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Using my first home loan as an investment springboard - strategies?

Discussion in 'Real Estate' started by Moneypenny, 8th May, 2011.

  1. Moneypenny

    Moneypenny New Member

    8th May, 2011
    Canberra, ACT
    I am new to this forum (and the investing game), so please bear with me.

    I bought my first home earlier this year. I am a single investor and have a home loan of $300K for my PPOR. I have being making advance payments on the principal and interest, including salary credits and depositing a cash lump sum (a vain effort to simplify my banking, without thinking about future investment scenarios and tax issues…). Advance payments currently stand at $40000.

    I have since realised that if I wanted to relocate in a few years time and keep this property as an IP I should probably set up an offset account for my current PPOR loan instead of making advance payments. (I want to hang on to the home because rental yields may outpace capital gains over the next few years).

    Should I redraw all or some of the advance loan payment now and put it in the offset account so as to build cash savings? Alternatively, can I redraw advance payments on my PPOR loan to invest in shares? What are the tax implications of doing so? How would I account for it?

    If I were to "transform" my PPOR into an IP in a few years - through me renting or buying a PPOR elsewhere - would the remaining interest payments on my current loan be tax deductible, or is some kind of pro-rating needed because the loan originally was for a PPOR?
    Or, alternatively, are none of the remaining interest payments for the loan tax deductible because the original borrowing purpose was private? (I don't this is the case, but would like confirmation).

    Also, if I still had advance payments against my home loan by the time the property is used as an IP:

    1. can I redraw that money to pay for then IP-related expenses such as body corporate levies and property management fees?
    2. could I claim tax deductions re: the interest on the redraw amount?
    3. can I only make such IP-related payments and tax claims from the rent earned through the IP?

    Any information/advice gratefully received. Sorry for the long post!

    Thanks in anticipation.
  2. K_veg

    K_veg Active Member

    24th Jan, 2011
    Milan, MI
    I'd be very interested to hear what people have to say about this too. I ended up selling my PPOR instead of renting it out when I moved, because the loan I took out initially was too low and the tax benefits just wouldn't have been there.