Heres the question, if you had $40-50000 in cash available, but $40,000 worth of personal loans and credit card debt outstanding, would you use the cash available to reduce that personal debt, or would you invest the money, using the money for 2 x $20,000 deposits on investment property?
I know this is a relatively hard to answer question, but this is the dillema I am facing at the moment.
Being fairly conservative, my instinct would be to pay off debt first. That would look good to the banks and you could borrow more for the IPs.
I could see how some more agressive types might go for the IPs first. But given your cashflow situation it would have to be cf+ property, with you only paying the minimum amount on your loan and paying off your bad debt ASAP. You might even think about interest only for a while, using the saving to reduce bad debt first.
Or what about half way? Pay half the debt now, and use the rest for a deposit on 1 IP. Pay only the minimum off the IP until your bad debt is zero. Then when you have no bad debt, put all of what you were paying into your IP. Borrow against this to get the deposit for IP #2 down the track. Though the properties (if cf +) will pay for themselves, save regularly as well.
Peter
Hi,
This is not a hard question to answer at all.I would reduce the debt first. Paying of bad debt is liberating but is sometimes hard to swallow because you feel like you have nothing to show for it and I know it is very tempting to want to put the money into something that will make you money, but at the same time you lose alot of the money you make too bad debt interst ect which takes the shine of the investment.
Besides, if you pay the debt’s of first then banks/lending institutions will look alot more favourably at you and lend you the money anyway. Using other peoples money is always alot more fun than your own. Remember debt that makes you money is not bad, but debt that costs you money is bad.Good Luck.
P.S. I’m in Canberra (Isabella Plains) as well if you ever want to talk IP’s.interesting one. personal debts need clearing, but it may also depend on if you have equity in an existing property, and what your income cash flow situation is. Also the availability factor of the properties you seek. If you had to act promptly on two properties, I’m wondering if clearing debt completely may leave you a little short for up front deposits while you negotiate.
Also depending on how you have spent the personal loans may be another factor. Are they invested in some sorts of tax effective assets or is the money just spent on non income generating libilities ?
Although I tend to agree with the debt clearing philosophy, circumstance as always can be an influential factor. [8D]
The debts are just good old consumer credit and have not been used to purchase usefull assets.
I also have 2 car leases which are payed for with pre-tax income as part of my salary package.
I earn reasonable money as a software developer, and could potentially save $25,000 in 6 months if I really tried.
I’m a little worried about investing into property at the moment as it seems that the prices of most properties are highly inflated, so I’m not even sure if I would want to risk investing at all.
I have found a few cashflow positive deals in various areas, one in particular which looks like it could make around $2300 cash flow per year without taking depreciation into account. But I would have to commit $25,000 for the %20 deposit and closing costs.
I guess im caught in the land of indecision, without half a clue in all reality
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