is this feasible

[Jen]

I hope this isn't a dumb question, but what the heck....
We own a property outright i.e no loan on it. I originally wanted to get a LOC against it so I could use the LOC for deposits on properties etc ...but I was thinking that it would be better to have an offset account so that we can park our salaries into it & withdraw money for various reasons without the messiness of a LOC. Is it possible to get a loan (with an offset account) against the house for "investments" but not have any specific property in mind, then use the borrowed funds to park in the offset account until needed?

 

[Simon]

Absolutely.

 

[quiggles]

The only caution I would add is that you should avoid using the same loan for personal and investment purposes - keeping the loan 'untainted' keeps the taxman off your back. This is a general caution, rather than specific advice and is only meant to make your life easier.

 

[Jen]

Thanks for your advice. I appreciate it
Simon, I assume the "absolutely" is for the loan being feasible & not the question being dumb!
Quiggles, once the loan has been parked back into the offset account,my initial reasons for taking money out of it would be as a deposit for real estate but the reason why I wanted an offset account rather than a LOC is so I can put salary in & out at a later stage for whatever reason & still have the interest as being deemed to be from an investment loan and therefore claimable. If I still have to distinguish between personal & private usage, then I can't see any advantage of a LOC over an offset account.
I hope my explanation is clear

 

[Simon]

Sorry for such a brief answer - but yes it is very feasible

Cheers,

 

[Richard Hunt]

I don't believe this is a particularly prudent course of action because it interposes an extra layer of complexity into the property acquistion transaction that may raise arguments about the deductibility of the borrowings.

For example, the initial "parking" of loan funds into the offset account (a non-interest bearing account) and the length of time these funds remain parked before the acquisition of the property may allow "at the very least" the proposition that their was more than one purpose for the borrowings, which may raise an expectation that their should be some apportionment of the interest expense between deductible and "other" purposes.

I'm not saying this is the better argument but why would you expose yourself to this risk when you can achieve your desired outcome (without the inherent tax risk) by simply drawing down on a LOC at the time of purchase and switching this amount into a loan with an attached offset account at a time when you have excess funds to deposit in the offset account.

Hope this helps.

 

[Jen]

I'm not saying this is the better argument but why would you expose yourself to this risk when you can achieve your desired outcome (without the inherent tax risk) by simply drawing down on a LOC at the time of purchase and switching this amount into a loan with an attached offset account at a time when you have excess funds to deposit in the offset account.

Thanks Richard for your advice. I don't really understand what the above comment is saying. If I set up a LOC and then draw down for the deposit on a property....then what happens?! Sorry but I'm not the most savvy financial person

 

[Richard Hunt]

All I'm saying is that the financing of an IP purchase by drawing down funds from a LOC and subsequently refinacing into a "loan with an attached offset a/c", is a less riskier proposition than your proposal to initially draw down funds from a loan, deposit them into an offset a/c and subsequently draw down the funds in the offset a/c to fund a future IP purchase.

Both financing methods give you the immediate access to loan funds you desire to move quickly on an IP purchase and utilise the ongoing benefits an offset a/c provides. However, the method you propose does introduce some uncertainy about the deductibility of the interest incurred on the initial borrowings.

 

[NicW]

Jen and Richard,

I believe I am in the same predicament as you (Jen), so did not want to start a new thread to discuss the same topic.

I have an offset acount on my PPOR loan with about 17K left to pay. I am looking at getting my first IP very soon, using 20% plus costs from my current equity.

I assume from the comments in this thread, that I would be best to leave the offset for my pay to go into and open a line of credit for the 20%plus costs on the PPOR.

Is that what you are saying?

thanks,

Nic.

 

[Rolf Latham]

Hiya

Jen

Best of both worlds if you are concerned about implications of mixing your money with borrowed money is to use a progressive draw loan, with offset acct.

Draw enough to pay for the establishment fees and gov charges and leave the rest undrawn until you need it.

A little overly complex, but if you do have a concern with tax issues then thats one way around.

The other is to simply have the LOC on your place and get an Offset loan on the other place and park your own cash in that.

Nic

Yours is a little more common, and in your case one would use SEPARATE loc to pull the equity required, and as much as feasbale leave your current PPOR loan as is with the offset attached and all positive cash flows to end up in your offset acct acting on your non-deductibel debt


Ta

rolf

 

[NicW]

Rolf,

SEPARATE LOC - does it have to be with a different lender? I was thinking of having it with my current Westpac package, and having the IP loan (80%) with a different lender altogether.

NOTE - I expect to pay my PPOR loan of by the end of the year also.

thanks,

Nic.

 

[Rolf Latham]

Hiya Nic

The loc is with westpac, just a separate acct from the home loan.

No huge risk with having the new 80 % IP loan with them either in most circumstances.

If you have the new 80 % loan with another lender, it will buy you a little time if things go pear shaped though.

ta
rolf

 

[NicW]

Thanks Rolf.

I will certainly consider Westpac for it. It will be interesting to see what Napier Finance offer, being the preferred finance group that Lancer use. I expect there deal could not better what I have already by much, and I have the advantage of paying of the PPOR loan at the end of the year and moving the offset account across to the IP LOC or loan then.