Finance Structures
Setting up your investment loans correctly is very important. Below are some ideas on how to setup your loans so they can be easily managed. Its recommended that you see a professional mortgage broker to determine what is right for you.

What is Good/Bad Debt?
Good debt is used to buy appreciating assets such as shares and property and is tax deductible if an income is produced from it such as dividend payments or rent. Bad debt includes credit card debt, car loans and personal loans. Bad debt is generally used to purchase depreciating assets and interest charged on these debts are not tax deductible. Home loans on your primary place of residence can also be classed as bad debt even though it's an appreciating asset because the interest charged is not tax deductible.

When used correctly good debt can help investors increase their wealth faster and manage their cashflow better to maximize their return on investment. As a new investor is it important to pay down your bad debt as soon as possible so that there is more money available for investing.

Separate Loans
Use separate loans to keep the non-deductible debt and deductible debt apart, this saves a lot of time when doing tax returns and makes it easy to determine what interest is tax-deductible.






Avoid Cross-collateralization because

• If you sell a property all of the existing mortgages will need to be resigned.
• You may loose product selection and control if all your loans are with the same bank. i.e forcing you to take P&I loans rather than interest only loans because you have to much debt with the one bank
• If you buy property across state borders you will be subject to mortgage document stamp duty on the entire loan amount rather then just the purchase price.
• If you try to realise some increased equity the bank will have to revalue the whole portfolio rather than just the one property.
• If you have cash flow problems you whole portfolio is at risk rather than just the individual property.
• You will run out of borrowing capacity faster just using one lender.
  

Offset Accounts
An offset account is a regular savings account linked to your investment loan account, the balance in your offset account is offset against your mortgage. for example if you have a loan of $100,000 and savings of $10,000 you will only be charged interest on your mortgage at $90,000.

The reason why offset account are so useful is that it keeps you entire property loan tax-deductible. If you were to put the $10,000 in savings into the investment loan then redraw the $10,000 for things like a holiday that portion of the loan would no longer be tax-deductible.

Interest Only (IO) Accounts
An interest only account is a great way to maximize your investing because you only need to make interest payments on loans rather than principal and interest. This means that as your assets grow in value the level of debt against them remains the same. This strategy is really only useful if you intend to use the money you are saving to invest into other areas, such as paying off your principal place of residence.