We need your help pls smart foxes on SS

[NPK]

Dear smart minds on SS,

Background information:

We own totally our house which valued at 300k.
Our 1st investment property valued at 400k. The loan of this IP is 130k with an offset account attached. There is 90k in the offset account at the moment. Now we want to go for another investment property but still want to have some cash for other things in the near future.

Our question:
Can we borrow 100k against our principle property to buy 2sd IP or do we have to use the money in the offset account to do it? Will tax office question if we do not use money in the offset account to purchase but borrow against our house to buy the 2sd IP.


Thanks heaps.
NPK

 

[D.T.]

Depends on a few things

Here's what i'd do.
Take 300K ppor up to 240k of borrowings.
Take 400k IP1 up to 320k of borrowings

This gives you 430k to play with (240+320 - 130)

You can then use that as 20% deposit on 4 more similarly valued IPs. Get separate loan for each.

 

[Peter_Tersteeg]

Use the equity in the IP. There's quite a bit available there and most people prefer to use the equity in an IP before leveraging their own home.

In this scenario I can't see that using money in the offset account or using your equity would change the overall tax deduction amounts so I can't imagine that there'd be a problem with the ATO (never heard of the ATO having a problem with not using cash in any scenario BTW).

Better to use equity rather than your own savings.

 

[NPK]

Depends on a few things

Here's what i'd do.
Take 300K ppor up to 240k of borrowings.
Take 400k IP1 up to 320k of borrowings

This gives you 430k to play with (240+320 - 130)

You can then use that as 20% deposit on 4 more similarly valued IPs. Get separate loan for each.

Thanks for your quick reply. We know that we have a lot of equity to play with. But we are quite old now (47 and hubby is 52) so we do not want to play hard just in case it is not going to work. If we are 10 years younger then yes definitely we would follow your path.
Cheers

 

[NPK]

Use the equity in the IP. There's quite a bit available there and most people prefer to use the equity in an IP before leveraging their own home.

In this scenario I can't see that using money in the offset account or using your equity would change the overall tax deduction amounts so I can't imagine that there'd be a problem with the ATO (never heard of the ATO having a problem with not using cash in any scenario BTW).

Better to use equity rather than your own savings.

Precisely what I wanted to know. Thanks heaps.

 

[Rolf Latham]

Thanks for your quick reply. We know that we have a lot of equity to play with. But we are quite old now (47 and hubby is 52)

old ??

in what way

ta
rolf

 

[Blacky]

old ??

in what way

ta
rolf

47 and 52.... yep - well over the hill.

 

[Jamie M]

Pretty sure Pete's written deals for 70 year olds

Come to think of it - I think my oldest client is around that age.

It's all about having a risk mitigation and exit strategy OP.

Having said that - I wouldn't consider you old in any sense.

Cheers

Jamie

 

[NPK]

Pretty sure Pete's written deals for 70 year olds

Come to think of it - I think my oldest client is around that age.

It's all about having a risk mitigation and exit strategy OP.

Having said that - I wouldn't consider you old in any sense.

Cheers

Jamie

Like Blacky said we are both well over the hill. But it is still nice to hear that we are not considered old in your and Rolf's eyes. Not too bad if compared to 60 or 70s but definitely too old if things went wrong and we have to start from scratch again. We therefore choose to be more conservative.

 

[Rolf Latham]

Pretty sure Pete's written deals for 70 year olds

84 with a 30 yr loan term.........

But I think the OP has other ( valid for them ) risk profile issues.

ta
rolf

 

[Rolf Latham]

Not too bad if compared to 60 or 70s but definitely too old if things went wrong and we have to start from scratch again. We therefore choose to be more conservative.

And this is a good choice.

What sort of things could go wrong.

this is a discussion I have with clients every day as we flesh out their risk profiles and reason for same

ta
rolf

 

[knightm]

And this is a good choice.

What sort of things could go wrong.

this is a discussion I have with clients every day as we flesh out their risk profiles and reason for same

ta
rolf

Agreed its worth being careful, but also not taking action has an opportunity cost (that many folk don't take into account - the risk of doing nothing)

I would say with careful planning, sensible loan products (including plenty of buffer $ in accounts you can access) and good value properties with reasonable cash flow in a few decent locations and your risk will be mitigated.

If I were you (at any age but with your planning comments) I would be thinking the biggest risk is loss of employment which impacts on servicing debt. For this reason the buffers and the cash flow equation of the properties purchased are 2 critical questions. Solve them and you can move forward with confidence.