Current Situation:
PPOR:
value=$550,000
loan=$250,000 P/I
balance=$0
redraw avaliable=$230,000
cash in bank=$42,000
tax bracket=30%
Let's say I want to buy an IP worth $420,000
Options I can think of
1.
a.Redraw $94,000 (20% of $94,000+cost $10,000) from PPOR loan
b.Take out UBank (interest only) variable loan of $420,[email protected]%
2.
a.Discharge PPOR loan (need to pay $600-$1000 loan discharge fee)
b.Take an equity loan of $440,000 (80% of $550,000 value)
-> this will also be used to fund future IP purchases (20% depost+cost)
c.Take out UBank (interest only) variable loan of $420,[email protected]%
Q. Which options give me most tax effectiveness, future IP purchase possibility?
I was advices by a homeloan broker that I need a LOC (of small limit, say $10,000) for depositing rent and pay interests.
Q. Is this the way to go?
In both cases, I will not use the $42,000 to pay for IP deposit. Instead, I put $42,000 into a high interest transaction ccount (5.8%) under my spouse name (not working) to take advantage of $6000 threshold.
Q. Is this a sensible choice as far as tax effectiveness is concerned?
Thanks for your help and suggestions
I don't know about tax effectiveness but I was told to concentrate on wealth building.
So to me the interest rate is somewhat important but it really depends on your goals and what you wish to achieve.
If you plan to buy one IP then perhaps concentrating on detail (interest) is the way to go but if you wish to buy more perhaps a lender which would re-value the IPs more favourably or allow greater LVR may be more suitable.
So it all comes back to what are you planning to achieve?
Few % points don't matter to me if the lender will disclose the valuation and allow greater loan amounts if you wish to duplicate (if you are in the accumulation phase of wealth building) or is more flexible with the product (offset accounts, etc...).
I just thought I will add this point to consider.....
Also a LOC is useful incase of challenges/hardships/emergencies. You could use this buffer to maintain your lifestyle and hope that during that time your IPs would increase in value.
Many people at initial stages find they are too -ve geared and may have longer vacancies or unforseen repairs or loose a job, etc.... LOC is like a contingency plan if you do not have any savings..... or startegy to help during those times.