Well after a few late nights studying websites on tax I have come to a decision. I probably should have mentioned in my original post I have had a LOC loan against my PPOR from 2010 when it was still an IP. I had intended to use the LOC to buy shares or cattle but never went through with either, it has been sitting there pretty much unused for two years. It had never occurred to me it was just as capable of being used to buy another IP ..... DDD-UUHHHH.
The new plan, and I open this up to all for comment and advice, is -
Current PPOR worth 420k, loan of 210k which has an offset facility, and a LOC of 120k. Intention is to move out of PPOR and rent in closer to work.
I will use that LOC to fund at least a 20% deposit (no mortgage insurance) on an IP which I am currently in negotiations on a couple valued 450-500k.
I have given away the ideas of who buys what in who's name with the wife, after putting numbers through various calculators it makes bugger all difference really, and is far less complicated, so its 50/50 splits. Also, in the future, her wage is likely to increase anyway.
If I have understood things better now, I will then be able to claim the interest on all of these loans 100% as tax deductible.
I will maintain the offset on the original 210k loan on the PPOR and all income (wages and rent) will be directed into that offset. When we feel the time is right we will either acquire another IP or PPOR using (hopefully) all that money we have in the offset.
Have I got this right yet?
Get an upfront valuation done with a few lenders to understand the equity available. Its quick, free and if satisfactory you can use it in the application.
Assuming that the property is worth $420k and you have a loan of $210k - you have $126k in equity at an 80% lend. I would opt for a standard variable loan rather than a LOC. Does the same job and its cheaper.
If you are buying something for $500k then you will need $110k deposit to stay under 80% so the equity in the property should cover it.
Make sure the loans are as follows:
Existing Property:
Loan 1 = $210k (covers existing property)
Loan 2 = $126k (covers new purchase)
New Property:
Loan 1 = $400k
Make sure they are standalone and not cross securitised.
Regards
Shahin