Offset balance zero but not paid down - next investment advice?

Discussion in 'Loans & Mortgage Brokers' started by Marcus84, 8th May, 2018.

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  1. Marcus84

    Marcus84 New Member

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    Hi All,

    I'm currently living/working overseas and we have a property in Melbourne we have been renting out. We have a cash balance in the interest only offset for the property greater than the loan amount (so positively geared) but have not paid it down yet as we understood it was better from a tax deduction perspective while we still owed.

    We are now ready to look at a second investment property, but wanted to ask some simple questions before we talk to banks and accountants.

    • Is it advisable to setup a second offset for the second property purchase, or use/redraw on the existing one?
    • Any reason not to close/pay out the first offset - currently not generating any interest deductions
    Many thanks
     
    Marcus84, 8th May, 2018
    #1
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Hi Marcus

    can you get lending for the new property ?

    Typically, where possible I would always suggest holding loans open where they dont cost you anything, not get in the way of moving further

    ta
    rolf
     
    Rolf Latham, 8th May, 2018
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  3. hobartchic

    hobartchic Well-Known Member

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    I suggest researching the pros and cons of offsets. ASIC have some good online resources.
     
    hobartchic, 8th May, 2018
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  4. Marcus84

    Marcus84 New Member

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    I would like to borrow for 2nd property based on part on equity in the first. Assume this means I would need to pay it down.

    Alternatively keep it open and use the cash in the offset towards the new property, but assume better to maximize borrowing to help negatively gear?
     
    Marcus84, 8th May, 2018
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  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    the primary cons would be and I am guessing .....

    • 1. Limitation of the 250 k if the Fed gov guarantee for an ADI offset, vs the cash in the property if the lender goes bust
    • 2. Effect on serviceability - based on limit of loan, not net offset balance
    • 3 ?

    Regulators have little benefit and or perhaps understanding of promoting the benefits of true offset accounts .........

    ta
    rolf
     
    Rolf Latham, 8th May, 2018
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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    depends if you have equity in the property in addition to the offset money, AND what you will do for a PPOR when you come back to OZ

    ta

    rolf
     
    Rolf Latham, 8th May, 2018
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  7. Marcus84

    Marcus84 New Member

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    Thanks Rolf for the responses:

    IP1 value ~1.85M
    Offset 1.35M

    Idea would be to purchase IP2 and covert it to PPOR on return to Aus in ~3-5 years time.
     
    Marcus84, 8th May, 2018
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  8. JasonC

    JasonC Well-Known Member

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    Just to confirm, that plan is to turn IP2 into the PPOR?

    If so, then you’d want to retain as much as the IP1 loan as possible and NOT pay it down.

    Jason
     
    JasonC, 8th May, 2018
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  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Hence the question :)

    often a little challenging question , which seems out of context can produce good results

    Please see specific TAX and CREDIT advice on your circumstances and planned future outcomes.

    Clearly, you need to balance holding back that cash for your future non tax deductible debt ..........against being able to borrow enough to buy that new place as an initial IP in the first place.

    There are ways to achieve both

    ta

    rolf
     
    Rolf Latham, 8th May, 2018
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  10. Marg4000

    Marg4000 Well-Known Member

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    For a start, never have the offset amount higher than the loan balance outstanding. You are simply giving the bank an interest free loan. You are better off with the return, admittedly low, by putting the excess in a term deposit or online savings account.
    Marg
     
    Marg4000, 9th May, 2018
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  11. Marcus84

    Marcus84 New Member

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    Thanks all for the fast input.. useful as we start planning.
     
    Marcus84, 9th May, 2018
    #11