Hi all, just wondering what you would do in my circumstance. My hubby and I are looking at having babies next year and going down to 1 wage. We have 2 IP's. 1 worth about $290k – owing $65K under my name (positive). The other under hubbys name worth about $430k – owing $294k. ( We are currently paying off land (ppor) worth $550k – owing $95k. Im hoping to give up work mid 2011 if all goes to plan. So…..we are building at end of this year and probably increase PPOR by another $350k with the house. Our land should be paid off by April next year so $350k will be owing when I give up work.
What happens to the IP under my name when Im not earning an income taxwise. Am I better off just paying IO and keeping this loan open in case we want to invest again when I go back to work in years to come, or selling it and taking a chunk off PPOR.
Any advice would be appreciated and I thank you in advance
Well me and my mrs just had a baby and have gone down to 1 wage.
My theory is that the more properties you own the more capital growth and rental income growth you can get. By selling you I/O you are going from 3 properties to 2 properties in order to buy a liability (a loan).Let me explain:
Money by itself is a liability. It loses its value every year due to inflation. $100 in the 1920’s was worth a hell of a lot more than it is worth today. I remember in the 90’s paddle pop’s were 65c now they are $1.30. They cost twice as much now, but they are still worth the same value. This tells us that the money has lost its value. A paddle pop is a paddle pop, but $1.30 in todays money is only worth $0.65 of money in the 90’s. Make sense?
When you pay off a loan you are indirectly ‘buying money’. This money will lost its value every year (around 3-5%). But property keeps its value, and as the value of money goes down, the price of property goes up. Money always goes down, so property will always go up over the long run.
If you can get your investments to pay for themselves (so then the 7% interest or whatever doesn’t come out of your pocket). Then I would stock up on properties instead of focusing on paying off loans.
I wouldn’t leverage to the hilt. Interest rates are going up and you definately need a good buffer…but I wouldn’t just pay off debt. I would want to buy a couple more positive cash flow properties while I was still working, and then let them pay off themselves and your land.
Bit of a long post. But basically if it were me. I would buy CF+ properties (if I could) before I stopped work and lost the borrowing power and I would keep the current properties.
Ryan McLean | On Property
http://onproperty.com.au
Email MeI have had two children (well, not me personally). As you are doing, plan for this period. There are many ways to survive the children years, such as drawing down equity. i.e. improve your cashflow, and hold on to the properties where possible. While you own property you have a passive income….. When you sell, you join the rest of Australia investing in Lotto or like….
Please note: you have already done the hard work…..
Number 8 is right. You have already done the hard work. You are in the game and you have started generating passive income. There is little sense in going backwards. You don’t want the join those putting all their hopes in winning the lotto.
Ryan McLean | On Property
http://onproperty.com.au
Email MeThanks for replying Ryan and Number 8.
I agree with what u are saying and I now think we should keep them. Thank you for putting it into perspective. I know we have heaps of equity to invest more but just a bit nervous with the whole going down to 1 wage thing. I suppose that is where the due dilligence comes in.
Ryan, are u saying we shouldn' be paying off the land loan. I just got confused there I think because I was always under the impression that paying off non-deductible debt (ie PPOR) was more important. Or am I doing it all wrong.
Thanks again
ThirstyNo I am NOT saying you shouldn’t be paying off your land loan.
Just trying to get the concept over to you that money is a liability and property is an asset. Some people focus so much on paying off debt that they never collect any assets. In the end they might end up with no debt, but they have no assets making them rich. For me, I like to spend my money on property that pays itself off (including the debt) than just spend my money paying off the debt myself.
That is all I was trying to say. Just trying to get a concept across, not trying to give individual advice. Sorry if I confused you.
When it comes to not paying off debt I wouldn’t speak to me. I am not a broker or financial advisor.
Ryan McLean | On Property
http://onproperty.com.au
Email MeHi looking for some advice also in regards to this I have 2 IP's and a PPOR both IP's are I/O and a LOC on the PPOR maybe moving overseas in near future so thinking of selling PPOR because its a nice family home with good gardens etc have own the home for 3 yrs and should be back from overseas in 3 yrs time.
So 6yrs in total which should show good growth thinking of selling PPOR in newcastle area and buying a cheaper IP in the Newcastle area but worried I miss out on the already and potential capital growth over the next 3yrs while overseas.Any help would be fine.
Thank you
Ok, thanks Ryan. I just got confused. Yep…..definitely going to keep them. Unless, of course we come into financial difficulty. But at this stage we r lookin good. Thank you for all the advice.
Thirsty
You must be logged in to reply to this topic. If you don't have an account, you can register here.
