How much in-debt should I go?

Viewing 6 posts - 1 through 6 (of 6 total)

vyaw2003
Participant
@vyaw2003
Join Date: 2006
Post Count: 188
July 23, 2015 - 1:50 pm
I have 7 low value properties. I have a loan of $750k.
I am a high income earner.
My interest bill is around $30k per year.
After all expenses and interest paid, my properties only return $35k.
Should I obtain another property now? If I do my taxable income will be reduced as a result of paying more in interest. But it will obviously take longer to pay off the larger loan.
I am keen on 2 properties (10 years old) totaling $450k (returning 6.6%), but that would put my total debt to $1.2m ($50k interest yearly bill). I think that is too much, even for a person with 9 properties. What do you think is the best strategy?
I had considered selling to upgrade a property but have decided against that now (CGT).
Cattleya
Participant
@cattleya
Join Date: 2008
Post Count: 121
July 24, 2015 - 5:19 am
Hi Vyaw,
So the properties overall are positively geared and you are paying even more tax?
I obviously don’t know your situation, but if I were you I’d definitely buy again especially if I am only 29 yo. And at 6.6% the new properties are also positively geared – my mortgage is at 4.28% so 6.6% is awesome return.
Why is a debt of 1.2m too much? If the properties are positively geared and the underlying principles are met, there should not be any problem.
Good luck,
Catt
Cattleya
Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
July 24, 2015 - 8:03 am
Do you have the one loan for the 7 properties?
No one can tell you what the best strategy is. You need to work out where you want to get to in the future – and then work back from there. Devise a plan and follow it.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
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Benny
Moderator
@benny
Join Date: 2002
Post Count: 1,416
July 24, 2015 - 8:32 am
Hi VYAW,
But it will obviously take longer to pay off the larger loan.
Hmm, if that is part of your plan, then you are likely right. But what if paying them off is NOT part of your plan? Have you given that option some thought?
e.g. Did your Mum and Dad pay off a $40,000 home over 30 years? What if they had also owned an investment property valued at $40,000 and DIDN’T pay that off? Today that property could conceivably be worth $400k+, with a $35k loan on it. Is that any kind of problem, especially since it is positive geared?
Could it be argued that NOT paying it off would free up extra $$ to buy another one? What do you think?
Benny
Emily Edward
Participant
@emilyedward
Join Date: 2015
Post Count: 6
July 24, 2015 - 11:16 am
Hi Vyaw,
Of course I am not an expert but just want to share my personal thought with you.
My plan is to buy one apartment with good location first and then after a few years, do refinancing. Through refinance, I can get more loan to buy more properties. When I become old and do not want to work anymore, I would sell some of my properties to pay off the price of my rest properties.
What I want to say is that, even you are in debt of a large amount of money, your properties may worth more if you have chosen them carefully.
Anyway, my words are just for reference as I do not now your situation exactly.
All the best,
Emily
Richard Taylor
Participant
@qlds007
Join Date: 2003
Post Count: 12,024
July 29, 2015 - 3:05 pm
Emily
I would be very careful in the current climate refinancing to release equity is nowhere as easy as it was a month ago.
Seen many a forum client come unstuck when their lender has capped the equity release to 80% lvr.
Cheers
Yours in Finance
0-40 Properties in a decade. Email me for a copy of my API interview.
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