Best use of Funds - Offset or Shares

OK,

So trying to get my head around this and I think I have the understanding right but just wanted to check amongst the forum.

What is the best use of excess funds - Offset or Shares?

Now I know its not a perfect world but for the sake of comparison, some assumptions need to be made

IP Loan of $500,000 at 5% with $100,000 in an offset means you are paying interest on $400,000 or $20,000 a year. Is it correct to say that the $100,000 is flat and doesn't rise with inflation?

Now take that offset and invest in Fully Franked Aus Shares paying 3.8% Dividend and has a expected capital growth of just 1%. The extra interest you pay by not having these funds in the offset is $5000, but the income you receive is $5,430 and capital growth (something you don't get when it is in the offset) is $100, so you are ahead by $530 p.a.

I know there are views of property vs shares and there are risks associated with each, but is my understanding of the above correct?

Thanks all

 

1% of 100,000 is 1,000, not 100.

Also wouldn't your dividend income be $3,800 ?

 

Don't forget the interest could be deductible if the loan is an investment.

 

3.8% grossed up is 5.43%

You are right on the 1% of $100,000 = $1,000. Must have missed a zero. thanks

 

Yep - loan is Investment. I understand that the interest payable against the loan should be offset by the income from the shares

 

Care to share so that I may look into these? Thank you

 

^ citation needed

Re REIT check out CIP CMW & BWR plus whatever Y-man has for you

 

Many thanks all

 

Both, reduce NTD first, then adjust loans, then re-invest spare equity created (TD purpose debt recycling).

No advice

 

This may be the best way, but it would depend on the circumstances. He maybe holding the cash for a future main residence purchase for example.

 

Yep all true Terry

As you and I know there are other more extended answers with further leverage all sorts of great bells and whistles too

Just noticed also in the OP the offset is for IP & deductible, sorry in my previous answer I missed that and thought it was NTD so would be clearly more beneficial if that was the case.