We have two investments properties both on LOC / IO loans. 1 is +ve geared while the other is –ve geared. Last year we bought a new house that is a sizable debt that will take a very long time to pay off. I am 32 and do have time to do this and everything that is left over from our IP’s goes straight onto our PPOR, however I have been thinking about selling atleast one of my IP’s to help reduce my PPOR debt. Then when the time is right by a new IP – should I sell my IP or just keep everything and pay down the debt slowly.
Our main goal is to be financially independent when it comes time to retire around 65 and not rely on super.
There is no need to pay down any debt, you may be missing a several important points about property investing. I have never made a repayment in my life, yet retired (kind off- I work for fun now) at 33 owning my own house outright ($1M) with many IP's.
Don't sell, unless you want to live the same financial life as everyone who steps before us and talks about paying off their mortgage like it is the thing to make you wealthy, and then retires at 65 with just enough….. Not my idea of good living. I didnt go to work today???? That is the difference- but then again it is raining outside in Sydney- who would go to work….
I don't want to sell anything, it's my partner who wants to reduce the debt on our PPOR. She wants to pay off our house asap. I see it that our IP money/rent helps to pay off our PPOR, is tmy thinking correct? Also you siad I have never made a repayment in my life – can you explain how you did this?
Hi Pauln,
Peter Spann has recommended people consider the 'sell investments to pay off home' approach – at the end of the day it is up to the individuals to determine what suits them and their situation.
If this is something you want to do I would suggest it only be done if the sale makes real & significant inroads into your PPOR debt. If it only gets it down a little I would certainly hang on to the IP until the resultant pay down is worthwhile.
For what it is worth your goal of being independent at 65 is very achievable.
pauln wrote:Also you siad I have never made a repayment in my life – can you explain how you did this?
I think he means he’s never paid off principle.
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Correct, I have never made a principal payment in my life. I consider the interest payment an expense or the cost of holding an asset. The principal payment that we are all hung up on, merely is money down the drain…. i.e. you are making $$$ on the appreciating asset, why do we need to throw more money in this direction?
An analogy: A child will grow with the right nourishment, when you feed your child extra they don't grow faster…just fatter (the abesity epidemic). The same applies to a mortgage. Why not feed another child…. or in our case another property that will also grow in value…. Now we are making money….. I hope this Mcknight guy that plasters his 0-130 stuff all over the side of this page does not steal this one……
Remember: You heard the child analogy from the Birch first…. I am going to call this the "abesity strategy".
You need to weigh up the transaction costs & CGT (& time/headache) of selling, then rebuying a new IP at a later date versus the interest savings of your PPOR loan. There is also the lost opportunity for capital growth of your IP. This is the same answer as Derek’s in essence – it has to make a big difference to your PPOR loan interest savings and payback time to be worth doing. Are there any more liquid assets (eg shares, fancy set of wheels) which could be sold & applied against the loan? Also, don’t forget your rental income from the IPs plus your work-related income should go up over time which will accelerate your repayments.
Also, have a read of this thread: https://www.propertyinvesting.com/forums/getting-technical/finance/4327007
It may give you some ideas on accelerating your home loan paydown by capitalising some of your IP loan interest. I’m not an expert – contact the guys on the thread (Richard Taylor &/or TerryW) if you want to pursue something like this.What the guys are generally referring to is that they are using interest only loans, and putting any extra cash into offset accounts to reduce the interest payable.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
More than that (creating wealth is not about saving interest or saving anything for that matter), we are saying to use the money on another property (appreciating asset)…. With all due respect to the above, be careful the way your capitalise interest.
number 8 wrote:With all due respect to the above, be careful the way your capitalise interest.Further to this, to capitalise interest on an IP, you will probably need a private ruling from the ATO. You will need to prove that the reason you need to capitalise interest is to hold onto the asset, and that the reason is not to minimise tax. Talk to your (good) accountant about this.
Luke.
Thanks everyone, we are still learning all this. I believe its better to keep the IP's and pay for what they were when we bought them rather then sell pay CGT etc, and then buy new IP's at a future price.
We are currently paying the minimum off for our LOC / IO loans for our IPs, while everything else goes onto our PPOR. Although we are not using an offset account rather a normal savings account to do this – I better go talk to the bank….again.number 8 wrote:An analogy: A child will grow with the right nourishment, when you feed your child extra they don't grow faster…just fatter (the abesity epidemic). The same applies to a mortgage. Why not feed another child…. or in our case another property that will also grow in value…. Now we are making money….. I hope this Mcknight guy that plasters his 0-130 stuff all over the side of this page does not steal this one……Remember: You heard the child analogy from the Birch first…. I am going to call this the "abesity strategy".
Haha, from 0 to 130 nourished kids in 5 years. You better get onto that copyright Birch.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
On that note: How do you go from 0 to 130 in 3.5 years? Can this really be done on an average income like Mum and Dad Australia?…..I will post this as a question, so please dont answer this here, as I do not want to hijack this thread…
http://www.birchcorp.com.auIn the words of "Steve McNight", "You should consider selling your house, rent for few years because you free up a lot of your money since you don't have commitment unlike your home mortgage. The proceed from your home mortgage invest it back into the real estate market by buying more IP.
As Michael Yardney says, to create serious wealth, you need to build your asset based first.
Your approach is completely the opposite of building serious wealth hence has the adverse effect into "Financial Independent".
number 8 wrote:On that note: How do you go from 0 to 130 in 3.5 years? Can this really be done on an average income like Mum and Dad Australia?…..I will post this as a question, so please dont answer this here, as I do not want to hijack this thread…
http://www.birchcorp.com.auSteve McNight started investing in early 1999 where positive cashflow where everywhere and the real estate market has yet to experience significant boom. In addition, after Steve tackled Balarat, La Trobe Valley, they went to NZ where even more positive cashflow can be found. CGT doesn't apply in NZ hence he was able to buy and buy more positive cashflow. He bought and sold, bought and sold etc. As Steve says from his audio book, to achieve positive cashflow now, you might need to do two or three steps to create positive cash flow (e.g., put large chunk of deposit).
The only market that is suitable for this theory is the US market where IP for positive cashflow is abundant?
You must be logged in to reply to this topic. If you don't have an account, you can register here.
