starter IP help - advised needed for loan structure

Hi,

I currently have

a PPOR loan of 300k
offset account on PPOR of around 40k

I have intend to purchase an IP. now here is the headache trying to min cost/max profit, tax return

if i intend to use the spare say 40k from my offset account to jumpstart my first IP to pay off any stamp duty or any other cost involved. Due to this, PPOR loan via offset will increase by 40k. is that interest on that 40k from my PPOR tax deductable since that 40k is used for investment?

after some reading, i know that i should max the loan amount on IP and min the loan on PPOR.

cheers,
Scott
 
Hiya MFG

hard to give more than a little general advice without some of the other numbers such as value of prperty etc.

I would generally advise that you either

1. Hold onto the 40 k in the offset and borrow the 40 k from the PPOR if you have the equity

or

2. Insert a 40 k loan split into the current loan, thus you have a 260 and a 40 k split. pay down the 40 k split and then redraw it for the IP purchase.


Both of those options mean that you will have 40 k LESS ppor debt, this shifting more debt to the new ppor,

If you spend your 40 k tax paid savings, it is probably not as effective

ta
rolf
 
hi,

i think that the value of the PPOR is around 460k-500k. are you suggesting that bank in fact is ok the lend me say 40k to finance the inital startup cost? does that mean that i am getting an IP that is 110% financed by bank or sources other than my own $?

cheers
Scott
 
Hiya MFG

Perhaps, we dont know the other detials, or if its actually suitable for you, but on the surface a strong YES says that the lender may lend you the purchase price plus costs.

Dont just rely on what your existing lender puts on the table for you.

Seek a chat with a good independent broker to see how to structure your needs so as to provide maximum benefit for you.

ta
rolf
 
Hi,

I currently have

a PPOR loan of 300k
offset account on PPOR of around 40k

I have intend to purchase an IP. now here is the headache trying to min cost/max profit, tax return

if i intend to use the spare say 40k from my offset account to jumpstart my first IP to pay off any stamp duty or any other cost involved. Due to this, PPOR loan via offset will increase by 40k. is that interest on that 40k from my PPOR tax deductable since that 40k is used for investment?

after some reading, i know that i should max the loan amount on IP and min the loan on PPOR.

cheers,
Scott

That extra $40k when withdrawn from the offset is NOT tax deductible for interest when you use it for your IP.

The $40k sitting in the offset account is savings.

You cannot borrow from yourself.

Cheers,

Rob
 
hi,

i think that the value of the PPOR is around 460k-500k. are you suggesting that bank in fact is ok the lend me say 40k to finance the inital startup cost? does that mean that i am getting an IP that is 110% financed by bank or sources other than my own $?

cheers
Scott

Your bank will lend you the start up costs etc BUT they will want your PPOR as security. So both the PPOR and the IP will be cross collaterised.
Be careful here.
 
Hi travelbug,


"Your bank will lend you the start up costs etc BUT they will want your PPOR as security. So both the PPOR and the IP will be cross collaterised.
Be careful here."

in this case, what are the pros and cons here?

cheers,
Scott
 
Agree there are advantages and disadvantages (as I found out by doing it the wrong way).
There is lots of info on here about it.
Search cross coll.

My mistake was I borrowed the lot (from my PPOR) for one IP instead of just borrowing for the deposit and other costs, then having a separate loan for the IP.

It will be sorted as my IP's gain equity. Also I am paying down the debt at the moment (until I buy more IP's anyway).
 
That extra $40k when withdrawn from the offset is NOT tax deductible for interest when you use it for your IP.

The $40k sitting in the offset account is savings.

You cannot borrow from yourself.

Cheers,

Rob

What if the $40k is from borrowed funds (from the bank) ? can it still be deductible ?

For example; a PPOR with a loan balance of $250k from bank A then refinanced to bank B for loan amount of $290k which is split into two loan accounts $250k and $40k. Each account has its own offset account. The extra $40k (from the equity) is drawdown into its offset account. Then, the $40k (from the offset account) is used for IP-related expenses. Is the interest on the $40k loan deductible ?

Can anyone please shed any lights on this scenario?
 
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