Loan Account Structure

[stumpie]

Hi Folks

I'd like some advice on the following.

We have a transactional account where rents gets credited and IP expenses and interest are debited from this account. Most of the time this account has sufficient funds from rent to cover the interest and IP expenses. Some months when the tenants fall behind there will be shortfalls.

We have some buffer cash released from equity from an IP in a split account. The intention is to use this cash as deposits and as a buffer to cover any shortfalls from to time. The books I've read and some threads on SS indicate that transferring cash from this split loan to a transaction account will lose the nexus to claim the interest expense from the split loan, is this correct?

How would you move the funds from the split loan account to the transaction account without causing raised eyebrows?

 

[Peter_Tersteeg]

The existing transaction account isn't secure for these purposes. Use a different transaction account used exclusively for the purpose of moving money out of the loan redraw.

Or you could change the loan type to a line of credit and make payments directly from that account. Some lenders regular investment loans also have this ability.

 

[Terry_w]

How would you move the funds from the split loan account to the transaction account without causing raised eyebrows?

I suggest you use a LOC to access equtiy. Otherwise you are going to end up with a mess and potentially lose the deductibility of interest and end up with a mixed purpose loan.

You should not be borrowing to pay interest either, but may want to borrow to pay expenses.

You could also use a IO loan to access equity if you can pay directly from the loan account.

If you do want to transfer from a loan to a savings account then make sure you use a completely clean account with no non borrowed funds.

 

[Jamie M]

We have some buffer cash released from equity from an IP in a split account. The intention is to use this cash as deposits and as a buffer to cover any shortfalls from to time.

Hiya Stumpie

Best to leave those surplus funds from the equity release sitting in that IP accounts redraw and use only for deductible purposes.

Cheers

Jamie

 

[D.T.]

If you do want to transfer from a loan to a savings account then make sure you use a completely clean account with no non borrowed funds.

You may also want to consider death and disablement?

 

[stumpie]

Thanks for the comments guys.

If I used the transaction acct for just the interest and if I use a dedicated credit card to pay for the IP expenses, can I payout the CC at the end of the month using funds from the split loan and claim the interest legitimately?

 

[Peter_Tersteeg]

As long as you're strict about the use of the CC, that should be fine. I know a number of people who do this sort of thing.

Ultimately though, it's best to discuss what you're doing in detail with your accountant.