Which Investment Loan Strategy?

Discussion in 'Investment Strategy' started by seadogg14, 18th Oct, 2020.

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  1. seadogg14

    seadogg14 Well-Known Member

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    Am looking at a Investment Property and having talked to my bank and Mortgage broker as well and looking for the ideal Loan structure.I'm in a high income bracket and looking at maximising tax deductibility as well and building a portfolio.
    Have build up equity in my PPOR and am approved for a $70,000 equity release loan which will take my LVR back up to 80% and have about $70,000 cash saved up i can use towards the IP.

    Property Budget is $500K

    Structure 1:Use the Equity release funds towards the 10% deposit and stamp duty and possibly some expenses.The investment property Loan itself will be P&I .
    Calculated the cashflow and the property will be neutrally geared so can't put any funds from the IP income into the PPOR offset account .
    Plan is in a couple of years with the IP equity to buy another investment property.

    Structure 2:Use the Equity release funds towards the 10% deposit and stamp duty and possibly some expenses.Keep the IP loan as an interest only loan.The extra cashflow to be directed towards the the PPOR offset account.
    Then with the equity generated in the PPOR go in for another investment property.

    Just wondering which strategy is better suited for a high income earner and for maximum tax deductibility.
     
    seadogg14, 18th Oct, 2020
    #1
  2. Terry_w

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

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    want to maximise tax deductibility but no tax advice?

    It is a matter of borrowing as much as you can in relation to the property. Don't use your cash.
    IO will give you a higher deduction for 2 reasons
    a) higher rate
    b) deductible balance of the loan remains the same

    but there is more to it than tax.
     
    Terry_w, 18th Oct, 2020
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  3. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    I'd definitely look at going IO in this situation.

    But why is your mortgage broker not advising you about this? This is literally their job?
     
    Jess Peletier, 19th Oct, 2020
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  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Hiya

    With a nick like that I guess u like the Blue Water ?


    There a bunch of flags in your questions that suggest you are a way off optimising the scenario.

    What you do with your existing non deductible debt is likely more powerful than the fluff between PI and IO spread on the IO rate.

    Asssuming u are power boat person and not a Kevlar person, you current loans set up looks like 50 to 1 Pre mix :) VS a nice Zuk 250 HP.

    Im not a tax guy but the usual off the shelf idea is to minimise repayments on the IP, pour cash and tax savings into the PPOR, maybe run some shares as well, debt recycle and go again.

    ta
    rolf
     
    Rolf Latham, 19th Oct, 2020
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  5. seadogg14

    seadogg14 Well-Known Member

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    Thanks Jess ,Plan was interest only but when i spoke to my bank they were pushing Principal and interest and gave me their pitch regarding low interest rates etc.
    Broker was always of the thought to set it up interest only with extras into PPOR offset
     
    seadogg14, 20th Oct, 2020
    #5
  6. seadogg14

    seadogg14 Well-Known Member

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    Hi Terry ,Have structured it according to your ideal tax structure which maximises Tax deductibility
     
    seadogg14, 20th Oct, 2020
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  7. seadogg14

    seadogg14 Well-Known Member

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    My salary and any existing future income will go to the PPOR offset account.Not sure what else i can do there.
     
    seadogg14, 20th Oct, 2020
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  8. seadogg14

    seadogg14 Well-Known Member

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    More like 12000 kw medium speed 2-stroke diesel engine person :)
     
    seadogg14, 20th Oct, 2020
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  9. seadogg14

    seadogg14 Well-Known Member

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    Thats the plan
     
    seadogg14, 20th Oct, 2020
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  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Sounds like a Tug :)

    ta

    rolf
     
    Rolf Latham, 20th Oct, 2020
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  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Depending on your income tax bracket, your risk profile and your goals an Active Debt Recycle Strategy may be of benefit for you. Modelling often shows 5 to 15 year loan term reductions based on the variables

    ta
    rolf
     
    Rolf Latham, 20th Oct, 2020
    #11
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