My Plan for review

Only recently discovered this site and have been amazed at all the useful information available on it. Thought I would post a proposed strategy and see what comments people had on it.

Recently got engaged and are getting married next year. My fiancee own our own place (under my name) PPOR worth approx $475,000 (loan account still open, but has zero balance - can make redraws up to about $320000 if I desire, loan account does not have an offset facility).

Next year we are looking at doing a year long working holiday to Europe, but a few years after (so probably in 3-5 years) we get we will be looking to buy a new house to live in which will probably cost in the range of $900-1.1mil. I am also aiming to build up a portfolio of managed funds, property and shares to provide a passive income in retirement.

When buying the new place I would expect that I might need to end up borrowing some money, I would like to structure this my finances so that the interest on this loan is deductable (logically allocate to the investments rather than the PPOR).

I am thinking about closing the loan account on my current place, and then opening a home equity loan (with an 100% offset account facility) to draw down and invest in shares (through managed funds - possibly index funds). I would then pay the minimum monthly repayments on this loan (possibly interest only) and redirect any extra spare savings into the offset account. I was thinking something in the order of $300,000 drawdown to invest.

Doing this I expect I would be able to get the offset account balance upto approx $250,000 by 3-5 years, which I would then withdraw to use when purchasing the new place (leaving the interest on that loan to be deductable).

Would probably need to sell existing please to help finance the new place (meaning that I would have to transfer the security of the loan to the new place, assuming that it is covered by the cost of the existing place and the offset account). Would this cause complexity as I would need to refinance the "investment" loan? What if I needed to take out a bit extra for the new place as well?

Other possibility I was thinking about is getting my fiancee to buy a place before we get married so that she can use the FHOG (and stamp duty exemption) - since I figure this is probably worth about $20k. Only problem would be that she would need to live in it for six months (other than the inconvenience of this, it would mean no rental income on it during that time - unless we both moved in there and rented out current place).

Anyone have any thoughts/comments?

Thanks in advance,

JR

 

Source: Eligibility requirements - NSW Office of State Revenue

Are you sure that the FHOG is still available? You're currently living together in the home your fiancee owns right? (I won't pry further )

Actually this bit seemed a bit confused - do you or your intended hold title to the property?

Interest on the new home can't be deductible in you're living in it. I guess you're saying you may buy it first and put a tenant in until you're ready to move in. Is that right?

The basic principle is that you want to not pay off the debt for an investment property. I.e. you direct free cash flow for either further investment or to pay down non-deductible debt.

Cheers
N.