What to do with savings after paying off PPOR

Discussion in 'Investment Strategy' started by 212, 5th Jan, 2017.

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  1. 212

    212 Guest

    Dear All,
    We are almost there having PPOR offset account equal to PPOR loan balance. I have a split loan against my PPOR to fund the deposits for our IP's. My initial plan is to start adding our savings to the other split loan offset, and use these funds as deposits for future IP's (1- to reduce repayments, 2- To have sufficient funds for new IP's).

    I was talking to a friend (who introduced me to property investment), and he said this is not a good idea, as I am using my money that I already paid tax on (my income), and trying to reduce deduct-able debt with it.

    His idea is to use equity in IP's to pay for future IP's, and my additional savings forward need to go somewhere where it is non-deducible debt ( buy a car, add value to own PPOR,...etc.).

    What do you guys think if you have been into the same situation before. We started property investment 2 years ago, and have 4 IP's so far. We are looking for another 4-6 IP's in the next 5 years. we go for buy and hold. Our LVR is 73%. No car loans, credit cards,...etc.

    Please let me know your thoughts.

    Thanks
    Ramez
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    That idea of your mates is just silly! Improving the main residence could be good if it adds more value than it costs, but Cars are depreciating assets.

    If you have multiple properties in multiple single names you could part the money in the offset account against the property owned by the person with the lowest income and/or the loan with the highest interest rate.

    Building up large cash reverses will help you save interest which will increase your taxable income but increased income is a good thing!

    I would avoid using the cash to invest if you can borrow because this would eat into your buffer and delay your tax effective retirement.

    When you do retire drawing down on the offset money will be increasing your deductible interest so indirectly you are borrowing to consume personal expenses and the interest will be deductible.
     
    EN710 and Ross Forrester like this.
  3. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    I'd simply place the surplus cash into an offset linked to an IP loan. Congrats by the way - it's an awesome accomplishment to pay off your main residence.

    Cheers

    Jamie
     
  4. 212

    212 Guest

    Thanks Terry,
    What you have mentioned is what I am planning for. I am hitting my serviceability wall. So I am thinking to keep the money in the offset account for the highest interest loan, and Then use it to buy my next IP (If I still cannot borrow).

    I will be doing some renovations to my PPOR, but those are needed renovations and will add value at the same time.

    Thanks
    Ramez
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Considered related party or spousal loans?

    You may not be able to borrow from a bank, but could borrow from a related party. This loan could possibly be refinanced later with a bank - if you serviceability improves.