live in and then rent out unit

Just tell the accountant when you first advertised the unit for rent. This is the point when all your expenses become deductable. He/she may want to discuss the next two points below as well:-

You don’t need to inform the bank, but if you plan on doing it long term it may be advisable to convert the loan to interest only, in which case a discussion with the bank is needed.

Also, you may want to have a depreciation schedule done to help with the tax situation.

Cheers,
Marc.
[email protected]

“Hi guys,

Everyone recently has been talking about interest only loans for property… If I was adopting a “buy and hold” strategy what is the advantage of buying a property with an interest only loan and that is still negatively geared?

I ask because if the property is negatively geared (which it most likely will be) than you are totally relying on capital growth and possibly rents rises to offset your losses. This is fine but what happens in 10 years if your property hasn’t gone up much money and you still haven’t paid any of your principal off???

Can someone please help because it doesn’t make sense not to pay of the principal as well. Especially when at the start of the load the P & I repayments aren’t that much larger than I only repayments…

My second question is if you have a 100% mortgage offset account and have say $20,000 in the account will the lender general let you pay this whole amount of your principal amount?

Cheers,

Paul”

My 2 cents worth;
The advantage is that the I.O loan will improve your cashflow situation and allow you to service a neg geared property more easily.
Also, many I.O loans allow you to pay off some principle when you like, but there is no commitment to do this so there is less pressure. Personally, I believe you should apply debt reduction as much as you can anyway as it improves your equity position and your overall financial statement in case of something unforeseen.

As for the cap growth – if you have done some good due diligence and selected the right property, you should not have to worry that your property won’t go up in value in the long term.

Many people advocate not paying anything off your investment loan; you just sit on the balance forever and a day until the values of the properties go up and make the loan look small.

But I agree with you; I think you should pay down the principal wherever possible. I like making a profit. The more profit I make, the less I have to work. If I am paying out less than I am bringing in, life is good.

Cheers,
Marc.
[email protected]