy a PPOR.
Thanks again!
Its not wrong to pay down loans – it is good, but it could be more effective if you don't and restructure things slightly. If done properly it shouldn't cost any more in interest but can result in more tax savings.This
week I met a client and within 5 mins I had saved him about $5000 pa in tax by rejigging things with potentially much more savings down the track.
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
I pay down all of my investment loans and as at April 1 i think we were down to $1.14 M but then i am fortunate to be in a slightly different position to most investors.
As Terry mentioned IO give you flexibility and the interest being charged with IO + offset will be the same as going P & I.
Of course you need to ensure you are not paying a higher rate of interest merely to have an offset account on the investment loan.
There are lenders out there that offer 1 year fixed (plus others that offer a variety of other fixed rate terms) rates with their 100% offset account.
As Terry mentioned we often find that dollars could be saved by re-structuring a portfolio.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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