Offsetting investments best

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Question: I am thinking of buying my first investment property. I have only just started working full-time following the completion of my uni degree and have decided to spend about $200,000. This will buy me a small apartment/unit somewhere inner city. I have heard that apartments have higher rental returns but less capital appreciation than a house and land. This suits me for now, as I want to be positively geared or as close to it as possible. As I am not in the highest tax bracket, negative gearing does not appeal to me. My question is, would you recommend an interest-only loan, or an all-in-one loan where my salary is paid into my account? I still live at home, have few bills to pay and the prospect of paying all my salary into my account appeals to me, as I know I will have plenty of cash left over.

Answer: The answer to your question really depends on what you are trying to achieve. If you are looking at maximising the tax benefits of property investment you may want to consider taking an interest-only loan, as only the interest portion of your payment is tax deductible. If, however, your long-term goal is to pay down the mortgage in order to ‘gear up’ and use the equity to purchase another property, you may want to consider either a 100% offset account or an all-in-one account loan. Both of these facilities allow you to have your salary and savings offset the debt, which will assist in reducing debt more quickly.

In either case you should speak to a relevantly qualified professional, such as an accountant, for your tax planning purposes and/or a qualified mortgage broker or lender representative to assist you in obtaining a suitable loan product.

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