First IP or not..

[Alex P Keaton]

Hi when I first joined here I was confused about the same thing. Then I came to understand it all better after reading heaps of books and heaps of topics here on the forum and other sites. Asking lots of questions too. Dont be afraid to ask questions! Check out all the recommended reading lists in the info resources section. Click on my name and my statistics for all my previous threads I have replied in, you will see some interesting topics, some good replies, to the very same questions.

Here are just some of the topics

fhb IP first- Its clicked!!

Pay off IP or buy another one?

No Ppor but investment properties owner


Basically heres the thing!! If you concentrate on paying down your ppor (non tax deductable) you are missing out on opportunities to accumulate ips and increase your net worth. Say if you were to go full bore paying your mortgage off and it was paid down after 10 years. Imagine how many ips you could have accumulated if you hadnt done it this way. If on the other hand you had bought 4 ips in that same period instead of just paying down your ppor.

I plan to buy at least a half dozen properties whilst renting myself. I will turn one of my ip's into my ppor 10 or 20 years down the track. Because I will be renting I will have more cash to invest in ips and other investments. Once I am happy with the number of ips i have accumulated I will move into one of them. Its far cheaper this way, because the tenant and taxman have helped to sustain my property. The principle wont have been paid down though. But by then my ppor will be worth triple the value of the mortgage loan so that I at some stage in the future will have 3/4 equity in the ppor. When I decide to slow down accumulating more ips I'll pay off this ppor (with the help of my payg and my rental income coming from my other 5 ips)

Why pay for the whole mortgage ppor loan when you dont have to!! I say.... work it in your favour.

 

[SOULFLY3]

Great explanation kim putting it simple like this, i for one helps me understand a lot easier and sure it will help others too!

 

[Lukey13]

Good posts made by all.

Paying off the PPOR may not make good sense especially when trying to kick start an investment portfolio that screams "start yesterday" . The missus and I have been through it time and time again, and she really wants to have the PPOR paid off. This is quite a personal thing especially with a bub and she not working - the security of having reduced levels of non-deductable debt is a huge Sleep At Night Factor bonus.

We do have 2 IP's at the moment and will start to look for a 3rd once she gets back to work...

Similar situation for my wife and I. Have thought about trying to convince her to change our current PPOR into IP2 whilst purchasing IP3 and renting a place for ourselves. Adding fuel to this argument is the fact that the rental payments would be partially tax deductible (due to salary packaging). Thus we would have tax deductibility for all three IPs as well as around half of the private rental payments. Talk about tax effectiveness!

But it's all good. We salary package the PPOR mortgage anyway. I think the bottom line is that purchasing a PPOR doesn't make the best financial sense, at least in the first few years of investing.

My general plan is to go ahead with IP2 and maybe IP3 prior to 2010 when I'm expecting values to surge in my local area due to massive population growth. When values increase sufficiently I'll borrow against equity (maybe LOC) and consider a debt-recycling strategy, capitalising interest repayments and directing as much rental income as possible into paying off a new PPOR.

Well at least that's the rough plan for the moment.

 

[tiger]

The problem is that if he/she goes reading some of those older recommended property investing books many of them recommend paying off the PPOR as fast as possible. Personally I am not of that mind. I agree with the first response in this thread to convert home loan to IO and put funds into the offset to reduce interest payments. If the property is in a good area then CG will make the loan look smaller over time, not to mention inflation. Yes talking longer term here.

Im no expert but that is my strategy - IO for PPOR, as much cash as possible in offset account and purchase as many IP's as possible along the way.

Sounds easy enough, cash flow is always the toughest part of course but I don't have an income limit so the sky is the limit for me. Your plans may differ, depending on what you want from life.

 

[Alex P Keaton]

Great explanation kim putting it simple like this, i for one helps me understand a lot easier and sure it will help others too!

oh wow i just noticed in my control panel I got a kudos, haha 1st one

thanks

 

[Alex P Keaton]

My general plan is to go ahead with IP2 and maybe IP3 prior to 2010 when I'm expecting values to surge in my local area due to massive population growth.

I will be buying ip # 1 soon and would love to have enough saved to buy another in 2012/2013. I guess I'll just play it by ear, I'll work towards my goal and see if I can afford it when the time comes.