It seems most of the examples ( in the book) for the buy and hold strategy prefer to use interest only loans. I know typicaly, the difference in these two type of loans are generally 2%. Hence I can understand why interest only is the more attractive option.
Typically what percentage of the deals are used with interest only and what percentage with your normal variable rate home mortage type of loan?
Is acceptiing a lower positive cash flow (or even neutral cash flow)sum per week for the trade off, say in 25-30 years you’ll have clear title ( ownership) over the property worthwile?
Therefore the startegy is aiming for quicker access to a larger equity amount sooner for the trade off of lower or neutral cash flow. Is it a worthwhile exercise?
Jason
I would only use PI on investments if I have paid off my home loan. It is better to reduce non deductible debt first. Steve has a different strategy, where he likes to reduce debt. It depends on what makes you comfortable.
Terryw
Discover Home Loans
North Sydney
[email protected]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
Hi Jason,
From what I remember about the book, Steve always uses P&I loans, rather than IO.
I believe the only time Steve & Dave use IO is for commercial loans.
Steve & Dave (and myself) believe in repaying debt and lowering your risk.
I think that especially in this climate of increasing interest rates, and possibly decreasing house values, that P&I loans are the smart way to go.
Good luck,[
]Del
Hello M Spec
I think it depends on what strategy your using as to wether you want to use io or p+i.
When positive gearing you may find it better to use p+i because over time your repayments will get lower and thus increasing your positive return. After 25 years you will get to own the property but the downside to this is over time you decrease your interest and can claim less back at tax time.
When negative gearing and capital gains are your concern I would use io. This way you your repayments are slightly lower and you will always be paying the same amount of interest and claiming the same each year when you do your tax. The downside to this stratergy is you will never own the property and the main gains are made when you sell, although you can still borrow against the equity to finance you next ip
My personal stratergy will be to use a combination of both these styles were the property making the positive return but low captial gains balances the negative property making high capital gains.
In the end what you do is up to you and whatever suits your personal investing statergy. Maybe speaking to an accountant who knows your personal situation is a sensible idea.
Hope I helped
Scott
“Together we combine our strenghts and eliminate our weakness”
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