Hi guys,
I have a rather newbie question, please go easy on me.
I am a first time property buyer. We are prepared to buy a house that we can afford without taking any home loans. However, some of our friends suggested to us that we should still take a home loan. Something to do with the tax return, etc. I don't really understand what they meant and they couldn't explain this very well.
To me it sounds very strange, if I can afford it, why should I take the loan and be obligated for the huge interest? I am therefore seeking for more opinions.
Thanks in advanced!
It depends upon the outcome that you are after and the long-term plan for the property. That is, if you are looking to purchase a house to live in for the next 5-10 years then (without knowing your circumstances) it is possibly best for you to purchase without a loan. If on the other hand you are looking to purchase as an investment (or to live in short term to take advantage of the FHBG), then by having a loan you would be able to claim the interest and other costs once you rent out the property – borrowing will increase the amount of tax relief you could claim, without it your offsets against rental income would be minimal.
Even using a small loan will help you to establish a credit rating and a relationship with a financier.
Are you planning on renting the house out.
The tax deduction is for the expenses incurred to derive income from the property.
Also how new is the property as you can claim depreciation on the building costs if new of 2.5% a year however your capital gains tax liability will increase by 2.5% a year if you claim it.
Another thing is your tax rate on your job income.
see my explanation in this previous posting https://www.propertyinvesting.com/forums/getting-technical/legal-accounting/4327544One method is to put enough cash into the property or an offset account to make it cash flow positive if you are investing.in a rental property.
If it is a PPOR or main residence it is not tax deductible so you don't want to borrow as you cannot claim the interest expense or any other expense.
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