About to buy first IP now, then PPOR later...

[propatee]

Hiya folks newbie here. Was reading a lot of stuff on here and the verdict is in - Somersoft rocks!


My wife and I want to buy a PPOR then use the equity to fund an IP as ya do. However just recently I have been approached to go JV in an 8 pack of units 50/50 type deal. The figures add up and the property will boast a 7-8% yield (20k net passive income) so basically I'm considering taking the opportunity as I have managed to twist the wife's arm.

A few things;

Do I set loan up IO with offset account?

When we eventually buy PPOR should I use equity from IP to fund it? Or should I use other cash money as a deposit and keep the two properties separate?

If for instance I purchased PPOR first then used a LOC to fund an IP, what tax advantages do I get as opposed to the reverse scenario I'm about to do!?

Hope the Qs all make sense and thanks in advance folks!

 

[Terry_w]

Do I set loan up IO with offset account?
Should you?
You would not want to pay PI as this would be tied up cash and would result in more non deductible interest when you eventually buy the PPOR.

But you said this is a joint venture so how will this be structured? You may not want to put your cash into a joint offset account.


When we eventually buy PPOR should I use equity from IP to fund it? Or should I use other cash money as a deposit and keep the two properties separate?

Depends on how much spare cash you have lying around, how much equity, ownership of the investment and your short and long term intentions with the PPOR


If for instance I purchased PPOR first then used a LOC to fund an IP, what tax advantages do I get as opposed to the reverse scenario I'm about to do!?

You would have paid down personal debt and be borrowing 104% of investment property price so you would be maximising tax deductions.

 

[propatee]

Thanks for getting back to me TerryW.

But you said this is a joint venture so how will this be structured? You may not want to put your cash into a joint offset account.

Good point. Basically we will buy the units together and have 1 loan with all rent going into one account. Then fortnightly or monthly - extract our income to our personal accounts. I just thought if we had an offset account, we would have the opportunity to perhaps park our rent in the account limiting the amount of interest to pay?

You would have paid down personal debt and be borrowing 104% of investment property price so you would be maximising tax deductions.

Could you kindly explain how you got to the 104% figure? I'm very interesting in learning how extracting equity from a PPOR loan (for deposit) will benefit the IP loan/tax/structure. As opposed to just using my personal cash as the deposit...

Cheers!

 

[Terry_w]

If there are 2 of you on the title then the loan and the offset will be joint names. Would you want him to have access to your money? Just rent may be ok, but holding your savings in there (which would normally benefit you) may be risky.

The 104% is full price plus purchase costs such as legals and stamp duty. May be slightly higher or lower depending...

 

[propatee]

If there are 2 of you on the title then the loan and the offset will be joint names. Would you want him to have access to your money? Just rent may be ok, but holding your savings in there (which would normally benefit you) may be risky.

The 104% is full price plus purchase costs such as legals and stamp duty. May be slightly higher or lower depending...

Yes this is true, I'll re-think structure to make it abit safer.

I've also just recently discovered that I can take out a margin loan against my shares with an LVR of 40%. I am unfamiliar with these but at first glance it appears the money can be used to fund a property deposit - similar to pulling equity from real estate...

Q. If possible, If I fund the deposit with my margin loan - would I be able to claim the tax on it? Therefore benefiting from the 104% purchase costs as you had mentioned?

Thanks Terry your a great help.

 

[propatee]

ps. I'm with nab online trading - it does not appear that they let you borrow against real estate with a margin loan? Does anyone know if that is the case, thankyou.