Forum Replies Created
Grant,
I started in a similar fashion to you. This is what I did, learn, learn and learn…….. spend every spare moment looking at tax guides, and financial literature. Be great at mathematics so you do not have to rely on other people, you need to have the confidence calculate the value of acquisitions quickly, without the reliance of third parties. But most importantly, be very patient.
Let the dream house come after you are financially established, most people buy their dream house first (remember this is non- tax deductible debt). This reduces your opportunity to become wealthy.
Without knowing all your personal details, with education in hand (as you are doing on this site). You are ready for the world of property. I was originally a teacher and understand the flexibility of the teaching industry (I had many periods of paternity leave, unpaid leave etc). Your wife will also be in this position. What I am getting at, is property can be purchased with children and with property.
Jacqui-
I can confirm that everything Terryw has explained is absolutely correct, you have just been given a very good lesson in finance. I see comments written all over this website that hold an element of truth in parts and a sales pitch in others. I can honestly say you have just received a very good lesson in finance matters from someone who has it sorted. I usually write take away the information you like and and discard the rest, but as I didn't write any of the comments. I can say you would be short changing yourself if you dismissed Terry's thoughts.
Excellent post Terry!
It is about opportunity cost, the shorter the loan term, the less money in your pocket. This means you have reduced the available money for further acquisitions. Wealth is created by the collection of assets, and the payment of assets is merely incidental to wealth creation. In summary: The longer the better……
In agreement and further to Terry's comment : Interest can be claimed on the cost of funds borrowed for maintenance, renovations, and depreciating assets (e.g furniture).
This is the introduction to some real strategies to indirectly reduce debt on your PPOR.
Discuss this with your accountant to ensure this is facilitated well.
Refer to sub-topic "LoC loan against IP" under the topic of FINANCE. There is some useful information here.
And that my friend, is the difference between retiring at 33 and 63. As much as I try, I cannot help everyone.
-Pleiades- wrote:OP, I'm glad you've asked this, I was going to ask the same thing as I'm confused on the benefits of a interest only loan.Number 8, in regards to point 5 in your post you say "Your money made in property is not from what you pay down but how the asset grows in value, the more assets you own the wealthier you will become, this is based on past performance." Which makes sense to me but my train of thought is if you put just that little bit extra a week into your mortgage in a P&I loan and get the pricipal down then when/if you sell instead of having to take say $200,000 out of the sale to pay back the original principal you don't have to as you've paid it down/off?
Also, what about the fact that the property is never yours? So say at the end of the loan term you've paid off the interest, you either have to sell to pay off the original principal amount or find a spare $200,000 laying around to pay it off. Please correct me if I'm wrong with my thinking here.
I hope this makes sense? I'm fairly new to property investing and still trying to get my head around it!
The opportunity cost to paying down your debt, is the money may be used to invest in another property. When you do the math on paying down debt vs purchasing another property with the extra cash, you will see a very large difference in favour of not paying down debt.
I owned my PPOR at 33, yet have never paid an any repayments in my life (excluding i/o). This was from re-directing excess cash into other investments.
Re: Paying off a home…… This is of no concern?
e.g. I purchased a property in 1997 for $169,000, the value today is approximately $400,000. the price in twenty years will be $1,500,000 (estimate). Now, the sale price less the borrowed amount is either $1.5M or $1.331M. The difference is marginal for the opportunity cost of another property purchase.
This is one of the key concepts to wealth creation. It is a common mis-conception amongst all Australians to pay down debt. This has been a myth passed down by our parents. It encourages us to work very hard to pay a debt down in 20-30 years. Yet it may be done much quicker, and faster through innovative thinking.
http://www.birchcorp.com.auRyan, has contributed well to this site and I mean no disrespect, but, the above comment confirms the risk of taking advice from this site or others like it……
There is no CGT on selling the family home…..
I always say the person who cares the most about your money is you, do some real footwork and compare recent sales. There are many many factors that go into a decision, sitting down with and expert can also help. You should be able to find a clever broker in your area. It may mean you sit down with 3-4 people until you find the right person, further they may help with the question you posed above as they will know the local market….
The tax implications would be that while you pay down a debt you reduce your ability for a tax deduction. This argument is raised often, but I can still see no reason to pay down a debt when you have the ability to use an offset account:
Reasons for i/o include:
1. Keeping the full/initial drawdown amount in tact. (A Better tax deduction is available if you make your PPOR an investment property)
2. Extra monies to invest in further acquisitions. (creating wealth is about both cashflow and assets)
3. Increases your available equity without a refinance (you will not require car finance etc)
4. Increases your buffer if you become unemployed or like (it decreases risk).
5.Your money made in property is not from what you pay down but how the asset grows in value, the more assets you own the wealthier you will become, this is based on past performance.
There is no smoke and mirrors above, I have experienced this first hand. I live in a house with no mortgage yet I have never made principal payments in my life. How? Buying using the money other people are using for the principle payments and placing it into an investment property(s). My home ownership was acheived at 33 years of age.You need to provide more information.
What is your income?
What are your goals?
Where do you want to be in ten years, twenty and thirty?
Do you have children?
What are your career aspirations?
etcYour question is very dangerous for an open forum. To get the right answer you need to provide a lot of personal detail. For that, I would recommend sitting down with an expert or two, rather then disclosing all your personal information in an open forum.
You can claim the loss for the time it was available for rent, evidence such as realestate.com receipts and bank statements for your current lease would be evidence.
Alternatively, you may move into the unit and not claim the loss- make your repayments i/o so as not to reduce your tax deduction in future years.
I will tell you it is not allowable in the eyes of the ATO, if they allowed this, although you are legitimate, the ATO will open up a large tax loop hole for everyone in the country. i.e. everyone could set the rent above the market price and/or turn away perspective tenants.
You may live in the property, but there is no allowable tax deduction. It becomes your PPOR.
I would say you are on the money…….
I have just completed a $350 purchase for a client with $25k deposit (NSW)….
Include FHOG and stamp duty relief and the $15k would do for a $200k purchase.
As long as your income is suitable for lending purposes, you would be in with a shot. As you mentioned moving back home would further improve this deal (increasing a savings buffer to reduce risk). Another option you may have is the family guarantee or like….
Like you said, there are many creative strategies i.e. scrap the renovating thing if it doesn't fit the budget….
It is all systems go from me…. ENJOY!
Suncorp is one of the few banks…. Bankwest also claim this as their niche….
There are many, and I would say, more opportunities to create wealth legitimately. I have many clients that come to me that do not pay tax. My response is always the same….. Where you save a dollar in tax, you lose hundreds of thousands in loan capacity. Loan capacity creates wealth. Without the ability to leverage, wealth creation is restricted.
They are well within their rights to negative gear this property, the big mistake I see is that people try to claim an increased loan amount- this is where the ATO will crack down on your friend. i.e. the max. allowable tax deduction is on the original amount drawn down. This is why most of my clients are on i/o for their PPOR whilst pouring money into their offset acct.
If you have an offset account, it does not matter when your repayments are made, pay them monthly or weekly for your own convenience. There is no benefit or lose either way.
As above, lease packs are purchased from the news-agents or a post office.
