How I Financially Structured my Portfolio to Maximise Cash flow & Tax Deductions along the way.

@KayTea Definitely see a mortgage broker rather than a fin planner, for what you are talking about.

 

@KayTea I suggest you run your situation past your chosen tax accountant to clarify things for you.

In relation to financial structuring I suggest you (and for anyone else) speak with a mortgage broker who is a 'specialised financial strategist" that can best structure your finances around your chosen property investment strategy for obtaining your goals.

@Pins The main benefit is that it can be used to increase one's cash flow by using OPM, as it requires less cash flow than using one's own cash reserves.

This increase in cash flow is sitting in your PPOR balance by default, thereby reducing the non-deductible interest payable on it.

The cash flow increase is brought about due to all one's accessible income (ie wages, rents etc) going directly into their PPOR LOC A and then "only the interest components" on LOC B (where all expenses are paid from) and IP's are being deducted from LOC A, as opposed to the total outgoings of ALL one's property portfolio expenses.

All interest on your investment borrowings is tax deductible; regardless of the source you pay that interest from.

You are still claiming tax destructibility on All the property portfolio expenses including the interest on each individual IP loans plus the Investment LOC B; however you do not claim the interest on LOC A because that's where it could create an ATO issue.

Does this explain it better?

 

Rick - why not just use an offset account with a IO or PI loan and then a separate LOC for the equity release and investment portion?

 

@Terry_w They'e all options.

As mentioned in my OP quoted above, one would choose the lending product that best suits individual circumstances and goals they're wanting to achieve. ie possibility PPOR will become an IP then an Offset facility/product may be an option. It just depends on one's objectives.

As you know, this is why it's so crucial to get in front of a financial strategist/broker that is IP savy.

Building a large substantial size property portfolio is not about Property, rather finance and structuring it in such as way to allow you to continue moving forward whilst maximising cash flows and minimising risks along the way!

 

One main difference appears to be that euro73 suggests a separate LOC per IP, whereas Rixter you appear to have one expense LOC for all IPs.

Am I understanding that right?

All seems very sensible, many thanks for the explanation and diagram Rixter, and everyone else commenting.

 

An LOC split into two:

1. One for personal (or non deductible) expenses.
2. One for investment (deductible) expenses.

....... With an 80% LVR Interest Only Investment loan per IP, with IP loans spread across multiple lenders.

 

So if I have an existing offset account against the PPOR mortgage, that offset is effectively the personal LOC you speak of? Or would you get an extra personal LOC on top of the offset?

 

Rick, Great post. I have learned a lot and still learning.

I am not sure if I understand it right:

For each IP, I would need a new, seperate LOC against my PPOR for 20% plus cost for that IP? If I have 10 IP and 1 PPOR, I would need 10 times 2( one for 80% and one for 20%+plus cost) plus 1 for personal use, and 1 for investment expenses, totalling 22 loans ?

If each of the 20% LOC is about 100K, 10 IP would require 1 mil equity release from PPOR provided serviceability is OK ? The PPOR has to grow pretty well for me to access this flow of equity release for every 2 or more years ?

If my PPOR has value of 500K of average CG, I will run into equity release wall quicker ? or I have to wait a bit longer for PPOR to grow before there is more equity to be released further.

What happens if I run out of equity release against my PPOR, and I still want to buy ?

Or should I just stick to a single bank and borrow 105% each time and every time I buy IP to access ALL EQUITY GROWTH. Let the bank has everything as security.

Assuming all under individual ownership, I would need the following

1. 1 non-deductible loan for PPOR, IO. call it Account A, Interest not deductible

2 1 offset against above PPOR loan for private use, all it Account B. B offsets A.
All income+rents+wages etc go into here, pay all IPs interest charge from here too.

3 1 LOC against PPOR for all IP expenses, IO. call it Account C. If short or need to pay interest of C , move money from B to C, Account C's interest is tax deductible.
4 1 loan for each IP(105%borrowing), Account D E F ...to Z. Tax deductible interest as well

ALL TOGETHER, I will have , assuming 10 IPs, 13 l accounts to maintain.

Am I on the right track ?

 

How do you apportion interest between properties on this?

 

I have a personal LOC period as that's what I chose to do based around my situation, investment strategy, future goals & objectives.

People can use offsets with ppor loans, redraws etc (depending upon their situation) which has a similar outcome to a LOC but whether it's right for you depends on your situation.

As mentioned, I suggest you get advice from a financial strategist/broker based around your situation, goals & objectives.

 

Finance equity against Investment assets.

If wanting to build a substantial size portfolio, for flexibility options, I would strongly suggest diversifying across multiple lenders to minimise ones over exposure risks to the one lender. The last thing you want to do is paint yourself into a corner with no where to go if/when your one lender says, sorry no more funds.

 

That's a question between you & your tax accountant. It depends on one's situation. Depending upon situations there is ATO provisions to pool, but like I said that's a question for your Tax accountant.

 

Thank you. Rick.

I read it over somewhere that when portfolio becomes too big, the lender tends to think he/she is risky. How big is too big ? Any bankers out there ?

 

By deflecting it sounds like you're unsure - perhaps have a review of the revelant tax tips from Terry before continuing to do this:

Mixed purpose loan where both portions are investment related -> https://propertychat.com.au/communi...loans-where-both-portions-are-investment.902/

How to work out the portions of a mixed loan -> https://propertychat.com.au/communi...o-work-out-the-portions-of-a-mixed-loan.4410/

 

Exactly my point DT..everyone's situation is different and they need to run that situation past their Tax advisor and decide what's required based on that advice. One shoe does not fit all - someone of your supposed experience would know that, but others starting out would not.

 

@euro73
Could you eleborate with an example on the AMP facility?
How is it different than just using a standard equity release?

 

You can tailor each split to a precise limit, and move money between the splits so that accounting is more accurate .

Say you drew down 2 x 60K splits, but only used 55,300 for purchase 1 - you can move the other $4700 to split 2 if you wish to. No documentation required. No loan variation required. It still adds up to 120K, which is the "master limit" so you can configure it any number of ways within the "master limit"

It's simply a more luxurious version of what you can do elsewhere. I "prefer" it for PPOR because of its flexibility, combined with the unlimited 85% cash out with no questions asked.

 

I agree @euro73 ..I used the same facility with it's flexibility for multiple splits for accountancy purposes.

 

Do no other lenders do the same thing, as easily as ANZ? A broker I was speaking to recently mentioned mentioned one place that would let you have up to 10 splits, configured any way you wish, but he didn't mention if they were easily adjusted...

Cheers,
Inertia.

 

Just about everyone can give you 10 splits. CBA Wealth Package. ANZ Breakfree. NAB Portfolio etc.... even FirstMac VIP will give you 10 splits, and if you ask, you can even have 10 offsets - 1 per split ... ( one of the best kept secrets in lending ) but it's the ability to move funds between splits whenever and however you wish that AMP's Master Limit offers, which sets it apart- combined with their excellent cash out policies.