Is it still a good time to buy in Sydney and how can I structure my personal and investment loans?

Hi Margaret,

I am currently looking at purchasing an investment property in Sydney.  I am considering the purchase of an established one or two bedroom apartment in the inner west. Do you believe this is the right option and that the Sydney market will continue to have good capital growth? I hope I would not be buying at the peak of the property cycle in Sydney.

Also, can you have your investment property transaction account offset against a personal home loan and not the investment home loan? I presume that it is more advantageous to have this arrangement as the interest on the investment property is tax deductable, where my personal home loan interest is not?  I just want to ensure that I would not be breaking any tax rules by having this loan structure.

Thank you

Darren

Margaret's answer on next page. Please click below.

Hi Darren,

Some experts are saying that the Sydney market will continue to boom during 2014, but I believe it will be headed for a distinct slowdown toward the middle of the year.  Even so, I truly believe the best Sydney buying opportunity is now behind you and it may be better to seek out an emerging market, like the mid-ring suburbs of Brisbane, and get in on the start of that boom.

When you refer to your ‘investment property transaction account’, I am going to assume you mean that you have a savings account set up, into which you pay money which covers your investment property expenses, which is also able to offset loan interest.  You can have this offsetting interest on any loan and the tax office does not prescribe where you choose to offset interest.  They can only prescribe which interest is deductible and they have made it clear how they feel about capitalising interest.

Having sad that, remember that you can have your rental income paid straight into your home loan (or home loan offset account) and as long as you meet the interest payment on your investment loans as and when it falls due, this is acceptable. 

Some accountants also say that you can redraw from an investment loan to meet investment property expenses such as rates and repairs, or keep a separate, smaller line of credit style loan which you use to pay investment property related expenses, ensuring you also pay its interest bill each month too.  I’d always seek a private ruling form the tax office before putting any of these unusual arrangements in place.

Regards,

Margaret

She is the founder of Destiny.

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