For the last couple years I've been sitting on a modest amount of cash watching it acrue piddly amounts of interest. This is no longer exciting NOR does it grow that fast!
I've been toying with the idea of re-entering the property market with the purchase of initially 1 investment property and hopefully expanding to several.
I understand there are many different ways to invest in property – As my income is quite low my thoughts were to gain neutrally geared properties (at a cost of an inital outlay including deposit, mortgage insurance, stamp duty, conveyancing, build and pest etc) with the view of paying both interest and principle so that in 30 years I would have several properties generating healthy income.
Does anyone have any general thought, tips and/or ideas?
Thanks!
Hi Jacksy
Firstly welcome to the forum and I hope you enjoy your time with us.
Congratulations on taking the first step to acquire an IP.
Structure is one of the keys ways to ensure that you maximise your own cash resources and keep the funds flexible in case circumstances should change in the future.
Whilst certainly a principal & interest loan could be appropriate an interest only loan with a 100% offset account might serve you better. Certainly where possible i agree that you should look to purchase cash flow postive IP's although you are going to be limited by your income and the potential rent when it comes to determining your ability to service future loans.
Further data is needed to give you an indication as to your likely serviceability as this can vary considerably amongst lenders.
Getting it right from the start will prove invaluable along the investing journey.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
since you said you had a low income, if I was in your position, I woudl prefer to get positive cash flow properties to increase your income – and hence your ability to invest in even more properties later on – but that's just my personal opinion
Id like to hear more about the interest only loan with 100% offset account – how it is structured and what are the pros and cons.
I apologise in advance for my ignorance!
mattsta wrote:since you said you had a low income, if I was in your position, I woudl prefer to get positive cash flow properties to increase your income – and hence your ability to invest in even more properties later on – but that's just my personal opinionI agree – Sorry I should have stated this would be my intentions inititally. I onlly earn 55 – 60 so need to gain more income firstly.
Jacksy
Arent too many cons although not offered by many lenders and those that do may charge a monthly fee (We usually work it out for clients to ensure it is the way forward given their anticipated spending and savings patterns).
if you depend on the taxable interest you receive on your bank account to live on then i guess it is not for you.
Also going forward lenders will calculate the repayments on the Gross amount owning and not the net amount so for serviceability might be a bit of a balancing act.
On the plus front the net interest charged is exactly the same as if you had paid the debt down (with most lenders) although you have the flexibility that the cash is "on call". If you ever decided in the future to move into the property you can do so and then move out again later down the track and you preserve the deductibility of the interest.
If you want to pay the loan down in the future nothing to stop you doing so by way of a lump sum repayment.
Course you have to weigh your serviceability up depending on the property you are wishing to purchase and the impact of the high initial loan balance.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Do I understand correctly that interest charged on an investment property loan is a tax deduction? I think I read this somewhere.
I have managed to find a few properties that would only require about 20k total in purchasing costs then would essentially pay themselves off over the life of the loan.
If I am not after a capital gain in the property value and instead looking to develop: 1. tax offsets to my term deposit interest, &
2: A residual income base in 25 years when loans start paying themselves off.Wouldnt I be better off just keeping my cash in a term deposit and then buying a neutrally geared investment property every 6 – 12 months whilst keeping some cash in reserve term deposits.
The benefits of this would be that the properties would be paying themselves off and it would allow me to purchase another every 6-12 months.
As stated earlier I would really like to know if the interest applied on this type of loan could be used as a tax deduction.
Thanks in advance!
now back to the tennis…
Hi Jacksy
Yes interest charged on an investment loan is tax deductible and no reason why you couldnt do what you have outlined.
I started in 1996 and arrived at where i wanted to be in 2004 aged 40.
I used a combination of development, capital growth and increased rents and now life is good thank you.Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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