Ask Margaret: Should I invest or keep in offset account?

Hi Margaret,

I have just purchased a house as a principle place of residence for $295,000 with $235,000 left in the mortgage and $225,000 in an offset account.

We are using the money in the offset account (approximately $30,000) for renovations, and are looking to spend the rest on the purchase in (hopefully two) investment properties.
 
Do you think this is a good plan of attack or should I keep the money in the offset account and use the equity in the principle place of residence as a deposit on an investment property?

With $30,000 on renovations hopefully I can have the house re-evaluated for $350,000. 

Kind regards,

Dave

Hi Dave, 

When investors come to my company Destiny for assistance, around 80% of them have finance structures in place that are not well thought through and which are potentially costing them some good tax deductions.

Around 20% of them are straight out incorrect, some of them using strategies which may contravene the spirit of the tax act or in other ways be a potential issue going forward.

When you buy any kind of property, be it for investment or as a principle place of residence (PPOR), you should be thinking with an holistic view – and considering what you may be wishing to achieve financially over many years, rather than just what you need at that moment in time. 

You should have a forward plan and know what level of financial independence you wish to achieve and over what time, as well as many other things such as your risk profile and current and future cash flow needs.

Then you must consult with a professional who can also assist you from a property investment advice perspective as well as getting you the loans you need – and to do this they must have some kind of qualification such as the Qualified Property Investment Advising qualification offered through www.pipa.asn.au.

Before you use the $195,000 which will remain in offset after your renovations to invest, you should first clear away all and any personal debt.  This is because such debt is non- deductible, and to use cash as a deposit for a deductible investment while you still have non- deductible debt can be a mistake. 

Then you need to be very sure that you plan to remain in your current PPOR for the duration – if you think there may be any chance that the future may bring a  desire to upgrade into a larger and more expensive home of your own, you will want to preserve your cash to use for that time. 

If you use up your available cash on an investment or two, while you can draw this back to use to buy a bigger home of your own, doing so would create a non- deductible, or personal debt which carries no deductibility.

If this all sounds confusing, this is because it is!  And so you need good guidance which considers a holistic approach to your entire financial future, not just this current home, or the immediate few properties you are ready to buy.  

Regards,

Maragret

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