Bills IP

[Tranquilo]

How do you pay your bills for IP's such as rates, water, and anything the rental income doesn't cover. Do you borrow these funds also, or just have to pay out of your pocket.

 

[wylie]

You can borrow to pay bills for IPs (i.e. can draw down on an investment loan) or pay from your own pocket.

 

[Tranquilo]

Thanks Wylie. I'm still a little lost how do you mean draw down on investment loan.

 

[srini]

You can have a Line of Credit setup against each property that you can borrow money from to pay expenses.

I'm a bit unclear about the tax implications of doing that vs. paying out of your PAYG income. Maybe others will jump in and explain it better.

 

[Terry_w]

Good idea to borrow for investment expenses and free up cash to pay for non investment expesnses which are not deductible.

 

[Moneyman_85]

I pay on credit card or from cash in offset

 

[srini]

Say, I have council rates of $1500. If I borrow that from a LoC and pay 5% interest ($75 per year), can I then claim the $1500 and $75 on tax?

I suspect not. So, the reason you'd do this is to pay off non-deductible debt first?

Thanks
Srini

 

[Rhinsor]

What about if I got an investment loan for $310,000 but all the property costs were $300,000.

Can I then just pay all investment bills from the money in that account and continue to deduct the interest?

 

[Tranquilo]

Ok thanks everyone. But to what srini has said (maybe I'm not understanding) but if you borrow the rates its not deductible.

So I should try to borrow anything that my rental income doesn't cover like short IO payments, rates, water rates, landlord insurance ect?.

So what is the best way to do this? LOC and do you have to pay LMI if you take LOC from equity.

Please explain like I'm an 10 year old child lol.

 

[Rixter]

My PM pays the IP expenses each month from rent collected and deposits the balance in an investment LOC. Each month the IP loan interest is automatically deducted from the same investment LOC & deposited across to the IP loan.

 

[Terry_w]

Say, I have council rates of $1500. If I borrow that from a LoC and pay 5% interest ($75 per year), can I then claim the $1500 and $75 on tax?

I suspect not. So, the reason you'd do this is to pay off non-deductible debt first?

Thanks
Srini

You can claim the rates and the interest.

 

[Terry_w]

What about if I got an investment loan for $310,000 but all the property costs were $300,000.

Can I then just pay all investment bills from the money in that account and continue to deduct the interest?

Where has the extra $10k gone? if you have $10k in redraw then you could borrow to pay expenses on the investment. Just don't transfer to a savings account, even briefly.

 

[Terry_w]

My PM pays the IP expenses each month from rent collected and deposits the balance in an investment LOC. Each month the IP loan interest is automatically deducted from the same investment LOC & deposited across to the IP loan.

If you have non deductible debt it would be better for you to pay your own expenses directly by borrowing. Pay off the home loan sooner.

 

[Terry_w]

Ok thanks everyone. But to what srini has said (maybe I'm not understanding) but if you borrow the rates its not deductible.

So I should try to borrow anything that my rental income doesn't cover like short IO payments, rates, water rates, landlord insurance ect?.

So what is the best way to do this? LOC and do you have to pay LMI if you take LOC from equity.

Please explain like I'm an 10 year old child lol.

Set up a LOC and borrow to pay all investment expense except interest.
Don't use this LOC for any personal expenses.

 

[Tranquilo]

Thanks Terry and Rixter. I'm starting to understand. With the LOC is that going to cost like LMI to take out. And do you take out that LOC against the IP that you want to pay expenses.

 

[Terry_w]

Thanks Terry and Rixter. I'm starting to understand. With the LOC is that going to cost like LMI to take out. And do you take out that LOC against the IP that you want to pay expenses.

You would generally take out the LOC up to 80% LVR so no LMI. Doesn't matter what it is secured on.

 

[Tranquilo]

I'm not in a position to have 80% LVR. But when I borrowed the equity form my PPOR to pay for the deposit for the IP I didn't use all of it. Can I draw on that to pay some expenses?

 

[Moneyman_85]

My PM pays the IP expenses each month from rent collected and deposits the balance in an investment LOC. Each month the IP loan interest is automatically deducted from the same investment LOC & deposited across to the IP loan.

Is this sort of debt recycling? (Except the excess rent is topping up the LOC)

 

[Rixter]

If you have non deductible debt it would be better for you to pay your own expenses directly by borrowing. Pay off the home loan sooner.

I am effectively using borrowed funds to pay all the IP expenses including interest. By default, any shortfall difference between rent deposited into the investment LOC & IP expenses including IP loan interest simply capitalises and increases the LOC balance for the month.

 

[Rixter]

Is this sort of debt recycling? (Except the excess rent is topping up the LOC)

Sort of Debt recycling but you can demonstrate to the ATO (should they come calling) the rental income is being deposited into it and not being directed into your PPOR loan instead.