Hi
this may be a silly question but hope some people can help me out.
I have an Investment Property Loan.
Do not have other non-deductible lending or debt.
My current investment loan is P & I but everybody seems to think I/O is the way to go.
Is this only for people who have both Investment and PPOR loan – thought being extra cash can be used to reduce non-deductible debt.
Aren’t I still better off with P & I on Investment loan as I do not fit into the above scenario?
Thanks
Hi, Welcome to the forum,
What you need to consider is what type of investor you are.A negative geared investor would go IO to maximise tax deduction while freeing up cash flow for covering more investment
A negative geared investor relies on capital growth being higher than the cost of the short fall over a time periodA cash flow positive investor would consider P & I loan so as to build up equity and to get a property into a cash flow situation over time.
As time goes by the loan gets reduced, equity increases, cash flow increases, capital growth may not occur depending on where property is located if it does occur it is not the main focus more of a bonus to the investor..Since you have no non deductible debt then it doesn't matter too much.
It is still good to pay down debt, but if you want to keep on borrowing you may want to consider using an IO loan + offset. This will reduce your payment meaning you can stretch yourself further. You would also save the same interest as long as you don't spend the savings.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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