How to structure your finances with your rental properties
Updated: Aug 18, 2022
When you become a property investor there’s a lot to learn about finances and how to make them work within your wealth creation strategy. Everyday our finance specialists are working with clients to educate them on how to accurately structure their home loan repayments in a way that will save them money and accumulate long term wealth.
The important thing to remember when buying an investment property for your wealth creation strategy is that there's no such thing as a ‘one-size fits all’ approach. At REIF, we understand that very well and work with our clients to tailor strategies specific to their needs and circumstances.
In saying that, it’s important to remember that this article provides general information. Some of the strategies that we explore have worked for our client’s but it’s important that you do speak to a professional if you want to achieve similar results. While these finance strategies may be suitable for some, they may need to be tailored for others based on their situation.
An offset account is an account that you can link to your home loan. With this loan feature, you can reduce your home loan repayments over a period. This is because you’re essentially saving interest by ‘offsetting’ what you owe on your loan with the funds that are in this account.
An additional bonus of an offset account is that you can also make deposits and withdraw from it.
How can you reduce your home loan repayments with this feature?
The best way to explain how this works is by using the following example:
Jack is a property investor with a home loan balance of $500,000. He has $40,000 worth of savings which he’s put into his offset account. Jack will only be charged interest on $460,000 and this will remain the same, so long as his savings remain in his offset account.
How much can you save by using an offset account?
As a property investor, you could potentially save tens of thousands of dollars from home loan repayments and reduce your loan term by maintaining or adding money into your offset account. The more money you have in your offset account, the better.
How to increase your offset savings
There are several strategies that you can implement as a property investor to increase your offset savings, hence – reduce your interest payable on your loans. As we explained earlier, some of these strategies may work for some and not for others. Therefore, it’s imperative you consult experts to assess your situation.
Allocate a percentage of your rental income to your offset
To increase the funds in your offset account, you could allocate a percentage of your weekly rental income towards it. More so, if you’re able to, after costs are accounted for (with your property), you may benefit from depositing your total passive income each week into it.
Do the same with a percentage of your earned income
Additionally, if you have enough funds from your earned income (after your bills, expenses, etc. are accounted for), by depositing some of that into your offset account over time you could increase your offset balance.
Avoid touching your offset account for spending
While you can access the funds from your offset account whenever you need to, you may benefit from limiting how much you touch those funds. We suggest saving these funds for emergency situations. If you need to use them, perhaps consider repaying yourself.
Deposit your annual tax returns into your offset account
If you’re an owner of an investment property or several rental properties you’re able to claim annual tax returns on each property. That’s where a great accountant comes in handy. They can help you to claim as much as you legally can. Some investors can recoup thousands of dollars every year from their properties.
By depositing your tax returns into your offset account, you’re essentially paying yourself.
In the below video, our CEO and Founder, David Chehade explains how you can adequately structure the finances linked to your investment property(ies)
Speaking to a professional
If you’re looking to make the most out of your finances and finance structure as a property investor, we’re here to help. With more than 100 years of combined industry knowledge, our wealth creation experts will be able to guide you through the most suitable strategy for YOU!
To start a conversation, please feel free to reach out on the details provided.
Ph: 1300 130 932
We explore this topic in our eBook 'Building Wealth Through Property.' Check it out here for FREE!