Structuring Investment Property Finance - A Four Part Series

 Information supplied by W Financial

Part I: Capitalising Costs
All property investors separate their deductible and non-deductible debts to make claims for interest deductions straightforward and clear. And all property investors prioritise repayment of non-deductible debt as an instinctive thing.

We also understand the value of having a Line Of Credit (LOC), Equity Access account or Offset account established to provide a buffer against temporary financial headwinds.

Beyond that however, there is a lot more you can be doing to accelerate the growth of your property portfolio. One piece of “low hanging fruit” is using a Line Of Credit account more creatively. For this, you need to project what the likely annual costs of managing your investment property will be. You need to include:
  • Insurance premiums
  • Management fees
  • Strata fees
  • Council Rates
  • Water Rates
  • Inspections
  • Repairs and maintenance
  • Accountancy fees
All these costs, along with loan interest, are going to be set against your rental income, to arrive at your net profit or loss from an ATO perspective. But, provided you have a sufficient credit limit, you can pay them from your LOC – i.e. borrow the money to do so. If they total, say, $5000 for the year, that is an additional $5000 that could come off your non-deductible home loan balance.

After time, once you reach the limit of your LOC account, you will need to arrange for the limit to be extended or a new account established against the security of your owner occupied home, which now has $5000 less owing on its mortgage.  Over the years, and as your investments multiply, this could make a real difference to your non-deductible mortgage term.

Remember, your LOC balance should only be increasing at the same rate as your home loan account balance is decreasing, but the whole structure needs regular maintenance to ensure that the LOC still has enough funds available to it for it to fulfil its role as a cash buffer.

Be sure to stay tuned, because in Part II we’re going to dive a little deeper and look at the reasons behind projecting your costs first and the importance of planning ahead: It’s this that will really make building a successful investment property portfolio possible. In Part II we’ll explore a case study where we can pick a part a few numbers and get down to business! Keep your eye out- Part II of this article will be available here at on the 13th of March!

Disclaimer: information supplied by W Financial. While due care is taken, the viewpoints expressed by contributors and/or sponsors do not necessarily reflect the opinions of Your Investment Property.

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  • Pascoe says on 13/02/2014 05:49:53 PM

    What do you suggest once all non-deductible debt is paid off ?

  • Gina says on 20/04/2015 08:49:12 AM

    Hi Pascoe, in response to your question. It depends on how important tax savings is to you and whether more or less non-deductible debt is suitable for your goals.

    It's all about your personal goals and priorities and then you can structure your overall property and debt portfolio accordingly. I'm writing in my capacity as a property coach at Neo Chats. Speak to a good financial advisor if you are unsure.

  • Terryw says on 01/12/2016 07:46:21 PM

    I suggest anyone thinking of structuring your loan like this get tax advice prior to setting it up.

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