Loc Funding

Hello overyone,
I am in the process of rearranging my finances and would like your opinion on the following proposal.
My husband and I intend on financing our 4 IPs with IO loans and our PPOR with a LOC. Rental return from the other 4 properties will be paid directly into the LOC loan and the idea is that these payments assist to reduce our LOC account and hence the amount we will end paying for our own home. Our cheque accounts will be linked to the LOC account and mortgage payments will be made from here.
Your thoughts would be appreciated.
I'm new at this game.
Hils.
 
Hi Hils

Excellent Idea !

In addition to that consider the following with approval form your tax advisor.

BORROW all our ongoing running costs for the IPS, this means a little fiddling with your structure but can make big difference to the term of our PPOR loan.

Also, a Line of Credit Product per say is not required to achieve what you want. I dont what you are doing and with whom, but in many cases an offset acct structure is much cheaper on rate, meansing a dollar saved is commonly worth near 2 dollars earned.

There are other mehtods to pay off your PPOR debt more quickly that have been discussed at much length in both previous incarnations of the forum including capitalisation of IP interest, and a few hybrid systems, but without specifics its hard to comment what may work.

Have a great time.

Ta

Rolf
 
Originally posted by Rolf Latham
BORROW all our ongoing running costs for the IPS, this means a little fiddling with your structure but can make big difference to the term of our PPOR loan.
Hi Rolf,

Can you expand on this idea a bit?

I'm assuming you mean that, if you have the equity, you borrow more than you need and stick the balance in an account to pay the interest on the loan. So as an example -

IP value = $150k
Current Loan = $100k
Refinance to $120k
Stick the extra $20k in a bank account to pay the interest on $120k loan each month.

Say the interest rate was 6% IO then this would be $600pm and the $20k would last for 33 months. If the bank account was offset against the loan then it would last even longer. How am I doing?

I guess the only question is "Is the interest on the $20k tax deductable?". I say "Yes" as the only reason if was borrowed was to support the loan for an income producing asset. Over to you Dale...
 
Hi Owen

Nah

Im on about the ogoing costs associted with an investment property, rates, maintenance, ongoing capital costs etc.

If you have a portfolio of a few then this can really bite into the amount of money that is parked against your PPOR mortgage.

So, if you have the equity you borrow them.

Once again, please defer to your own tax adviser.

ta

Rolf
 
Hi Rolf,

I've seen you mention this idea before and I think it is a wonderful piece of lateral thinking to use the increasing equity in one's home to fund the principal reduction.

However, two hurdles to overcome are:

1) Professional property managers have their bookkeeping and accounting systems in place to deduct expenses from the rent income. Try get them to do something different like what you suggested or to pay net income into your account fortnightly and it's a case of "I'm sorry, no."

2) If you set up a $20,000 LOC to fund expenses, as you suggested, when it comes time to do your balance sheet for the next IP loan, guess what? The whole $20,000 goes into the liability column. Thereby, reducing your borrowing capacity.

If there are any workable ways to overcome these hurdles the idea looks even better.

Regards, Mike
 
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