In November 2006 i purchased my 1st investment property in Melbourne for $230,000. I had a big deposit and got a loan for $161,000 ( it now down to $157,000). Should i try to pay this loan of ASAP or should i use the equity and get another loan to buy another property. Would i be able to get another loan from the banks? All im asking is what would you so in my situation. Thanks in advance.
I would definitely be using the equity, to buy again. This is assuming that your 1st investment is positive cashflow and not a drain on your income. If the property in negatively geared there is only so many properties you will be able to service from your income. Great job on the deposit and paying down the loan. Keep it up.
Thank KPI. It returns $1100 per month. My loan is now is $157,000 @ %7.55 ( $987 per month ) so it is positive.
try to get a line of credit on first property to come up with minimum of 20% deposit for next loan. Do not cross co lateralise first property with second property. If you have a high income you should be able to borrow the money. It is calculated on your income and equity you have.
In regards to paying off the first loan that is really up to your preferences and goals. While you are trying to pay off the first loan you could be missing out on further growth in the non purchased second property. I purchased a second property when I had the Tax department contact me requesting me to fill out an
IAS form due to the extra income from my positive geared property.
So it may not be in your best interest to pay off the first loan in a hurry for tax purposes as any net positive rental income is taxable income..Comments are of a general nature and may not be relevant to your individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
If you pay extra off the loan on an investment, then your money is trapped. If you redraw and use it for personal reasons the interest is not deductible and it can create an mess.
A better way would be to change the loan to IO and to use an offset account. It will have the same interest saving effect but keep your deductions high if you use money for personal stuff. IO also lowers the repayments and helps you service more loans.
A good strategy is as the duckster said. Get a LOC to 80%, or about $184,000 in this case, less you current loan should give you around $27,000 in available funds. You can then use these as deposits on the next one and repeat the process.
There’s nothing wrong with doing what your doing. Some people like to pay down debt, but maybe you can fine tune it a bit.
ps I am assuming your own home is fully paid off – otherwise the spare cash should be in a 100% offset account on your home loan.
Terryw
Discover Home Loans
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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