I am guessing that interest only loans would be good for buy-renovate-sell, and flips, and P & I loans are suitable for PPR and for a buy and hold strategy. When else is it advisable to use these two types of loan in property investment?
Investment loans should always be IO whilst you have any nondeductible debt. ie a PPOR loan or any other significant loan such as a car loan or large credit card debt.
Focus on reducing the non deductible debt. The overall debt reduction is the same but the tax benefit improves.
The other time an IO is good is when you are trying to maximise your cashflow to qualify for or service additional debt.
This is usually an issue a new investor struggles to comprehend at first.. Stop thinking like a person whose only goal is to buy a home and pay it off ASAP [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.
Bristow,
One aim of investing is to “control” the property, not own it. Therefore IO works best for investment loans. P&I is best for bad debt, ie PPoR where you want to pay it off at quickly as possible. This is because bad debt is not deductable, where as good (investment) debt it.
James
Originally posted by plankton:Bristow,
One aim of investing is to “control” the property, not own it. Therefore IO works best for investment loans. P&I is best for bad debt, ie PPoR where you want to pay it off at quickly as possible. This is because bad debt is not deductable, where as good (investment) debt it.
James
Good points James [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.
There is more to loans than just the IO or PI part. IO is the way to go if you want to build your property portfolio.
There are other things to consider when taking on loans. Remember to check what sort of loan is best for the deal you are doing. For instance, You may have a huge break fee should you wish to pay out the loan early on a sale of property.
There may be variable interest only loans or Fixed interest only loans. I recommend you do what you think is best for you & your circumstances. Ask lots of questions before doing it & be sure they answer the questions you ask.
I also think it is important to check what the interest rates are (and compare). Use your bargaining tools to find the best deals.
Good luck. Di
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