We have one Ip and are just about to purchase another. The company my husband works for supplies our housing so we do not have any rent/mortgage.
We have a I & P loan. We have about 100,000 equity in property number 1. The next property we want to purchase is $180,000. We DO have a 20% deposit BUT everyone is telling us we should not use our own money and use the equity on the other IP. I am a little old fashioned regarding finance and feel I would like to at least OWN some of these properties one day.My question is this:
What are the tax advantages of IO loans?.
Should we get another loan and use our own money for deposit rather than borrowing someone else’s?Hi Daltoid,
The repayments on an interest only loan are less than the repayments for the same size P & I loan. This enables I/O disciples to generally hold more property than if they were making P & I repayments.
Bear in mind it is only the interest component that is deductible – the principle component isn’t deductible. As such you do not gain anytax advantages with a P & I loan over an I/O loan – but you do gain increasing equity.
I would recommend you set up an line of credit using the equity in IP1 for the deposit and costs for IP2 and retain your cash in an account offset against IP1 – this way it will reduce your interest bill and allow you to retain it and have ready access to it should you ever need it.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Derek is spot one.
I would recommend you continue to save your funds in an offset account.
When you do wish to buy yourown home one day you will be glad you had done this.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Might I suggest that owning your own home is a very sound idea. Everyone needs a place to call home.
daltoid,
Whether you use 36k cash, or 36k equity… it is still *your* money you’re using. Cash is king. I’d cross-collaterise. I think if we are purchasing thinking we are going to lose everything, and our PPOR will disappear… then we’re going into transactions with the wrong psychology.
I know others suggest to never risk one’s PPOR, but to me, nothing we do is a risk, if we are prepared and have fallback plans if something goes wrong. But we would never invest if we spent too much time worrying about losing it all. Investment plans are about growing wealth, not losing the shirts off our backs.
kay henry
I agree with kay henry .if it wasnt for x coll i would never have been able to get a start in buying ips i now have 4.if you have done your homework a lot of the risk would be eliminated.if you go into investing worrying you might lose it all maybe you shouldnt buy.
never never never sell
Is risking the shirt on your back a good idea is it?[eh]
i always got told never put your home up if you can help it and sometmes it has to be like that but if you are renting then thats not an issue coz you aint living under your own roof to risk losing!
and all you have is your IPs at risk!Good point Hot shot. Be very careful about putting your PPOR at risk.[buz2]
Hi All,
No question that using your home as security for investments needs to be carefully measured and assessed.
But consider the alternatives – Saving a lump sum using the dollars left over after the ravages of the ATO can create a (sometimes insurmountable) hurdle for would be investors.
An evolving school of thought is the wise investor uses their equity to hold a larger (but still measured and carefully assessed) capital base than would typically be otherwise possible.
But then it is all about different strokes for different folks.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
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