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From: Mike .


NOT A SIMPLE QUESTION?
From: PLL
Date: 6/17/00
Time: 5:08:27 PM

How can the purchase of additional IP's on interest only loans reduce your owner occupier loan? Please note you can't put all income generated from investment properties into your owner occupier because with increasing interest on your IP's that increase CAN NOT be claimed!!! Advise please.

 

[WebBoard]

Terry A

Reply: 1
From: Mike .


Re: NOT A SIMPLE QUESTION?
From: Terry A
Date: 6/18/00
Time: 1:09:00 AM

Hi PLL, I am a bit confused as to what you are saying. Any income from your IPs is yours to do with as you wish, pay off the owner occupied loan, go on a holiday, buy another IP. The interest on your IP cannot be offset against the owner occupied. The tax office has removed the split loan method promoted a few years ago to pay down your own home and capitalize the interest on your IP. I think this may be what you are trying to do.

I guess the short answer to your question is there is no easy (or legal)way that interest on IPs can be used to pay off an occupied home. But if you are cash flow positive then the extra cash can be used.

Good luck.

 

[WebBoard]

Pierre

Reply: 1.1
From: Mike .


A Simple Answer
From: Pierre
Date: 6/17/00
Time: 5:50:54 PM

You can really. You just need to set up your residential loan as a LOC. All your rental income goes into the LOC, and all your bills - including all your interest bills are paid from that account.

If your interest bill is due after your rent comes in, you will have had that rental income sitting in your LOC reducing the principal on your residential loan, thus reducing the interest paid on that residential loan.

As well, if you have positive cashflow from any IPs (or from the Cordial Mix - great term BTW), then all of that stays on your residential LOC.

So long as all the additional borrowed money is used to purchase income generating assets (such as property, shares, whatever), you will be able to claim all the interest on all the borrowings that are used to purchase those income generating assets.

Pierre

 

[WebBoard]

Les

Reply: 1.1.1
From: Mike .


Re: A Simple Answer
From: Les
Date: 6/17/00
Time: 11:26:15 PM

G'day Pierre,

Just a thought re your answer to PLL - although you can legally do that, I believe the "mixing" of IP and personal dollars in one account can be a nightmare (or a money-spinner for your accountant). I would think separate accounts would be almost MANDATORY to keep the IP and non-IP dollars apart.

I'd be interested in others' views on this one - the idea suggested by Pierre is great (and achievable) but I believe some caution is called for - and a structure that works. Any takers?

Les

 

[WebBoard]

Pierre

Reply: 1.1.1.1
From: Mike .


Re: A Simple Answer
From: Pierre
Date: 6/18/00
Time: 9:40:43 AM

Yes indeed Les, you are correct. You must ensure your IP portion of the money borrowed against your home is kept separate. Two ways:

1. Second mortgage secured against your own home for the equity bit. Note: this does not break the cross-collateralisation with own home rule because you have secured the debt against your own home - (pretty obvious).

2. Most lenders offer their LOC with an option to set up multiple accounts. St George have their 'Portfolio' product which allows up to 10 separate accounts in the one package. My NAB LOC has the option to split into two accounts, and my NAB Professional's Choice package allows you to have multiple accounts, all kept separately.

You can name the accounts "Residential Loan", "Investment Property", "Share Trading Account", "Buy new Boat Loan" etc etc, and they all come under the one Portfolio. Each portion is considered separate, and each has a separate statement. Easy way to keep the numbers tidy.

I wrote about this back in the Line of Credit Vs Offset discussion started by Helen on 5/23/00.

As I have said before, if your lender cant set up your finances as you would like them to, change lenders.

Pierre