All Topics / Help Needed! / Am I doing this right?

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  • Profile photo of r.m.investmentr.m.investment
    Member
    @r.m.investment
    Join Date: 2014
    Post Count: 1

    I just built an investment property in QLD and it’s now rented out. I used a national buyer’s agent to set the deal up, as I’m in Vic. I was expecting the rental income to be just over $400pw, but they ended up rented it for $445pw on a 2 year lease in the first two days.                                                                                                                                                                                                                                                                                                The house and land price added up to $438,000 and I owe the bank around $449,000 (purchase + Stamp Duty on the land + costs, etc). The bank valuation on completion was $462,000. I have an interest-only mortgage, with an offset account on this investment property. The offset account has approximately $36,000, but I will soon receive $9,000 from a rebate the buyer’s agents negotiated for me, which will be added to the offset.

    My annual income is approximately $85,000 and I have put in a tax variation. The property is cash positive by about $30 pw before the offset is taken into account.

    So here is my question, should I let the $45,000 stay in the offset account or should I utilise this money in another way?

    BTW: my mortgage on the PPoR is $420k or 40% LVR

    Any suggestions please.

    Regards,

    Profile photo of Johny AppleseedJohny Appleseed
    Participant
    @johny-appleseed
    Join Date: 2014
    Post Count: 7

    I would be paying it off my home loan or putting it in a off set account on my home loan.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,376

    Hi R.M.

    Quote:
    So here is my question, should I let the $45,000 stay in the offset account or should I utilise this money in another way?

    BTW: my mortgage on the PPoR is $420k or 40% LVR

    I'm with Johnny A (the second part – "putting it in a offset account on my home loan"). 

    While ever you have non-deductible payments to be made, make them your primary focus for any savings, and leave the IP mortgage to handle itself.  As an example you will soon have $45k in Offset reducing total Interest paid, yet two different possibilities:-

    In an Offset against your IP, your Interest payment is reduced by (approx) $2700 per year.  Your claimable amount for Tax relief is thus reduced accordingly, so you get less Tax back.

    In an Offset against your PPOR, your Interest would be reduced by a similar amount, but you lose no Tax benefit over it. 

    Benny

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    I'd pop the funds in an offset linked to your PPOR for the time being – and use it later on once you've worked out what you'd like to do.

    On a side note – it sounds like your bank/broker has crossed up your loans which is a bugger. It's not the end of the world – but the structure could be set up better.

    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 TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190
    r.m.investment wrote:
    I just built an investment property in QLD and it’s now rented out. I used a national buyer’s agent to set the deal up, as I’m in Vic. I was expecting the rental income to be just over $400pw, but they ended up rented it for $445pw on a 2 year lease in the first two days.                                                                                                                                                                                                                                                                                                The house and land price added up to $438,000 and I owe the bank around $449,000 (purchase + Stamp Duty on the land + costs, etc). The bank valuation on completion was $462,000. I have an interest-only mortgage, with an offset account on this investment property. The offset account has approximately $36,000, but I will soon receive $9,000 from a rebate the buyer’s agents negotiated for me, which will be added to the offset.

    My annual income is approximately $85,000 and I have put in a tax variation. The property is cash positive by about $30 pw before the offset is taken into account.

    So here is my question, should I let the $45,000 stay in the offset account or should I utilise this money in another way?

    BTW: my mortgage on the PPoR is $420k or 40% LVR

    Any suggestions please.

    Regards,

    Sounds good. But I agree that the money in the offset should be on the PPOR – you are losing money having the cash in the IP offset.

    And what was that $9k rebate?

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681

    As the boys above have said your aim is always to neutralise or eliminate costs on non tax deductible elements first.

    Offsets offer 2 benefits namely they reduce overhead costs but more importantly support/smooth cashflow and provide liquidity when opportunities present themselves with only minor administrative load.

    Profile photo of Johny AppleseedJohny Appleseed
    Participant
    @johny-appleseed
    Join Date: 2014
    Post Count: 7
    r.m.investment wrote:
     I used a national buyer’s agent to set the deal up, as I’m in Vic.

    RM, That property sounds ok, can I ask who you used as the buyer's agent? What is the rebate about?

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