Redraw or LOC ?

From: Geoff Donges


G'day fellow Property investors

Seeking opinions, not advice. My situation:
At the time the mortgage on my PPOR was down to $45 with 92G available in the redraw facility.
Bought IP1 in Dec, 2br unit in Canberra, borrowed 90% & used redraw from PPOR mortgage for 10% deposit & costs ((interest claimable as for IP, I believe)(no costs for using redraw)).
I will have the mortgage on PPOR back to $0 before purchasing IP2 in early new financial year.

Question: If I did this again for IP3 while still paying down the redraw for IP2, would I need to keep the interest being paid on the redraw's separate for tax reasons or not? (All the interest on the redraw's would be for IP's & I believe it would be very difficult for me to separate the proportional amounts of interest for each redraw).
Would it be better to discharge the PPOR mortgage then get a LOC set up on 80% of PPOR? I don't know anything about LOC's but I assume it would be no different from using the redraw facility unless you can keep the different redraw's/drawdown's(?) separate for each IP, if that's the answer to the above question.
My loans have been with one of the "Mortgage Originators" as Jan Somers calls them & I don't know if they do LOC's, so then I would probably have to use my Traditional Bank for this option.

Any & all opinions welcome, thanks.
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Reply: 1
From: Rolf Latham

Hi Geoff

You need to ask your tax advisor.

I he/she is happy then go on your merry way using redraws, achieves the same as a new LOC in most cases.

May be opportune to have a reval and analysis done anyway, since if you ar using one of the Managers you may find better options in terms of cost and flexibility.


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Reply: 2
From: Dale Gatherum-Goss

HI Geoff!

No, you do not need to do anything different for tax purposes. The situation that you describe is common enough and poses no problems at all.

I would though, keep good records to make the apportionment easy enough to follow as accountants are not too bright sometimes.

Have fun

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Reply: 3
From: Geoff Donges

Thanks Rolf & Dale for clarifying this for me.
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