I was having a discussion with a mate in regards to owning a property. Obviosly it is good to own the property you live in for tax reasons but say you borrow for a investment property.In x amount of years you nearly own it and it becomes positivly geared.I am under the understanding is it best to then borrow against that property and buy another one so there is enough owing on both of them for them to be negativly geared.Now does this pattern just continue indefinately or is there a good time to own investment propereties completely.???
Hi Devo76
There is no simple answer to your question, but here are some things to consider.
Not all IPs are negatively geared. And of those that start negatively geared, some become +ve more quickly than others. The main factors here are rent and how fast it is increasing, LVR (loan to valuation ratio) which can have a bigger influence than interest rate but both determine loan repayments, and your risk profile.
If you have an income other than from property investing, then you may be able to cope with -ve gearing. Some people are aiming to live off their property income and for them -ve cash flow is generally avoided.
Then there is the uses one can have for the debt. One doesn’t have to discharge the mortgage when you pay out the loan. The available debt can then be used as working capital for a renovation, for buying other property, for developing, or for any other investment. Dumping funds into a loan can be a convenient way to park funds from a property sale if one has a loan that works this way.
So, when would I own an IP freehold? The most likely time is when I buy it using funds from other properties. I try to hold enough funds in these other loans so I can offer cash perhaps have an advantage over others that have to include a finance condition in their purchase contract.
Would I discharge a mortgage before disposing of a property? I don’t know. It is possible and I can think of circumstances (such as estate planning) when I would consider it. But not at the moment.
I hope that helps a little.
Mum
So for my wife and i it would make more sense to go for negative gearing than positive cash flow as we have a fairly high desposable income and i pay a fair amount of tax.. Is it worth having one negative geared and one positive cash flow property. I ask this becouse the IP i am after leaves no financial burden on me( same incoming and out goings). So i guess we could look at another property. But i guess it would be better to get our home loan down before we get too deep.Still owe $200,000 on a $320,000 property.
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