Hi,
My idea of "ideal" propery investing is this:
1 – to purchase property that is positivley geared at the highest possible LVR (ideally 95%) so that the minimum deposit is required
2 – Have the loan for the property on principle & interest and still be positive
3 – Still acheive capital growthI know all of these things are hard to acheive at once, and some people will say is impossible. After a lot of searching and waiting i have a found and purchased a property that meets all these requirements, of course the capital growth is to be assumed. the property is a renovated 2 bedroom unit about 5kms from Brisbane.
If the property did not go up at all in value over 20 years, of course this would never happen, but if it didn't, the rent would pay the property off and I would have this asset at retirment. With the property i have purchased i would have a few dollars left over weekly after loan payments (p&i) and expenses. Great deal!
What I would like is some peoples opinions on positively geared property on interest only. I know the idea of of investing in positivley geared property is to generate an income, but reinvesting the surplus after expenses in the way of a principle payment works for me as well, but it does greatly limit the amount of properties that tick all the boxes. I feel that even though I could create an income from an interest only property i would never own the property and what is the point in that. I don't feel comfortable in taking the chance of a capital gain… i would prefer to know that i am creating equity by having debt levels reduced
Only one thing that i can think of is to purchase property on interest only for a short period of time, only to secure it and then increase its value or perceived rental value and change the loan to principle and interest at that time when it does meet my requirements.
any suggestions or comments would be greatly appreciated.
thanks
It depends.
If you have non-deductible debt, then I would concentrate on paying that off first before paying down an investment loan – otherwise you will be kissing money goodbye (ie paying more tax).
If you have no non-deductible debt, it may still be wise to get IO as you can then afford more investments. You can still use a 100% offset account to save interest with any spare cash while waiting for the next investment to occur.
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
I am with Terry.
An interest only loan with 100% offset account gives you both choice and flexibility.
If you still feel the same way in 5 years time and personal circumstances have not changed whereby you now have some non deductible debt you can always pay off a lump sum from the offset account.
Richard Taylor | Australia's leading private lender
IO is probably the way to go, but make sure you can pay off the loan at any time (check exit fees also) and you can pay off more than the monthly interest amount. That way you can pay off more when you have the money and pay minimum only when things are tight.
nhb – A 100% offset account gives mitchell the same benefit but also preserves the tax deductability.
Making principal reductions looses the Tax benefit forever.
Richard Taylor | Australia's leading private lender
Hello
Is the'100% offset account' described above, the same as 100% interest only…?
I am just a beginner investor living in Wellington New Zealand.
Warm regards
MargaretHi Margaret
No an offset account is a on call savings account linked to the mortgage (albeit separate) where the investor or home owner can deposit funds as per a normal bank account.
The difference being is that instead of receiving interest on the funds and having to pay Tax on the amount the Gross interest that would have been paid (on the basis that the interest received is the same as the interest being charged on the mortgage) is deducted from the interest actually charged on the home loan.
Assume $100,000 loan amount with an offset account that had $10,000 sitting in it for the month.
Interest would now only be charged on the difference being $90,000.
Interest is charged and paid on a daily basis on the balance outstanding.
Richard Taylor | Australia's leading private lender
I agree with Terryw's suggestion, i.e. if you have outstanding non-deductable debt then focus on paying off that first and have your first IP on IO.
But once you have repayed your non-deductable debt, I personally would prefer to stick with PI.
I feel more secure when I dont have too much outstanding debt
I guess it depends on individual's personality and whether you feel comfortable in debt or not.If you plan to invest in multiple IP then it would be wise to go for IO since it can give you more borrowing capacity.
Cheers
VidyHi Vidy
This is not the case my friend
If you plan to invest in multiple IP then it would be wise to go for IO since it can give you more borrowing capacity.
as lenders work out your serviceability based on a P & I repayment using their assessment rate rather than the actual interest rate being charged.
Richard Taylor | Australia's leading private lender
I guess it depends on individual's personality and whether you feel comfortable in debt or not.You must be logged in to reply to this topic. If you don't have an account, you can register here.
