OK, I’m getting there slowly with our investment portfolio, but still unsure about a few things.
We currently have one IP valued at $900k with $560k mortgage (this used to be our PPoR, but now we’re living in a company house with no outgoings except $80/week rent).
Between us we earn $200k/pa.
$180k cash in bank.
Recently purchased 2 units for $420k and $403k.We have the cash to pay the deposits for both units, but is it necessarily better to pay cash or borrow the deposit (as well as the balance of the purchase price)?
We hope to build our portfolio by buying the next property as soon as we are financially able to… and so the next.. and so the next… until we can comfortably retire in 10 years. We are both aged in our 40’s now.
Is this realistic and more importantly what is the best way to structure our IP loans please?
Thanks again to all feedback received in previous posts too. The information has been invaluable.
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This topic was modified 10 years ago by
boshie.
It depends what your risk profile is and long term goals.
As a general rule it’s good to borrow as much as you can to maximise your tax deductions and preserve your cash and keep in an offset account or the like.
It’s always good to borrow money when you don’t necessarily need it as opposed to trying to borrow it when you need it because that’s when the banks are less likely to give you money.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Use equity and keep cash.
Equity will be deductible – cash won’t.
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]
OK, so this may be my next dumb question but if I’m not using cash as deposit then what should I be doing with it?
I would put the cash in an offset account to reduce your interest payments.
Leon
+1 to ltroeth
Benny
From a tax perspective you should be borrowing to invest rather than using cash as you may need the cash for a private expense in the future and don’t want to tie it up. e.g. a new PPOR.
Where you should put the cash will depend on return and who owns the property. An offset account on a property owned by a spouse on a lower income may be the better option as this cash will reduce interest which means a bigger income on the property. Alternatively you may think you can get a better return elsewhere other than a guaranteed 4.7% (or whatever rate you have getting on the home loan).
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thankyou all. Appreciating the advice. I don’t have an offset account to put it in, as we don’t have a PPoR. We are living in a company house with virtually no rent/overheads. Might look to put it in a managed fund for a rainy day!
you can have an offset account on an investment property.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Alternatively, you could use the equity available (assuming 80% lends, around 160k) to fund your first couple house deposits. Then use your cash to go again, rather than ‘wait’ for equity gains – just because it doesn’t receive the same tax deduction, it doesn’t mean its not still very viable to purchase property.
Realistically, using 100k of borrowed equity to fund deposits to purchase houses will increase your interest deductions by about $5000 per year – in $$$ terms, that’s about a $1500-2500 refund per year. Sure, it does make a difference, but in isolation, its generally not big enough to be a make or break factor in your purchasing decision. Particularly if the market is moving – $2000 is a very small market movement (<1%).
I serve a lot of younger ‘income rich, cash rich’ clients that have pretty decent funds available to invest, without much equity (which is generally built up by time in the market) – they’ve invested with CASH and made significant returns. As their portfolio matures, they probably wont need to use cash anymore. But early on, its helped.
Cheers,
RedomCheers,
RedomRedom Syed | Confidence Finance
http://www.confidencefinance.com.au/
Email Me | Phone MeHome Loan Specialists based in Sydney, serving clients Oz wide.
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This topic was modified 10 years ago by
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