just quickly, is it better to have interest only or pricipal and interest loans for an investment????
i have one investment loan and that is interest only!!!!ta
Just quickly – Interest only is the way I generally take my clients.
[biggrin]
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
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.
Interest only is the way to go.
Reduces your outgoings on each property and enables you to hold more assets for the same ‘cost’
Derek
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http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113ok thanks for that !!!!! that is what i thought!!!!!!! thanks!!
ta
I would recommend checking with your accountant as to what he feels is best for your situation with that question.
Anita Marshall
Advanced Finance Solutions
http://www.advancedfinance.com.au
[email protected]It can also depend on your personality. Some people like to take PI on investments as they feel secure knowing the debt is decreasing. But for me, I would take IO, as then you have the option of paying a bit extra off the principle if or when you can afford it. Look for a IO loan with a 100% offset account.
Terryw
Discover Home Loans
Parramatta
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just quickly based on the info you have provided tamtam i suggest it is better if…
i get a 999 Ducati….trade in my Monster and spend the rest of my life perfecting the little known art of peg draggin….
mate, who knows whats best for u with three lines of not much, come on……
cheers
brahms
Purveyor of Fine Finances
aka Mortgage Broker BrisbaneJust on the topic of IO loans. I understand the tax benefits of this type of loan but what happens when you get to the point in your life where you want to retire off the equity in your portfolio where the bank says it’s time to pay off the loan. Do you sell 2 of your 10 property portfolio to pay off the rest?
And if the loans are all gone now and your system is to never sell your properties how do you draw on the equity?
This is something unfimiliar to me so please bare with me.Originally posted by john_preacher:Just on the topic of IO loans. I understand the tax benefits of this type of loan but what happens when you get to the point in your life where you want to retire off the equity in your portfolio where the bank says it’s time to pay off the loan. Do you sell 2 of your 10 property portfolio to pay off the rest?
And if the loans are all gone now and your system is to never sell your properties how do you draw on the equity?
This is something unfimiliar to me so please bare with me.You haven’t mentioned a timeframe here.
Time will reduce the debt as effectively as paying down the prinipal but, yes, there will be residual debt on retirement.
Some people pay IO for 10 years or so then the rents have increased enough that they can then pay both P&I easily.
Others sell down one or two properties to kill the debt.
Others ignore the debt and let inflation make it less significant.
Most, however, see it as a problem for later on and use the intitial phase to build the asset base only. As it gets big enough it gets self sustaining. Rents go up, valuations go up. Debt is the constant.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
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.
Thanks for your input. I appreciate it.
The time range I was thinking of was from 7-15 yrs I suppose. I mean what’s the longest a bank will allow a loan to on for?
I was told to keep renewing your IO loan but I’m sure that wont go on for ever. And if your thinking on retiring on the equity of those properties what happens when the loan is no longer there? If your thikning of never selling the property.Most lenders offer IO period for 5-10 years as standard. Usually no problems renegotiating it at that stage. Or start paying the P.
I don’t really understand the last part of your question.
Can you expand a little.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
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.
Thanks for baring with me. This is new to me.
If you rely on drawing from the equity of your house in the years of your retirement then that house must still have a loan tied to it. Is this correct? Because it’s the bank that will be giving you that money.
If your in the stage of paying off your loans and then you haven’t any loans left where does the money come from?You will need to either sell a property for income – or borrow money against it – however I would think by that stage that income from rent should be providing your income if you have no more debt (depending on how many properties you have).
The only thing with selling obviously is the Cap gains. It will also depend on any other income you are receiving at the time and tax rate you are on…..many things to consider…
TD
Originally posted by john_preacher:Thanks for baring with me. This is new to me.
If you rely on drawing from the equity of your house in the years of your retirement then that house must still have a loan tied to it. Is this correct? Because it’s the bank that will be giving you that money.
If your in the stage of paying off your loans and then you haven’t any loans left where does the money come from?Well the reason we buy is for CG. So yes, you will have residual loans but we buy because we believe that the growth will be enough to make the original loan insignificant.
An example might help.
20 years ago a townhouse in Melb cost $50K. I know because I saw one but was too young and stupid to buy it.
Today it might be worth $400K.
Sure you still owe $50K but you have some choices now.
Leave the debt there and just draw money for retirement from yield and from the LOC.
Sell one or more proeprties and pay out debt.
Start paying the principal down which is more than covered by the yield.
Your call.
This may not work if you are chasing cashflow property in places like Broken Hill or tiny towns in outback NSW where there is historically little growth.
But for standard residential property this is a model than has worked in the past.
It isn’t the only path to follow though.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
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.
I was talking to a friend about this recently. His parents purchased their home in Sydney for about $16,000 nearly 30 years ago. The place is now worth about $1mil. If they still had an IO loan, then they would still owe $16k. Just 6 months rent would be bale to clear this now.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.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
Thank you all.
Much appreciated !Originally posted by john_preacher:Just on the topic of IO loans. I understand the tax benefits of this type of loan but what happens when you get to the point in your life where you want to retire off the equity in your portfolio where the bank says it’s time to pay off the loan. Do you sell 2 of your 10 property portfolio to pay off the rest?
And if the loans are all gone now and your system is to never sell your properties how do you draw on the equity?
This is something unfimiliar to me so please bare with me.It sounds like John is asking about a living off equity approach. Is this correct John?
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Originally posted by Anitamarshall:I would recommend checking with your accountant as to what he feels is best for your situation with that question.
Anita Marshall
Advanced Finance Solutions
http://www.advancedfinance.com.au
[email protected]AND I would recommend finding a good accountant..many dont know squat about stuff some of the Great Forum members here take as general knowledge
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorThat is correct Derek.
When people talk about “drawing on the equity” of the property they’re actually refinancing on the back of the CG of the property. In reality they’re taking out another loan to live off. But that’s another debt isn’t it?Hi Jon,
Have been meaning to come back to you with a comprehensive answer. However someone has provided some specific deatils which made it easier to explain (partially).
See this thread https://www.propertyinvesting.com/forum/topic/23083.html
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113
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