Hi everyone, I have 2 x IP's. And currently have about $50K in an offset account. The first IP I used equity to finance the second IP. A split loan was created to do this. 1st IP - Loan 1 $240K, Loan 2 $30K 2nd IP - Loan $550K I'm sure this has been asked before, but can I pay down the $30K loan in IP 1 (to say $1) and then use the re-draw of $30K as a deposit for another IP or PPOR? Even though this loan was used as part of the deposit for the IP 2? Or is that cross collateralising loans? I don't think it will matter whether I use the offset cash or redraw facility if I am purchasing a PPOR as it's non-deductible debt. But I thought if I'm purchasing a third IP, is there a better way tax-wise to use my current loans instead of using cash as the deposit? Second IP does not have enough equity so can't do anything with that. Hope this makes sense!
From my understanding all of your existing debt should be tax deductible as it was all used to purchase investment properties. What's best really comes down to what you're buying, PPOR or IP3 - need to determine that first. If you pay down the existing $30K split and redraw to use for deposit on a PPOR it becomes non deductible debt (currently deductible) If you're buying an IP there's no point paying down the $30K split and redrawing to use for deposit on new IP as that split is already tax deductible. You could just use the cash from offset OR create a third loan split against IP1 to use for deposit and costs for IP3 to maximise deductiblity and keep offset cash available. This can be donw keeping the secuirties seperate. All of the above depends on loan serviceability, value of existing IP's etc and is not advice, you should seek tax advice.
All makes perfect sense. I think I get confused with the idea of debt recycling. But I now understand that debt recycling can only really work when you have non-deductible debt (ie. I owned a PPOR now and could redraw against that to make it tax-deductible debt). Thanks so much for the reply. Looks like using the cash is probably my best option as a deposit for the next purchase considering there's not enough equity remaining in IP1 but I should get that valued too as it's been a while. Thanks again!
Thanks Rolf, this is what I'm confused about. Read so much on debt recycling but still can't work out how using cash for a deposit, or using debt recycling on an IP now could affect future non ded purchase...
