This snippet is from one of our previous episodes: Q&A: A Tax-Saving Hack for An Offset Account, The Simplest Way to Keep Track of Your Properties and How to Distinguish “Emotional Value” from “Property Value”

When it comes to structuring your property loans, the offset account is one of the most powerful tools in your arsenal. But how many should you actually have?

In this TPC Gold episode, we’re diving into a question from long-time listener Alan, who’s wondering whether he needs to set up a second offset account for his next investment property.

Tune in to hear the full conversation and get clarity on:

  • When you actually need more than one offset account
  • How to structure your loans for maximum tax and interest efficiency
  • What the ATO really looks at come tax time

Need Help Structuring Your Loans?

Our award-winning Mortgage Broking team at Empower Wealth can help. They’ve helped thousands of clients secure the right loan structure for their goals and avoid costly missteps along the way.

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Transcript

Bryce Holdaway
All right, Ben, got one here from Alan regarding loan structure: Dear Ben and Bryce, fan of your show! Question in terms of an offset account. I have an offset account on my investment property. Currently, I’m living at home and looking to purchase the second investment property. I am wondering… here’s the question, Ben: Do I need to set up another offset account? I don’t want the loans to be interlinked. Your faithful listener, Alan. Alan, good question, you’re handing it to me?

Ben Kingsley
It’s a layup.

Bryce Holdaway
You don’t need to have another offset account. Really what you wanna be doing is making sure the offset account is against your most expensive debt. So what will happen here is you may get a second purchase and like you Ben and like me, I’ve got loans that have got different interest rates. So just think of this ladder and it’s leaning against the wall and the ladder is the offset account and the wall is the loan; just lean your ladder against the highest wall, because the highest wall is symbolic for the highest interest rate. And once that bucket is full, then you pivot Ben and then you have a little look around your portfolio and you go: where is the next highest wall? Because I’m going to get another ladder, i.e. another offset account, and I’m going to lean that offset account against the next highest wall. And you continually do that. It’s like the little Google worm. I’ve said it before where every night they wander around looking to see if there’s any new websites. You’re just wandering around seeing where is the most expensive debt in my portfolio and lean it up. For most people, it is their principal place of residence. There’s no tax deductibility.

Ben Kingsley
Correct.

Bryce Holdaway
They’re the only ones paying it. But if you’ve paid off your home and you’ve got an offset account against investment property, (then) put it against the most expensive debt.

Ben Kingsley
So Alan, it’s a very simple question. You don’t need to have multiple offsets against each of those properties. In other words, if a bank wants to charge you $5 or $10 for the privilege of an offset each month, then don’t necessarily do it. Bryce is 100% in regards to highest debt gets the offset. Because ultimately, when you do your tax return at the end of the year… if it’s a loss, it’s an accumulated loss. They don’t care which loss of which property it’s against. It’s just the sum of all of that in terms of what’s reducing your taxable income. So that’s the message here. So I like to think that all money goes into the primary offset against that higher interest account. Don’t set up the second one if you don’t need it until that bucket’s full. If it’s free and it’s easy to be used, then do it. Because what you will find, Alan, given you’re rentvesting by the sounds of things or rent-homing.

Bryce Holdaway
What do we call that?

Ben Kingsley
Homevesting? Rentvesting?

Bryce Holdaway
Kippervesting.

Ben Kingsley
Kippervesting; there we go.

Bryce Holdaway
Kids and parents’ pockets are writing retirement savings as a kipper.

Ben Kingsley
So that’s what you wanna do. So what’s gonna happen is you might find that you have to have Lender A, Lender B, Lender C as you grow because (and if you do get more borrowing power with one lender) you might get charged the privilege of getting extra money out with a higher interest rate. So that could be the one you wanna go after. But I would also say that some people might be going: so do I have to go with a loan that has an offset versus getting the next property? Remember, the offset is a bonus. It’s not going to stop you from doing that additional investing. So by way of means, if I can get an extra $50,000 or $80,000 in borrowing power from a second lender, but doesn’t have an offset account attached to that particular product, but I do have an offset account to the original product, then I would still go after that money if it got me a better asset in a better location that I thought I was going to get greater capital growth out of.

Bryce Holdaway
Well said, well said.