Debt Recycling related

Discussion in 'Accounting & Tax' started by Bravo, 17th Sep, 2021.

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  1. Bravo

    Bravo New Member

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    16th Sep, 2021
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    Hi guys,
    This question might have been answered before, however, I couldn't find the direct answer, so thought I better put it in a separate thread.
    I have 500k PPOR loan with offset that has 500k
    To use Debt Recycling, what would be the best approach (something simple but good)?

    Am planning to use funds to buy investment property (will use 300k for a deposit) and ETFs.
    My idea was to split my current loan into 4 loans and do the following
    Loan A with offset account. 50K (just to have it for the rainy day)
    Loan B. 300K. Pay it down by putting 300K into it and keeping it there till I find a property to buy.
    Loan C and Loan D. 75K each for investing in shares and EFTs. am thinking to do the same with these two, will pay out both by putting 75K into each of them and then reborrow using redraw. Will be redrawing in small chunks from these 75K loans, say in 10Ks

    Is this a doable scenario?
    Majority of recommendations here are about keeping extra funds in offset, paying down in full and then reborrow to invest, but in my case my funds in offset are already equal to the loan amount so I thought the best way would be to pay down and keep money inside the loan. Am not sure if I'm correct with that.
    Thanks,
    Julia
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Hi Julia

    Looks ok, and well done to be 100 % offset

    A little will depend on lender, and what they will allow, and what quirks they may have - for eg CBA loans auto close if paid down to zero

    Is the 300 for the total and costs of an IP or the the deposit and costs ?

    ta
    rolf
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    yes but some tax issues to consider as well as credit issues. broadly that is how it is done tho
     
  4. Bravo

    Bravo New Member

    Joined:
    16th Sep, 2021
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    Sydney
    Thanks gentlemen!
    @Terry_w and @Rolf Latham you guys are the best!

    Friend of mine recommended I put up a fresh thread in PropertyChat, and am so glad I did!

    1) Will need to talk to my lender, not sure yet what they allow, but at least I know know what I need. Worse case, I wont pay down to zero, will leave a few dollars behind.
    300k is for the deposit and costs, will need a second loan to buy IP (will be looking for properties around 1mil).
    At this stage I just want to have everything ready (hopefully the right way) before I start looking for IP.
    If I can achieve 100% of IP to be fully deductible, that would be super of course (300K redrawn from that split and around 700K new IP loan).
    My main stable block was I wasn't sure if for debt recycling approach "split, then pay down and keep money inside the sub loans until it's the right time to redraw and invest" would be the right approach. And also I wasn't sure if I could redraw in chunks (that's for EFT investments).

    2) Terry, thanks again for your reply and for confirming what I plan to do was correct. I haven't spoken to my accountant yet but it would be great if I could draw my accountant attention to the potential tax and credit issues. Could you please advise what did you have in mind when you said that? The more I know myself, the better.
    :)

    Top!

    Many thanks,

    Julia
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
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    Location:
    Australia wide
    I have written about 100 tax tips covering the various issues, have a read of some of those -
    Terry's Tax Tips
     
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