Using the Equity in your home for investment purposes
This is the way that most people get into investment property. It is important that you do it correctly and always with a view to maximising the deductibility of your investment loan while aiming to reduce your non-deductible primary home loan. However there are certain things that you must be aware of:
- do not use any redraw on your existing home loan
- do not use any funds offset against your primary home loan
- do not proceed without getting good sound advice and that should start with us!
We have clients with as many as 20 investment properties and so we do this type of mortgage every day. It isn’t difficult but it is important that you structure and plan your progress. There are so many traps for those who plough ahead and simply take what the bank offers – you must remember that bank employees are acting in the best interest of the bank and that is not always your best interest.
In the past lines of credit were very popular and they still have a valid place however The Australian Taxation Office currently has a draft ruling on Part IVA with what can only be described as incredibly wide interpretation on the deductibility of capitalised interest and the use of a line of credit to service investment debt. As a result of this we suggest that you seek taxation advice before you use a line of credit to service investment property debt.
The final decision on how you should structure an equity loan for investment will depend entirely on your needs, your expectation, your income and the amount of equity you have available. With all of these variables there is no single answer and we need to try and structure a solution that is best for your needs.