Hi Dan

Jamie is the right man to talk to about your options.

For positive cash flow properties you can’t go wrong with an Interest Only loan + an offset account.

Andrew

Right back at you :)

It could be but nonetheless it’s a good topic. It’s important to discuss supplements that can help us keep on top of our game. Property investing is not that easy.

I personally have been taking garlic pills for the last 3 years and since then haven’t gotten a cold or flue. Must be doing something.

Andrew

Hi Nathan

That’s a tough one. Unfortunately no one will help you for free. Everyone has to earn their commission.

The best way to approach it is to work with and learn from the whose commission is based on making/saving you money (they only make money if you make money). In general these people will have your best interest at heart.

With everyone else be cautious and double check everything. Their figures and assumptions will be highly biased. Always do your own research and negotiate hard.

Andrew

Ok here is a quick example:

Cash Flow Income = Rental Income – Interest – All other expenses + Tax Refund

Taxable Income = Rental Income – Interest – Depreciation – other deductible expenses

If:

Taxable income (positive) = $1000 => Tax = $1000*.375 = $375 (tax payment)
Taxable income (negative) = -$1000 => Tax = -$1000*.375 = -$375 (tax refund)

So it’s not the depreciation * 37.5%. And keep in mind that you can have depreciation but it does not guarantee a negative taxable income.

And yes you can include it in your calculation but I am trying to show you that other factors are more important.

Andrew

I would think that most borrowers would use Offset accounts over traditional P+I where your funds are locked in (unless you take out a new loan).

The main idea behind my post is to lower your interest payments and to differentiate between IO for negative gearing (where the aim is to not lower your interest payments) and P+I or IO + Offset account (where the aim is to lower your interest payments and increase your equity in the property).

I don’t see how you can “completely” disagree with it. :)

Personally I would focus on positive cash flow properties (or neutrally geared) that have potential for capital gain in the future. Any surplus income should be used to pay off the loan to increase your equity. At the end of the day your goal is to pay off all your loans and generate income from the property.

Negative gearing for example relies on a lot of assumptions. The main one being that the property will increase in value. What if it doesn’t increase to the amount you expected it to? It does have its place when used wisely.

Andrew

Yes I did not mention that they won’t use your gross rent but will apply a discount factor to take into account agent’s fees, council rates, strata levies, repairs and vacancies (which makes sense).

A general rule is 20% discounting but it varies between lenders. Best approach would be to approach different lenders and provide them with your financial statements for the last two years to show your profits.