Planning for first IP

Hi all, my wife & I purchased a unit for $480K in 2014 as PPOR. We took an 80% LVR IO loan with offset facility.

In 2016, we refinanced the property at a valuation of $625K with 80% LVR while maintaining IO loan with offset.
Only one offset account is provisioned during the entire time.

As a result of this we had released an equity of $116K. Currently, we have a total of $240K ($116K + our own income savings) in the offset account.

Our option plan for the near future are as follows:
(a) purchase a house and make it our PPOR, converting the current unit into an IP
(b) purchase a house and use it as an IP for 2 years. Then, convert it as PPOR and the current one to IP.

Unfortunately with the complexity in the tax and investment laws, we are not sure which option is the best approach (most cost effective).
After having read through the do's and don'ts in this forum, I'm confused if our investment structure currently set up is wrong.
Correct me if i'm wrong, I got the idea that by having use one offset account for our PPOR and to but our first IP, the account
is contaminated? If it is, is there any way to set it back to track assuming option (b) is chosen? Could I convert the $116K into a LOC instead? Would this then work?

If option (a) is chosen, I believe it will be straight forward where we will just get a PI loan 80% LVR?

If there are better options out there which I've never thought of, please do share
Appreciate your advice, thanks.

 

Hiya

Sounds like you need to split your loans up ASAP before purchasing anything. You need to be able to identify what portion ofthe existing loan is for the current property - and what portion is for the next. I'd speak with a decent accountant - plenty on here.

Cheers

Jamie

 

I already see a problem. You have blended borrowed and saved $ into the offset. So loss of interest deductions will occur in the future unless you fix it. That means repaying the original loan and redrawing it properly.

And you thought you didnt need a tax agent ?

 

Ah...we do realise we need a tax agent after speaking to a few friends. We figure this forum would be a good starting point...

Hi Paul, by repaying the original loan first, does it mean settling the $500K loan we are currently on?