I was speaking to someone the other day who didn’t really understand the concept of borrowing to invest and it seems this is fairly common. Then today the topic came up at this thread https://propertychat.com.au/community/threads/deposit-for-loan.4878/ Using cash to invest means you are throwing away money! Its that simple Imagine a Mr I.P Freely has a $400,000 home loan and has saved up $50,000 cash in a savings account. With the $50k sitting around most people would go out and use this to invest. They would use it as deposit on an investment property for example. This is the same as throwing money away because they are giving up tax deductions. $50,000 x 5% = $2500 per year. If they use cash instead of borrowing then they will pay $2,500 more interest on their home loan and $2,500 less interest on their investment loan. At 37% tax rate that would be about $925 less money in their pockets each year. Imagine how much quicker you could pay off your home loan if you could pay another $1000 off the principle each year. Same applies whether the $50,000 is in the offset or a separate savings account. See same concept with a offset account here Tax Tip 9: Don’t use Cash in Offset account to Invest https://propertychat.com.au/communi...nt-use-cash-in-offset-account-to-invest.2355/ How to avoid the use of cash? Simple borrow 105% of the cost of the investment property. This can be done by borrowing teh deposit and costs in one loan secured against the main residence and the remainder secured against the new investment property - 25% and 80% for example. Even if you do not have any non deductible debt it would still be a good idea to borrow 105% because you may want to use your cash in the future for some other private expense - main residence upgrade, children’s school fees, kidney on the black market etc Even for the first property you should ideally borrow 105% where it will be an investment. This may be possible using a few strategies such as related party loans, family pledge loans etc.