- StumpCam wrote:
Gez it's fine to pay off your PPoR loan or save it; it's all good equity of one form or another towards your next IP. Every single dollar of equity you create by either paying off your loan, putting into an offset account or simply waiting for capital growth means that you can borrow another four towards your next IP. You'll probably be surprised how much you can borrow already if your PPoR is just a few years old. It may come down to your debt servicing ratio rather than your equity. Of course the rent from an IP counts towards your income (the banks only recognise about 75 to 80% of it though) which helps. It's a little juggling act we all have to go through as property investors.
Just one thing Gez, if there's any chance you'll be wanting to convert your current PPoR into an IP one day, then you'd be best to not pay any of the loan; keep all savings in an offset account to preserve the tax deductability of your loan.If only I knew 25 years ago what I'm preaching now! We went all out to pay out our home loan in just one year with both of us working and sacrificing just about everything so I could go back to uni for four years with no home loan and rent to pay. After uni we wanted to build a bigger house, but had to sell our first home so we could afford the new one. If I could go back in time, I'd tell myself "Don't pay off that first home loan you fool! Save all your cash for the new home and convert the first one into an IP!" I don't think 100% offset accounts were invented back then, but it wouldn't have made a huge difference for just one year. I sold that first home for 53k; they're now getting 400k for the same type in the same area.
Uni educated me on how to make gizmos, but not about property investment. I know which one pays better in the long run!
Cheers, S/C.Hi S/C, Sorry for the delay, I've been away for a bit. Thanks for the great advice. My wife and I don't plan to turn our PPOR into an IP – neither of us are the type who like to move around. I'm comfortable here now and don't intend on moving anytime soon. Hell of an effort to pay off your house in one year. Although now you're kicking yourself, look at the positives – I admire the fact that you had the motivation and drive to work your butts off, make sacrifices, and stick to you guns. You achieved something back then that isn't easy through your determination. That's the kind of mindset I'm trying working towards.
In terms of where to put my money, I read and hear a lot about putting it into your home loan as interest rates on savings accounts are pretty average now. I used to be so proud of my savings account… until I finally found out that the interest rate had dropped by around 3%. (They don't seem to tell you these things)
My aim now is to put more into the home loan (or offset account) and less into our savings account… actually, would there really be much of a need for a savings account? Or should our offset account cancel out the need for a savings account? Thanks everyone
Hi Gezzy
Welcome back.
There is no need to have a separate savings account as long as your are disciplined and dont spend the money as where else would you get circa 5.5% Tax free in the current low interest rate environment.
Richard Taylor | Australia's leading private lender
Hi Gez, I agree there's no need for a savings account, but discipline isn't really relevant when comparing accounts (Richard). It's simply the best place to park any spare cash. I only use offset accounts. You really don't want any unnecessary accounts if you're paying fees (I don't pay any with my pro package) plus there's all those statements to file.
I do have separate offset accounts with different loans however, as it's a much neater way to quarantine all expenses and rent for the investment property. You can see just how negative or positive it is if all financial activity for that property goes into and out of a single separate account.
Forget all of the above paragraph if you have private debt though! ALL spare cash, be it pay, or rent from any IPs etc should go into your private loan offset account where it's offsetting non tax-deductible debt. Neatness doesn't count then!
Cheers, S/CThanks again, Richard and S/C.
In response to S/C, I do go a bit overboard sometimes in keeping statements etc in order, but it helps me in the long run – I hate being disorganised.
I don't have any investment debt at this point in time – personal debt. My wife and I have a mortgage for our PPOR, which, as this thread has taught me, can be a great starting point to get into the property investment market with the use of equity. I will be honest and admit that I have lost some motivation as of late, but I'm hoping to get back into the swing of things by attending Steve McKnight's upcoming Rescue Recharge Revival Seminar. Hopefully it will give me the motivation I had when I left the 3 Day Mega Conference in Sydney… Hopefully I will get off my rump and act.
Thanks to all for your positive and honest feedback.
Cheers
Gez
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