6 months ago I purchased my first, new property in Homebush West for $340,000 and now deciding to rent the place out for $410 p/w. I have someone moving in next week.
Currently I have a loan of $270000, which would make the whole investment positively geared.
My question is, should I/can I borrow again to invest into another property to help leverage my tax outcome. Or is it better to pay off this apartment a little more. I don’t have any major commitments (besides the first apartment).
If buying another property is wise, is it worth paying for mortgage insurance?
I’m a new investor, so I apologise if I sound stupid or haven’t used correct terminology. BTW, I currently earn around 60K.
rambo 1
Maybe your property is not positively geared, have you added all your depreciation items etc etc, also be aware that interest rates are rising maybe by another 1 % this time next year, its a changing times we live in, so factor them in. Good to see you are getting a good rental return.Take a step away and think ………..what do you really think house prices are going to do over the next year……if they are not going to rise rapidly then keep paying off the current IP. If you think ( I don't ) they are going to rise rapidly, then go out and get another IP. Sit down and do the sums.
It all comes down to a plan – think ahead and think of what you are wanting to achieve. Think about the types of risks that you feel comfortable with. A few things to keep in mind:
1. if you have a debt that was used for business or investment purposes, then the interest is tax deductible. That being the case, on a tax bracket of 30%, your effective after tax rate of interest that you are paying is probably somewhere in the 3-4% range. That makes it very cheap money. You have to think of the alternatives of paying it off when every $100 you put on the loan only saves you $3-4. If you were to invest that money, it's possible that for every hundred dollars you could net more. If you feel comfortable with that idea, and feel that there are better potential earnings out there, then yes – buying another property is a great idea.Paying mortgage insurance – well, it's evil, we all hate it, but if you have to pay it I usually tell people to just go head and pay it. Why? If you do your analysis and work out that you're getting a good deal, all costs in included, then you're getting a good deal. It's just another fee that you have to pay, and it's a cost of investing. Avoid it as much as possible, but don't let it be a main decision driver for your choice to buy or not. I've seen people miss out on great opportunities that could have made them some serious returns, if only they had forked out the additional $$'s for LMI (Lenders Mortgage Insurance).
Great questions, and don't feel silly or stupid asking things on here. We all started out where you are, and it's a great and liberating process to learn how to take control of your financial future.
Hi, depending on your age, you could 'contribute' excess monies into super.
Try not to pay down the investment loan as far as you can but you need to have a lot of willpower to not fritter away money on nonproductive purchases.
A point to note here is even for a novice, you managed to buy something that's giving you such a good yield. You may have the knack of finding the performing properties. So if you can find another one just as good, what's stopping you?
Good luck & congratulations, you've done well.
KY
Hello hello
I must admit I see far too many people scared of "wasting money" on mortgage insurance. I've seen people absolutely refuse to pay out $3000 in mortgage insurance and therefore save for another three years to get over that magic 20% deposit line. Chances are very good that in three years time, prices are going to go up more than the $3000 they "saved" by not paying LMI.
I also believe that thinking that LMI is a bad thing is not the best "wealth psychology" way of looking at it. I look at it this way. I am able to make the choice myself as to whether or not I want to be highly geared, and I happily pay for that privelege when I deem it appropriate.
Whether you decide to jump in highly leveraged and pay LMI really depends on where you think the market is going. If you're still hunting around Inner West Sydney (and I would be), there are pretty strong arguments to say that things will make a move to return to the extrapolated line of best fit for the moving average in the near future.
However, the imminent reduction of the FHOG, and increasing interest rates must have some deleterious effect. What the net effect will be, however, is really anyone's guess.
If you're happy with risk, and can afford the repayments, then leverage yourself to the hilt, and go for it! However, I would strongly advise against the strategy where you borrow extra funds to pay off a shortfall you really can't afford in the hope that you can refinance again at a higher level in a couple of years.
God, I just read that sentence, and it doesn't make any sense to me – and I wrote it!!
Ask me for clarification if you need it!
Andrew
way prices are going
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