Getting my loan structuring right from the get-go (buying PPOR to become IP in 12 months)

Hi everyone, I'm a FHB who will be purchasing a 2/1/1 apartment in inner-city Canberra to take advantage of the first home loan deposit scheme (FHLDS), no stamp duty as a FHB, Defence Home Ownership Assistance Scheme and HomeBuilder grant ($25k from the government, untaxed, and yes OTP apartments are eligible).

I have already sought advice about the property-type I'm buying and I know the general consensus on apartments in Canberra, so I'm not looking for feedback on that. I'm still in the process of crunching the numbers but with all the benefits described above, I believe this will come out as a nice yield play before I move into actual houses. I've also heard the prevailing advice about not buying for tax reasons (or any of the benefits listed above) which I acknowledge. I'm partially buying for lifestyle but am confident when my properties become IPs I'll be focussed on the right demographic (inner-city young professionals) who want a nice, fully-furnished place to move straight into.

What I WOULD like to be clear on is my understanding of correct loan structuring for maximum tax deductions. The plan at this stage is to:

1. Buy before the end of this year and rent out one room, live in the other (HomeBuilder grant expires at the end of this year, hence the deadline. Also, there are some FHLDS positions still available but they're running out on a first-come, first-served basis). I will add furnititure to make it fully furnished for tenant(s)
2. Move out after 12 months by purchasing the second property (my income coupled with 12 months of loan repayments should allow this). Second property may be a 1/1/1 apartment also in the city (*boo!* *hiss!*)
3. Move into the second property and convert the first into an IP (I'll interrogate my refinancing options at the time but they should be reasonable). Second property will by my PPOR for as long as I stay in Canberra (unclear on how long this will be, at least a couple of years)
4. Several years later I may leave Canberra for work and the first two properties become IPs

I earn ~$90k per year plus another $15k-$20k tax-free. First property will be $450k to $500k.

When I go to leave the first property and rent it out fully as an IP, will it be as simple as my mortgage transitioning over such that all tax deductions (interest, furniture etc) simply move across, or will there be issues caused by the fact that I've lived in the relevant property initially?

Basically my concern is about loan contamination. I've read all of @Terry_w's tax tips but still aren't clear on it. If I split my first loan into 2 accounts, with 1 acting as "investment portion" (tenant's money paid into it, expenses out of it etc) will this cover the issue? Or have I got it all wrong?

Would appreciate anyone's insights, or being pointed in the direction of existing threads/web pages as I couldn't find them (may be searching for the wrong things).

Thanks for all your help! This really is a wonderful community!

 

There is not much to it really. Borrow 100% plus costs - ideally on an interest only basis, but generally no possible - and pay the minimum.

I cant see any point in splitting the loan, other than if you are using 2 funders. There is no need to segregate cash or income, just lending.

 

Purchasing under FHLDS limits your options somewhat. About the only thing you can practically do to optimise anything is to ensure the loan structure incorporates an offset account.

You will likely need to focus on saving the deposit for the next property as a 95% loan on this property means it will be a long time before there's any equity you can use. Buying an apartment probaby doesn't help this either.

 

I don't think any lenders will offer an interest only 95% loan under FHLDS.

 

But it might still be possible to borrow 100% plus by related party loans etc.