New to IP

[gubbo]

Hey all.
I'm new here but have been avidly reading as much as possible from this forum to garner the awesome knowledge that you have accumulated here on this forum.

I feel as though I have been thinking a bit traditionally in my thinking and after reading how some forum members are conducting their finances I believe that I could be a bit more forward thinking and possibly purchase 1 or 2 IPs.

Current Situation!
We currently have a unit as a PPOR that is valued at around $550K.
We have about $60K outstanding on the loan (with about 200K in the offset acct). (We could have started a lot earlier it seems!)

My wife and I have a combined income of about 100-120K after tax.

Our intentions:
With our current 200K in cash, we should be able to put a deposit down on 1 or 2 IPs in the 300-400K range. Although this will increase our interest on our PPOR (bad debt) it will enable us to start building up our portfolio rather than waiting to pay off the loan on the PPOR.

Our current PPOR will in the end become another IP when the time is right which is why most of the cash is in our offset account.

Question:
Given our current scenario, is the above possible as well as a good plan of attack? We won't be going out and buying any property we see of course but definitely choosing properties that we believe will be a good investment.

Thanks for the help!

 

[wylie]

Sounds like a good idea to start with an IP. I will leave it up to those who have a better head for figures to comment on your actual plan.

With $200K in the offset against a loan of $60K I don't understand why you think you will be increasing your "bad" debt by using money from the offset account as deposit (unless I am mis-reading and missing something).

Am I correct that right now you are paying "nil" interest because of the offset funds. If you withdraw them wouldn't you be left with maximum $60K as "bad" debt?

The rest would be "good" debt? Or am I reading it incorrectly?

 

[jaycee]

He owes $260 k on his PPOR mortgage, but put $200k cash in a n offest account, so he is only paying interest on $60k. This interest on this is not tax deductable at the moment.

If he takes out the $200k, his PPOR loan balance = $260k again - would the interest become tax deductable ? Would you have to apportionate some of your PPOR loan interest to the IP ?

Is this correct ?

What is the benefit of putting the money in an offest account, rather than onto the mortgage with the ability to redraw ?

Sounds like you are in a good position to buy, I bought my IP with 106% loan & not much savings, thankfully it has been the no vacancy(!) which has hel0ped ove rthe last 3 1/2 years.. during which time, (by purce luck), it has grown by about 75%... Workin gout your goal wiill help you determine the types of properties to look for.. then, you can use the strategies & tips to make sure the one you choose is the righ tone for you... all good fun '& safe as houses'

 

[steveadl]

Gubbo, welcome to SS!

You wouldn't need to increase your PPOR 'bad' debt to get the IP's. You use the equity you have in your PPOR, but the new loans that are created are totally tax deductible.

 

[wylie]

I see my problem. If the loan is $260K but you have $200 sitting in offset then you should see one of the mortgage brokers on SS or elsewhere before deciding what to do.

You want to make sure that if you want to turn your PPOR into an IP in the future that you don't mess up the finances.

 

[skater]

I'm a little confused. You either have $260k remaining on you PPOR loan, or you have only $60k remaining. Either way, you have $200k in an offset account.

If your current PPOR is going to become an IP at a later date, change your payments to interest only. This will then become tax deductable when you make the switch.

Get a loan for all costs involved in your new IP, keep the cash you have in the offset for future use against what will ultimately be your PPOR. All new loans will be 100% tax deductable, so long as they are used for investment purposes.

 

[gubbo]

Hi there all. Sorry for the confusion!
We currently have a total of $260K outstanding on our loan but $200K in the offset account. The money is in the offset account as opposed to the mortgage itself with an option of redraw is just mainly due to how our accounts are currently setup and in the end there is no difference as we tend to do most of our transactions online which attracts zero charge either way.

skater - in terms of getting a loan for the costs of the IP in order to make sure that these are tax deductible, what would be the best way to do this? stevdadl has suggested taking a LOC on the equity of my current residence as one way of doing this(we should have above $150K there in additional equity from when we originally purchased our unit). Are there any other options to ensure that 100% of the money used on the IP will be tax deductible?

 

[skater]

A LOC is a good option, but why not have a chat with one of the brokers on the forum. They are certainly very knowledgeable & will help you out.