Negative gearing and Interest only loans questions???

Thanks Terry…very helpful.

What if you had no intentions to expand your portfolio including buying a PPOR? In that situation, wouldn't it be better to start chipping away at the principle?

I guess though, keeping them as IO loans provides greater flexibility if one wanted the option of buying/ investing more in the future. Flexibility is key!

Cheers

It is not a bad thing to pay down the principal on an IP as long as you dont have any non deductible debt (Trust me i paid off
$9.6M in nearly 10 years on our portfolio) but it is the opportunityof cost that is the issue.

It is what you can do with the extra monthly amount that makes you different.

Sitting in a IP loan going nowhere or using it to fund deposits on the next half a dozen properties which over the next 10 years is potential going to make you a decent return is the difference.

Have said all that if you are comfotable and nicely living off the rental income of your portfolio why wouldnt you pay down the principal debt.

Cheers

Yours in Finance

Hi Andrew

It is usually just one offset account per loan. Some banks only allow one, others may allow more than 1.

interest is just claimed on your tax return. It is self assessment so you just write down the figure on the return. You can get the figure from adding up all the interest you have paid throughout the year (and sorting any deductible from non deductible etc).

If you are nervous, then that may be a sign. be careful of investing the the CBD

Hi All,

I'm a novice like many on this forum, and WOW getting my head around some of this stuff is doing me in. But at the same time so helpful.

A question on IO , I was looking at a couple of the banking website calculators and after the IO  repayment ends ( in this case 10yrs ) the repayment seemed to increase ??? . I feel like I'm missing something . Because you seem to pay the interest off  every mth and the priniciple stays the same ( lets say a  $ 300,000 ) but once that ends where do you find the extra $ to pay down principle and interest now.
Please someone explain what i'm not getting.

We have a IP that we purchases 12mth ago ,and really keen to buy another IP and also want to get into bigger PPOR 2 and rent out PPOR 1. So really need to understand this better. Would really appreciate your input.

Cheers

If you make a loss, you declare the loss on your tax return and it reduces your taxable income.  If your loss was say, $100k, it does not mean you get $100k refund.  You get some of it back, depending on the tax bracket you fall under.

If you only ever had IO loans you will never pay off the property. But this isn't necessarily a bad thing because:
1. You can get to own more properties but stretching your investment dollars further
2. Inflation and price growth.

Imagine, my friend's parents bought a property in Sydney in 1960s for $16,000. It is now worth $1mil+. The annual rent would probably be twice what they had paid for the property. Imagine if they had used an IO loan initially. they would still owe $16,000!

Yes let them pay the bills.  Meanwhile the property goes up in value, so in say 10 years you could sell one property to pay the debt on two or three other properties.  You simply have to be patient.  Acquire some properties and let time do its thing.