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90 Marine Terrace Fremantle, WA, 6160

What is debt recycling, and is it right for you?

Not many people know, including investors, that debt is able to be recycled. 

Let me explain with an example:

A couple in Applecross have just agreed an offer on an investment property

There’s a stack of equity in their home

They’ll use the equity in their home to cover the 20% deposit plus stamps and costs, etc.

They’ll also use the equity in their home to cover the repayments on their investment property

Also, they’ll use the equity to cover costs like maintenance, rates, management, water, etc.



What they’ll do is use a line of credit, from which all the investment property costs will be covered.


Because that means that they can use the income from the investment prop to repay their non-tax-deductible debt on their home, deleting their bad debt way ahead of time.

Illegal? No.

And why would it be? All they’re doing is using debt to cover debt – businesses do this all the time.

The net result is a larger amount of ‘good debt’ and no bad debt.

They paid around $150,000 in taxes last year, some of this tax will be clawed back from the ATO to cover the ​holding cost of the investment property.

The Government will probably find a way to flush the tax money down the toilet, so best you find a way to legally minimise what taxes you pay. 

Over time the property increases in value, it costs them bugger-all to ‘hold’ the investment, they sell when the time’s right, if ever.

​​It’s actually part of their generational wealth strategy. ​For the kids!

The only major issue with this is that you can’t walk into any old bank and get this structure. LoC’s are still available but only from a small handful of lenders.

They might not like the idea of what you’re doing if you can’t explain it to them (and the exit strategy) in clear, definite terms. Heck, you might be rejected out of hand if you approach the wrong lender.

This is where we come in.

We’ve done a stack of these over the years and they can work out really, really well.

You can’t be no fool with your dough, though. The reason for the clamp-down is some muppets used the LoC for other things, like hot cars, jewellery and holidays. Dummies. 

Even if you have no investment debt (i.e. you have paid off your current home, want to keep it, buy a new home, and would like to have some expenses for negative gearing purposes) usually, you could capitalise (add to the borrowing cost) the running expenses of the investment property into a line of credit.

If you didn’t understand that last paragraph, but you’ve got the equity and income to invest, >>Go here<< to request a 10-min consultation to discuss your property investment plans and how we can make them a reality. ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​


Brodie Brown

Professional Mortgage Broker