first time starting points

Generally you will want to have your investment property interest only and work on paying off the debt against your PPOR.  I think you may be getting a bit confused about negative gearing. 

Regardless of whether the investment property is negatively or positively geared you want to pay off your PPOR first.  Your PPOR debt can't be claimed on tax where as your investment property interest can  This is why you want to pay off your property first.  If your mortgage broker cant give you that basic bit of information i would be a little concerned.

To try and give a very basic idea of negative gearing, If you receive $10,000 in rent per year and pay $12,000 in interest you would loose $2,000 = negative (not taking any property expenses etc into account)  the loss equal negative.  If you had a property that was rented for $12,000 and paid $10,000 $2,000 profit = positive  (not taking any property expenses etc into account).  Taking this into account if you pay your investment loan off before your PPOR loan you now receive $12,000 rent but have no deduct able interest now you make $12,000.  You are eiher taxed or can claim a deduction against your income for the amount of profit/loss. 

I hope this gives a bit of an idea of why you should be paying off you PPOR debt.

Dustin McMahon

[email protected]

0430 110 304

Welcome aboard. Your question is entirely appropriate and you'll probably get a few responses over time. Some of the responses may vary a little – the challenge you may have is to work out what suits you & your situation.

While Dec 5 seems a long way off – in property terms, it isn't. My understanding of an end dated pre-approval such as the one you have is that a finance application should be submitted before expiry date. One of the resident brokers will clarify this.

If this is correct you may want to do some 'homework' to get a wriggle on.

Having said that – an expiring 'pre-approval' is not the end of the world and it is better to make a good decision, rather than a hasty one. As an aside interest rates have recently reduced so your borrowing situation may have improved in light of recent rate movements. That is, if the remainder of your situation largely remains as previous.  

Keep it simple at this stage – work out what your broad plans are, kids in the picture? work changes? lifestyle changes? job security? your ages? your timelines? your current financial position? etc. All of these factors should be considered as they will help you determine your strategy and, from that, what sort of property you should be seeking. 

Once you have the big pieces in place the rest becomes a little easier.

If you do negative gear then you do not have to wait for the end of year tax return. It is possible to complete a PAYG tax variation to estimate your tax position at the end of the year. It can result in you tax being reduced every pay period rather than waiting for the lump sum when your tax return is processed. The PAYG doesn't equally apply to small business owners and is most suited to wage and salary earners.

The issue you have with negative gearing per se is that you largely spend a dollar to get part of it back. The portion you get back varies according to your taxable income.

On the other hand positive cashflow will give you additional income (less some tax) that could be directed towards your mortgage.

The tricky part is that in some case depreciation can help make a property which on the surface appear to have a negative cash flow into one which is positive after tax benefits are applied.

Which ever way you go you may need to consider ownership structures and make up to maximise any tax benefits that are available to you. If the property you choose is negatively geared then the higher income earner should own a greater proportion – if the property is positive cash flow then the lower income earner should own more.

And then there are trusts etc

See above – as rental income increases or your taxable income reduces then the impact of negative gearing also reduces as you fall through the various tax boundaries.

I would argue you don't NEED to negative gear. Sure it is an option but you don't have to. Would really need much more information to provide a more detailed response.

I can understand this – some experts simply don't want to go over to a field in which they have no qualifications. Litigation and licensing put an end to that a long time ago. I might add the tax, finance and legal world is a constantly shifting position and unless you specialise in an area – keeping up can be hard work.

Hope this helps.

Pre-approvals can generally be extended for another term (90 days or so) before the expiry date.

Cheers

Tom

Hi Tom,

Is the 90 day extension fairly widespread or confined to a limited number of banks?

Cheers

The former, Derek.

Though as Jamie has mentioned, if you have been pre-approved once and your situation hasn't changed, there really isn't a need to renew/extend though people do want it for their own peace of mind.

The big question is how reliable the pre-approval is in the first place. There is a thread on this forum in the last week or so which went over that.

Regardless of the pre-approval, I always suggest that any non-auction purchase have a subject to finance approval clause added in the contract.

Cheers

Tom