This snippet is from one of our previous episodes: Q&A: Loan Structure for Rentvestors and more! 

More and more Aussies are turning to rentvesting—renting where they want to live while investing where they can afford. 

But while rentvesting is a smart strategy for many, there’s a crucial piece of the puzzle most investors overlook… 

Have you set up your bank accounts and loan structure correctly? 

In this bonus snippet, Bryce and Ben answer listener Aaron’s question about how to manage money when rentvesting—and break down the banking structure you should be using to get the most out of your investment properties. 

They unpack: 

• Why your offset account placement matters (and how it can save you money) 
• Whether to have one account or multiple for different properties 
• The bucket system that simplifies cash flow and protects tax deductions 
• Why filling your offsets before making extra repayments could be a game-changer 
• How to structure your loans from day one to keep your options open later 

Don’t let a poor setup derail your rentvesting strategy…

Far too many investors lose thousands by not getting their structure right from the start. 
 
Book a free consultation with the Mortgage Broking team at our sister company Empower Wealth and make sure your rentvesting strategy is built to perform—today, tomorrow and long into the future. 

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If You Enjoyed TPC Gold | You’re Rentvesting… But Have You Set It Up Right? You Might Also Like:

• Ep 59 | Rentvesting: What Is It and Who Is It For? 
• Ep 60 | Building a Portfolio through Rentvesting 
• Ep 217 | Rentvesting His Way to Lifestyle Design on the Gold Coast! 

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Transcript

Bryce Holdaway
Here’s the next one Ben, from Aaron. 

Aaron
Hi, Ben and Bryce. My name’s Aaron. Absolutely love your podcast. I binge listened to 220 odd episodes in three months when I first found out about it. I’ve just got a question in regards to structuring your bank accounts. We rentvest. Understand if it was a principal place of residence, you’d want all income coming into that offset account. But because we rentvest, just wondering, do you have one bank account where all the rent and all the mortgages come out from? Or do you have a separate bank account for each property where the rent and subsequent mortgage repayment comes out of? Didn’t manage to hear anything about structural bank accounts in any of the podcasts. So apologies if I’ve missed it and you have discussed it. But I don’t think I have heard anything about it. So very interested to hear your response on that. Thanks again guys, you guys are absolute legends. Cheers. 

Bryce Holdaway
Thank you Aaron for binge listening to 222 episodes in three months. I think that would have been some effort. They probably don’t want to hear our voice for a bit there.  

Ben Kingsley
Well, he’s probably right too, in the sense that we do a lot of our lending structure explanations in some of the webinars we do and certainly in some of the visual teachings we do because it’s hard to talk about without demos. But I’m going to have a go, Bryce. I’m going to have a go. So here we go, Aaron. In theory, you’ll always have a minimum of two accounts relating to your investment purchase. You will have, because we uncross-securitise, so we don’t cross-securitise in terms of the lending structures that we do. So you’ll have a loan of up to 80% against the investment property.  

Now we all know that when we purchase a property, we need to work out what the remaining costs will be to finish off that purchase. So if we’ve got 80% against that property, the other 25% (meaning the other 20% of the value of that property plus the 5% for costs) have to come from somewhere else to complete. We call that funds to complete. So in a lot of cases we want to use equity out of an existing property, which is hence introducing that second loan as opposed to paying cash. So some people might choose to pay a portion cash or they may choose to pay a portion equity.  

Our best structures are that once the property investment is set up, you’ve got 105% lending against that property which allows you to move forward with that purchase. Now, in terms of all of the payments and the money flow, this is where it’s really important to follow our rules. And our rules are based on our MoneySMARTS money system where we have (and even though you’re rentvesting which means you don’t have an offset against your principal home), you must have an offset against one of your investment properties. And so we would always say, depending on which lender you’ve chosen for price and also feature, that we want at least one of your lenders to have an offset. Now if both of your lenders have offset opportunities, then we would put the offset against the lender that has the highest interest rate.  

Bryce Holdaway
So it’s a mathematical discussion, isn’t it? 

Ben Kingsley
It is. It’s all about the numbers, right? So in theory, you put your offset – your primary account against the highest interest account, and you fill that bucket. Okay? You do not pay the loan down; you fill the offset bucket next to that loan. And all rent goes into that account. It’s really important that you understand that. So all monies flow into that account, and then all repayments are made out of that account. We would also say to you as well, because that offset is a standalone account and not a loan account, by doing so, you would also be putting all your income into that account. Now you might be saying, well, I’m not saving interest in doing so because ultimately it’s not my principal place of residence, so you’re reducing my interest costs, which means I may not get as much back.  

Now we don’t know whether you’re negatively or positively geared so we would always still say, organize your money that way. In terms of making your expenses, you’ll have a choice there. If you’ve got some money in available redraw or still some buffer lending, then we would say for expenses, use that money as opposed to using the money that you have in your offset account. Because ultimately, over the course of time, you’re going to do one of two things. You’re going to fill up all of your offset buckets which means that technically you’ll have no debt if you were to give that money back to the bank.  

Or if in 20 years’ time, 10 years’ time… you do choose to change your strategy, which we always say if you’re gonna be rentvesting, it’s probably for the longer term. But if you do choose to sell those properties, take that bucket of money and you put that, because it’s obviously after tax, all of your income going in there, take that money to put against your principal home, which reduces your non-deductible debt and it also ensures that your deductible debt against your investment properties are giving you the best advantages for you and your family.  

Bryce Holdaway
Yep.  

Ben Kingsley
So, I mean I could draw that but that’s how I would say it in words.  

Bryce Holdaway
I think the buckets is the best visualization for a podcast, Ben. It’s like, just line up your buckets against the debts. And if you visualize that the bucket that’s the most expensive, Ben, just have that as the biggest one. That’s the one you fill up. And when it’s filled, where does it overflow? Onto the next one, which is the next biggest one. I haven’t seen a better analogy than that. You’re just filling up buckets. I’ve got a private loan where offset’s full at the moment, Ben. So I just found, then I’ll just put an offset against the most expensive investment debt that I have so that I can reduce some of the interest that I’m paying, which is important.  

Hey, another extension of that, Aaron, and we have talked about this previously, but it’s worth mentioning is that some people have big cash when they’re buying their principal place of residence, and therefore, because of this huge cash component, they then go to the bank and say, well, I’ll only borrow a smaller amount, whereas our recommendation is you go and borrow the maximum amount that you possibly can and then put your money into the offset account. So say the net was, you had $300,000 in cash, Ben, and you were gonna buy a million dollar home and so you’re only gonna borrow the difference. No, that’s not a good example. $300,000 cash and $500,000. So you’d only borrow the difference of $200,000. We’d actually say: no, go and borrow the full $400,000. And then actually put the whole $300,000… well you’ll tip off $100,000, you’ll just have $200,000 in offset.  

That allows you to control your cash, it allows you to control your liquidity; make sure you don’t sleep with one eye open at night. And if you’re disciplined with that money, it’s actually really, really good because if you at some point pay off the home and then realize that the house is actually a good investment, probably we’ve talked about this previously, you would just move that bucket of money and you’d go and lean it against the next optimal interest rate loan that you have.  

Ben Kingsley
Brilliant. 

Bryce Holdaway
So it’s very good, Aaron. Very good question. Thanks again for binge listening to 220 episodes in three months.