Using offset account

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From: Anonymous


A friend of mine recently advised that he
intended to buy his next property - which he
would live in as a principal residence, and
instead of paying the loan off (he had the
full amount - on a 300K property), he would
simply park it in an offset account. This
way he effectively paid no interest on his
principal place of residence, and when it
came to move to a different property in the
future, he would simply transfer the funds to
a new offset account -this time against the
new property. Also, this way, it allowed him
to retain the previous property as a geared
Investment property without the need to sell
it. Is this legal a legitimate process, &
what are the catches?? (It sounds too good to
be true)
 
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Sim

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Reply: 1
From: Sim' Hampel


If you have the cash to park in an offset account, then this strategy works brilliantly ! This is exactly what I was describing in this thread (the offset accounts, not the linked loans):

http://bne003w.server-web.com/~wb013/read?46977,30e#46977

I don't know of any ramifications. Offset accounts don't confuse the use of the funds like LOCs and redraw facilities do, so you can keep the ATO happy as well.

If anyone else can think of any problem with this strategy then please let us know !

The only real catch is that you need to have the cash in hand first ! That kind of cash is not a trivial amount of money, and many people would suggest could be put to better use funding additional growth IPs.

This, of course, is not advice, and I recommend you speak to a suitably qualified accountant before making any decisions


 
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Reply: 1.1
From: Anonymous


Sim

thanks for the response. I guess the main concern was that the tax man might consider that under the above scenario, because you converted your PPOR to an IP (with significant gearing), this might have been considered a form of tax avoidance - whereas I would think its purely a form of tax minimisation.
Extrapolating further on above theme the following was considered. Again - interested in anyones thoughts

step 1: purchase PPOR using IO loan, have 100% of value (or close to it) in offset account, thereby reducing interest to zero or close to. Hold for a period of time, purchase in wife's name. EG purchase for 300K , after 4 years worth 400K

step 2: Transfer PPOR to you (ie sell to partner), thereby tapping into any gain. ie wife's sells to you for 400K

Step 3: Wife purchases new property for 400K or more with funds which sit in a offset account. Use IO loan to purchase. Previous property becomes an IP fully geared, and new PPOR has little or no interest.

Step 4- repeat steps 2 & 3,for succesive properties that way, building number of IP's and maintaining a PPOR that keeps pace with any gains (acknowleding the obvious costs associated with buying and transferring assets).
Thoughts?
 
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Sim

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Reply: 1.1.1
From: Sim' Hampel


Sounds like a lot of hard work to me.

Try this:

1. Use your $300K to buy a well selected portfolio of properties in good locations to the value of around $3m, aiming to have the overall portfolio at least neutrally geared so there is minimal cost to you.

2. Wait 7-10 years, and you should have a portfolio of property that not only gives you an income, but is worth at least $6m, leaving you with over $3m worth of nett equity. Can you say "multimillionaire" ?

Boring, but a lot less effort ;-)

 
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Reply: 1.1.1.1
From: Anonymous


Sim - your obviously correct, however, I guess there is a trade off where on one hand you can buy xx investment properties (with capital gains expectation) and paying rent v's tying down a sum of money which offsets interest in your own PPOR, - which still enables you to borrow against your overall equity position anyways (perhaps to a slightly lower level)

The real question I had in mind was, is it legitimate to sell a property from one spouse to another in a PPOR, and then use that money to purchase a second property which becomes the next PPOR (the first property becoming an IP).
Also, would this sale be capital gains exempt - as it was the PPOR for both parties?

Appreciate yours and others feedback, regret if my questions are slightly wordy - it's all new to me
 
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