Question from beginner

Hi all, long time viewer first time poster

I am extremely interested in property investment, and having recently graduated from university and securing a half decent graduate position i am looking at getting my feet wet in property investment however have a few questions.

Basically i have accrued approximately 25k whilst at uni and once i hit 30k are looking at buying my first IP (whilst still living at home). I am thinking of structuring this as an IO loan with an offset account attached. The interest payments and costs associated being taxed deductible (simple enough yes)

Anyways, 12-18months after this i will be looking at buying myself a PPOR. This is where i am a bit lost. By this stage i am hoping to have accrued 45K-ish in the offset account. (I am not interested in X coll as it is far to risky for my liking). If i pull the 45K out of the offset for a deposit for the PPOR the interest on the IO loan will shoot up so will i still be able to claim this larger amount as a tax deduction?

Should i structure the PPOR as an I+P loan and attached another offset account to this?

Any other suggestionswould be greatly appeciated

Or am i just dreaming and my aspirations out of reach atm?
 
Hi all, long time viewer first time poster


If i pull the 45K out of the offset for a deposit for the PPOR the interest on the IO loan will shoot up so will i still be able to claim this larger amount as a tax deduction?

Should i structure the PPOR as an I+P loan and attached another offset account to this?

My understanding, (check with an accountant) is that yes the interest would be tax deductable being that the funds are held in an offset account.

Being that they are held in an offset account means that the loan has not been paid down.

Lets see what some of the other poster's have to say?

With setting the PPOR as an IP loan you could do this if you think you may later convert your PPOR to an intestment.

Regards,
 
Hi Deakin, welcome to the forum, no your aspirations are not out of reach, go for it.

I agree with Alex, since the money in the offset account is never used to actually pay down the IP loan the entire loan will remain tax deductible.
 
not answering your question, but if you have built up 25k while at uni I think I will be reading about you in 10 years, respect..........
 
G'day Deakin,

You time spent reading the forums has paid off as you seem to have grasped the basics well. Your long term goals for the PPOR would need to be looked at when talking about P & I or IO.
It may be wise to look at your servicing ability for both the IP & future PPOR befoe committing to the IP in case it restricts your ability to purchase PPOR later on. That's of course if the PPOR is a "must" goal.



Regards
Steve
 
sounds like accurate information from the above posters

my two cents are w.r.t. your PPOR loan setup - P&I would be the way to go, and to smash down that (non tax-deductable) principal asap. Question is, is a Redraw-only account enough, or should you go for the Offset flexibility?

I know it's hard to predict, but you'll have to consider the longterm future of this PPOR... If you think you'll be living in it for a long time and will eventually pay it off whilst living there, or think you'll sell it to buy your next PPOR (either way, not turn this property into an IP), then a Redraw could be a more cost-effective option as they tend to have better interest rates & lower fees. You'd still get the features off the Offset account, except you can't pull out the "savings" funds to use towards a new PPOR and turn your first PPOR into an IP AND claim tax on the interest from this recent IP (only the portion of interest you had left upon turning it into an IP).
Not sure if that made any sense :p


.....not 100% sure about what i've written above, so if you have any questions on it, perhaps talk to a MB and/or Tax agent

good work on finishing uni in the the black too!
 
thanks for all the quick replies everyone, has really lifted my confidence in something i have been working towards! Really getting into the nuts and bolts of it:

Furthermore i would like to seek some opinions on my chances of securing a mortgage given that i will have only been working casual whilst at uni?...stupid subprime crisis!

Also if a PPOR is converted into an IP for tax purposes, does the interest now become tax deductible? (i was under the impression that the loan retained its original character, being non income earning)

Finally, i know this is a bit technical BUT ill ask anyways (P.S. Please take this as naivity rather than possible tax avoidance lol).
I am planning on doing a reno to add value to my IP however i know that under tax law any initial maintenance costs incurred on a property the ATO dont like as being on revenue account however what are the chances they will come after something like this? or should i just suck and up an allow it to for part of my cost base for cgt purposes?

thanks guys!
 
thanks for all the quick replies everyone, has really lifted my confidence in something i have been working towards! Really getting into the nuts and bolts of it:
Deakin, Well done! It is good to see someone young making the right steps towards Property Investing. Like you I started investing into property a year ago whilst at uni and living at home. My only advice is that you get a good team together eg. Mortgage broker, accountant etc.. and do allot of research as knowledge is power.

Furthermore i would like to seek some opinions on my chances of securing a mortgage given that i will have only been working casual whilst at uni?...stupid subprime crisis!
Don't quote me on this but I think the banks usually let you borrow approx. 7times your salary/wages. I could be wrong and there's a number of mortgage brokers on this fourm which may help you out.

Also if a PPOR is converted into an IP for tax purposes, does the interest now become tax deductible? (i was under the impression that the loan retained its original character, being non income earning)
The interest will be deductible for the duration it earned the rental income. i.e. it gets apportioned by the number of days it was PPoR and IP. This is also how they calc the CGT when the time comes to sell it.

Finally, i know this is a bit technical BUT ill ask anyways (P.S. Please take this as naivity rather than possible tax avoidance lol).
I am planning on doing a reno to add value to my IP however i know that under tax law any initial maintenance costs incurred on a property the ATO dont like as being on revenue account however what are the chances they will come after something like this? or should i just suck and up an allow it to for part of my cost base for cgt purposes?
Ask your accountant


thanks guys!

Best of luck!
 
I am planning on doing a reno to add value to my IP however i know that under tax law any initial maintenance costs incurred on a property the ATO dont like as being on revenue account however what are the chances they will come after something like this? or should i just suck and up an allow it to for part of my cost base for cgt purposes?

Well done on getting to this stage Deakin, you're well ahead of your peers.

The above scenario is pretty easy for the ATO to detect right? In your tax return you will be claiming the purchase of the IP and you would also be claiming the "initial maintenance costs". Not very hard to see that it would easily set off alarm bells. Better just to call them improvements and depreciate them instead rather than come to grief.

At the end of the day you are only claiming the maintenance costs at your marginal tax rate. Unless you do a huge reno the figure you would get back wouldn't be worth the trouble compared to depreciating the improvements.

Gools
 
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