Interest Only Loans

From: Bridie .

I own several properties, but I haven't yet used interest only loans- could anyone suggest why the benefits are there for interest only rather than principal and interest?
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Reply: 1
From: Storm Kitten

Hi Bridget,

One of the big things with using IO loans is that you don't pay any principal off the loan thus freeing up your cashflow allowing you to purchase more income producing properties.

If you feel comfortable paying P&I then keep going. It really is a personal thing.

Work out what you want out of your property portfolio and then work out what the best and quickest way to get there is. Then if IO is for you then go for it.

Personally, I pay a cash deposit to get my IP's +'vly geared and then IO all the way. This way, I save the principal payments to finance my next purchase.

Enjoy your trip to financial freedom.

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Reply: 1.1
From: Frode Egeland

I used to think IO loans were a great way of getting rich.. then I realised that if you can get a +ve cashflow property to pay a P/I loan, you're better off..
In the long run, the tenant will have bought you a house!
How great is that?!

For -ve geared properties, it's a different matter: the best advice I have heard is
"Never ever, ever, ever buy negatively geared property!"

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Reply: 1.1.1
From: Miakat .

I have I/O on investment property. It is + geared so it is paying off my own home. Even better since my home isn't a tax deduction.

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Reply: 1.1.2
From: Michelle Riley

Hi Frode,
When I read this never,ever,ever,buy negatively geared property stuff I could
really feel like a loser,but I don't.
I've just bought two negatively geared properties and feel rather pleased.
A number of newbies on this forum have expressed their frustrations at not being able to find positively geared properties
that they've considered good investments.
I say, rather than do nothing,that you never never know unless you never never go....there.
Negative gearing is not everyone's cuppa and
perhaps not everyone's first choice.
It hasn't hurt Mr and Mrs Somers and I think
by now they know a thing or two.
How about we lighten up on the never,ever rave and keep encouraging the newbies to
not just to feel the water but also take the plunge.
I want to say thank you to Jan Somers for
helping me put things into perspective.
I decided to re visit one of her books and
read what Jan had to say about a property
investor as opposed to a property trader.
Many of the members of this forum are traders
of some nature.Jan suggests some of us
might be better off keeping our day jobs for
cash flow and investing in property.
Cheers Michelle
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From: Donna Larcos

I agree with Michelle. If you read these
forums long enough you can learn a hell
of a lot but you can also get quite
demoralised. First the goal was just buy
property and let the capital growth take
care of itself. Then I had to buy positively
geared and look at at least 100
properties. Now I feel I am back at square
one because I haven't conquered
wrapping!! Some people say I have to
have a cash deposit to keep my LVR
intact and ensure positive gearing or buy
second hand and renovate.

I use IO and negatively gear because I
would never save a cash deposit and if I
had the time to look at 100 properties I'd
be on the pension before I bought the first
one. Everyone does things differently.
Hell I've got a friend who pays extra PAYG
tax each week just so she'll get a refund
at the end of the year. Go figure!!! I may
not end up a multi-multi-millionaire but
I'm pretty confident I'll be worth more than
a million. We're not in a competition, just
trying to learn what each other does in
case we find something useful. So hang
in there newbies. Sometimes the
tortoises get to the finish line too.
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From: The Wife

Well said Donna and Michelle,

You really have to take the parts that sound and feel right to you, and make it work right from there.

If you feel there is to much risk, follow you're instincts, they are always right.


"I like my eggs runny"
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Reply: 2
From: Adam Randall

I also agree, I would love to buy positively geared properties, however to get those you have to invest in less than ideal suburbs. Then you have a whole range of new problems, such as quality of tenant, no capital gain, buy a tin of white paint and you have suddenly overcapitalized on the property by 20% (no room for forced capital gain through renovation).
I can see the benefits of interest only loans (100% tax deductible, increased cashflow), however I have never been able to bring myself to do this as phsycologicaly it does not feel right, this may not make much business sense, however everyone is different.
My goal is pretty simple retire at age 40 on an income of 60,000 per year after tax and maintenance. Currently I have 3 properties
they return me a total of about 33,000 a year not taking into account tax refund (about 13,000 P/A), and before maintenance costs, management etc. I am 27 years old so I am well on my way to achieving my goal.
Do some of these exotic methods of real estate interest me ? Well I would not be reading this forum if they didn't. I am amazed at some of the success people have had with them, and would love to own 38 houses in 2 years etc, however I stick with what I know at the moment.
I am currently looking at renovating 1 of my properties at the moment. (of the other 2 1 is basically brand new in the outer suburbs with limited capital gain potential, then the other is so big I could sink $25000 into it and not know where it went + I already get 425 per week for that and would price myself out of the market if I improved it in any way).
My next purchase (definitely within the next 2 years) will be a block of units of at least a group of 5, in a good location.
Regards Adam
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Reply: 2.1
From: Franky Psuedo


How do you do it? Is it all positive geared? How much do you end up taking out of your pocket, or are they self sustaining? Which areas are you talking about?
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From: Frode Egeland

I agree that everyone must find what works for them.
I have read Jan's book (Investing through IP), and found it very informative.

If you make a lot of money,
AND find a property in an up-coming area (growth wise)
AND your job is secure
AND the government doesn't change the rules
AND you structure things right,
then by all means, go for it!

As someone who:
- has a reasonable (not fantastic) income,
- doesn't own any assets (yet) and
- doesn't believe in "lose a dollar to get 48.5 cents back",
what I feel is right for me, is positively geared properties where the tenant pays for it all.
Why subsidise the tenant to live in your house? To me, that doesn't make sense.

I will start with wraps, and use the cashflow to help finance rental properties.
If I can get 50 wraps and 50 rentals, all positively geared (before tax refunds),
then I'm on target for my goals.. :)

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Reply: 2.1.1
From: John B

Its great to hear from what I call the "Mum and Dad" investors and I'm one of them. I love the Jan Somers method, which is basically set and forget, a tried and proven formula. I have 3IP's, one +ve and two -ve geared. The +ve was a result of too high a deposit ie using too much of my own money.

I have spent months (years) looking for +ve properties that are in good areas that are relatively new (ie good depreciation), inexpensive and don't need renovating.

I'm going to find a balance. That is, slightly -ve now but turning +ve within 5 years with rental increases etc.

Long live Jan Somers
Long live Mum and Dad investors

I was going to say long live the Queen but I wont

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