Does anyone pay off principal in IPs?

i choose IO with a 100% offset - that way the cash at hand is only a bank cheque away.

otherwise you have to re-sign every-bluddy-document under the sun to access $50k for a deposit for something else.

or if you choose to, you can use the offset money to rid yourself of the debt it's tied to.

at least with cash - you have options.
 
It's all starting to make sense and I see why successful investors are only using IO loans or at least until they get to a later stage. But I wonder if interest rates get high, like over 9%+ if they would want to pay some of the loan off? Ok I guess if you have paid the cash into your offset account then it wouldn't matter anyway, same thing as paying off the principal I guess!

BTW, what is LOE, I see this term used a lot on this thread but after searching all over the web the only thing I can find is "Level of Effort" which doesn't seem right! :rolleyes:
 
LOE = Line of Equity.

you use the equity to fund future purchases - akin to an LOC (Line of Credit) but it a predetermined amount based on the valuation - at time of application - of your portfolio (or IP depending if X-col).

it's using CG to fund future acquisition, without the rigmorol of re-financing every time.
 
Cash is King

Cash is King people. Put the money in an offset, then it's always yours if you want it. Put it on the loan, you can only redraw it for investment...

I agree with reducing debt over time where possible, but do it with an offset account. Why pay $20K off your investment loan, and then borrow $20K to buy a car, or go on a holiday, or a caravan, or a boat, or an aeroplane, or a projector screen...etc etc?

Cash in an offset means you pay no interest on it's equal in a loan, yet you can always spend it and the debt stays deductible...
 
What PI said !

paying principal involuntarily and losing control of of it is like going to the dentist for a root canal and denying the xylocaine..........:)

ta
rolf
 
LOE = Line of Equity.

you use the equity to fund future purchases - akin to an LOC (Line of Credit) but it a predetermined amount based on the valuation - at time of application - of your portfolio (or IP depending if X-col).

it's using CG to fund future acquisition, without the rigmorol of re-financing every time.
Ok, Line of Equity, that makes sense thanks, damn online glossary's I found have no mention of it. Yes I understand about using the equity with new valuations and the capitial growth which is where it comes from. I've just learnt all that lately, well how it all comes together.

Cash is King people. Put the money in an offset, then it's always yours if you want it. Put it on the loan, you can only redraw it for investment...
That's a great point.

Cash in an offset means you pay no interest on it's equal in a loan, yet you can always spend it and the debt stays deductible...
So that means for tax purpses you are not losing out either which is good.
 
You both are not the only one!

Thanks for that, and I'm glad as well.

Question.

With this offset account etc for another IP, I already have one for the PPoR, and this is where I save to pay for the renovations etc.
I don't see any advantage for my getting the next IP loan with an offset account given that the PPoR is what I wish to pay down fast as well.
Would this be the most correct thinking?
 
I don't see any advantage for my getting the next IP loan with an offset account given that the PPoR is what I wish to pay down fast as well.
Would this be the most correct thinking?
Yes, if you still have PPOR debt, and your IPs are held in your personal name, then you'd always put excess funds into the offset attached to this loan. It's once you've got excess funds again - ie more than $200K cash to offset your $200K PPOR loan - that you need an offset against your IP loans.

But if you have your IPs in a structure, ie Trust, then mixing Trust funds in with personal funds in the offset can be messy, so some people would prefer, if they had spare cash in this case, to offset the Trust's funds against the Trust's debt.

The other way you can do it is to offset against the PPOR debt (which is more tax-effective), but do clear book-keeping as to which funds are the Trust's, and record them as a loan from the Trust to you as an individual.
 
LOE as I used it in this thread means Living off Equity - a strategy using borrowed funds against your houses to live off.
 
I would be interested if someome can tell me if I am absolutley daft or not....but we have three IP's and I have alsways paid P & I to reduce the debt, and have funds in off set accounts to the loans reducing the amount of interest I pay.
As each of the loans reduce we have bought again.
My reasoning behind this is I am paying a lot less interest, which to me is money in my pocket, against paying it to the bank and the bottom line never looking like it's altering.......
Doing it this way the properties are going up and our debt is reducing big time...this to me makes me feel better??? and then we can do it again and again or as we are thinking now - selling the family residence to down size and inturn buying and subdividing - to live in one property and keep the other for renting out - adding to our portfolio...Then all going well?? we will do it over again.....
What you say??? Am I daft??
Cheers
 
I havent read all of this thread and in truth there is no right or wrong answer - for me I pay off p and I but only because i earn a big income. In other words I still see a big difference at the end of each financial year despite not being leverage to the hilt. If i was a low income earner I would be more anxious and would probably take more risk. Sounds like it should be the other way around but for me it isnt..
 
Cash in an offset means you pay no interest on it's equal in a loan, yet you can always spend it and the debt stays deductible...

And the added bonus is that the bank takes that as well......if it wants....:(

ciao

Nor
 
I would be interested if someome can tell me if I am absolutley daft or not....
I don't think it's daft, but I do think it's wise to thoroughly understand the choice that you're making, and the reasons for it.

Paying down principal, if you believe that property is a good investment and are seeking to accumulate, may not be the very best decision with respect to advancing your financial position, but if not paying down principal makes you nervous, then it's better to pay down principal and accumulate more slowly, than be put off the journey altogether.

As I've argued before - at length, particularly with my friend BayView ;) - paying down debt on an investment property (beyond what you're required to pay down) is financially equivalent to investing in cash at the same interest rate as your mortgage. In which case, I'd ask "If you think that the 6% return on this cash is better than what you'd get if you invested that cash in more property, why do you invest in any property? Why not just have your IP equity invested in cash deposits, instead?"

But your choice of investment strategy isn't dictated solely by the optimal financial outcome; it's also influenced by your temperament, individual circumstances, goals, etc, and these other factors may mean that paying down some principal is best for you.

Fortunately there's many more ways than one to skin this property investing cat. :) Know thyself, and choose the one that's best for you.
 
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