Hi,
I have a mortgage and negatively geared investment properties. What to pay off first: home loan, or investment properties (to transform them into positive gearing)? And why?
Thanks in advance.
Regards,
Igor
Well it depends…
With negative gearing you get all sorts of nice tax deductions, where as having a home mortgage you don’t get the same taxation benefits, so I would say your house. However you can use the extra money to positive gear the IP (say $150p/w), then use that money ($150p/w) and the rental/+CF into your house mortgage payment. This could get it paid off faster (if thats your aim).
But in my mind it all depends on the IPs debt level. If it was going to take a long time to make it CF+, it would probably be better to use it on your home mortgage and use the equity to buy CF+ property (borrow agisnt the euqity in your home and use that for deposits), while still getting some tax benefits.
Rgds.
Lucifer_auLucifer_au,
What you’re saying sounds very reasonable to me. Almost everyone advises me to pay off home mortgage first. But lets have a look a situation: I’m working very hard to pay off the home loan, and at the same time have to spend extra money to keep on IPs. After few years I finally paid off my home loan, but lost my job. As a result I have money locked in the walls, but negatively geared IPs without cash flow to keep them on. So, for me it sounds like chicken-egg question: save on tax, or save on financial security? Any other pros and cons?
Thanks in advance.
That isn’t logical. Your debt is a fixed amount. If you pay off your home loan and leave the Ips as IO then the total debt doesn’t change – just the proportions.
Pay off the non deductible debt first.
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.
Hi Igolsoft,
Certainly pay off your home first as you are the only one who can do this. Whereas, even with your negatively geared IP, the taxman is still helping you to pay for parts of this debt.
You may also want to consider converting your investment loan to interest only (if you haven’t already), getting a depreciation report done and/or submitting a PAYG variation application (if appropriate).
While these may not necessarily help you pay off your loans they can aid your cashflow situation and combined with an offset account linked to your home loan will progress the rate of loan repayments too.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Hi,
I would never pay my home loan of, why i read in a book Trust Magic by DaleGathrum-Goss that most people live in thier house for approx 5 to 7 years and then upgrade.
And goes on to say how banks profit from this.This is my personal opinion.For this reason when i purchased my PPOR i always had this in mind so i could convert it into a Investment property.If i had paid it of their would be no tax deductions and you probably would have to pay more tax because of the rental income. Not to mention the costs of buying and selling.
So i use a %100 offset account suits me fine.My extra money i have either sits in offset account %100 on my PPOR at the moment or i can use this cash for a deposit on IP’S or improvments.
As i understand as long as the cash is not placed within your PPOR loan when you rent it out it will be a tax deductiondepending how on your rent and loan.In my case it will be a slightly positively geared investment property.
Dom
[biggrin]i think it will pay off the home loan first, get rid of it or at least pay it off as much as i could as it’s non tax deductible.
Well if u move after 6-7 yrs, then most likely there are some loans left to pay off.. so u can still use it as IP.
Otherwise, if you are super good n manage to pay it off in 3 yrs like Anita Bell, then u can always use the equity to purchase IPs and it will be on loan repayments again. if that’s what u’re after, Negative gearing.
IF you’re after profit, positive cashflow properties is the way to go really.
anyway, i would prefer to pay off my home loan as much as i could first, use IP to deduct tax, depending again on which taxation bracket u will be in. I’m going to be in the highest bracket 48% when i start work next year, so that would work for me, but ideally i prefer Positive cashflow properties.
cheers,
There’s no Such thing as No Can’t Do!!!!!
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