Hi there,
I'm only 21 and new to investing in Real Estate, but very eager to get started as Robert Kiyosaki has inspired me to do so.
I've read books saying that paying off Principal & Interest for the loan is the way to go, and yet my Financial Advisor says to get an Interest Only loan?
I'm curious as to what other investors are using for their investment properties. If it's more profitable to pay down your principal during the years, or if it's better to just wait till the end of the term in order to pay it all out?
I would love to get some feedback!!
Thanks
Vanessa.Hi Vanessa,
Ask your financial advisor if he/she has made as much money as Rob Kiyosaki. Then decide who's advice you would tend to follow in this area.
Good luck.
Mark
If you plan on buying multiple investment properties then IO will preserve your cashflow – this is the avenue nearly all my serious investors take.
There are tax advantages too. Even with your PPOR.
P&I seems favoured by mums and dads paying out their home and maybe one IP.
Cheers,
Quote:very eager to get started as Robert Kiyosaki has inspired me to do so.m.pulley wrote:Ask your financial advisor if he/she has made as much money as Rob Kiyosaki. Then decide who's advice you would tend to follow in this area.Just checking, we are talking about the same guy right? The one who wrote:
Quote:Lately, I have been asked if we are in a real estate bubble. My answer is, "Duh!" In my opinion, this is the biggest real estate bubble I have ever lived through. Next, I am asked, "Will the bubble burst?" Again, my answer is, "Duh!"and
Quote:So the answer to the question, "Will the real estate bubble bust?" is an emphatic, "Yes. All bubbles bust." The reason I write this alert is because this time, when the bubble bursts, I think it will be a monster. Never in my life have I seen so much money being made on such weak fundamentals. If you think the last recession caused by the bubble bust was bad, the coming recession will be at least twice as bad. It might lead to a depression.and
Quote:This real estate bubble has made many people very, very, rich. I hope it has made you rich. It has certainly made Kim and I very, very rich. But in my opinion, this party is over…http://whgbetc.com/meta/booms-bust.html
… we are talking about the same guy right?I’m not a Kiyosaki fan. Personally I find him arrogant and ignorant and more than a little bit annoying. But if you’re going to do as he says (rather than as he does – spruiks), you need to be fully informed.
look up Robert Kiyosaki in wikipedia and google. There is a lot of well researched debunking of his claims and books.. of course nothing wrong with getting inspired, just that the Kiyosaki way may not be the best path (and there is a lot of evidence Kiyosaki himself never followed it).
Hi Vanessa,
From a lenders viewpoint, if you're buying an investment property they are ok with Interest Only. If buying an owner occupied, they would prefer Principal & Interest although they will allow Interest Only for a time – say 5 yrs max.
If you get into borrowing bigtime, cash flow becomes critical & that's why a lot of investors prefer Interest Only. They buy property principally for the capital gain & take the attitude that the more they have the bigger the potential gains. They can have more with Interest Only payments because lenders will calculate servicing on Interest Only payments & therefore lend more to an Interest Only borrower than a Principal & Interest borrower.
Interest only loans are definatly a great tool in investers tool belt,
If you have any debt what so ever that is not tax deductable, say on personal items such as cars, your own home and stuff like that, why would you want to use even a single dollar to clear debt that is tax deductable until you have cleared all other debt that you can't claim.
For example if you have a car loan at 8% and an investment loan at 8%, you may think it doesn't matter which one you pay off first because they are both 8%, how ever after tax your car loan is still 8% because you can't claim any of it back, but because you can claim back a portion of you interest on your tax return your true interest rate on the investment loan is only 5.6%,(based on a 30% tax rate), so it comes back to the old rule of clearing debt a the highest interest rate first.
Another stratergy you can use if your planning to use property investment as a way of owning your own home one day, Is to take out an "interest only" loan on your investment with an interest offset account link to it, Find out how much you would normally pay if the loan was "Principle and Interest", pay the interest only loan each month and any extra from the P&I amount place into your interest offset account, that way your interest is reduced as the money in the offset account accumlate's.
Then in say 5 years when you want to purchase your own home use the money thats been building up in the offset account as your deposit, That way you have still got your full amount of debt against your investment which is tax deductable and you have reduced the size of the loan needed for your home which is not tax deductable.
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