interest only or principal and interest ?

Hi All

I am after some guidance, I am a 24 year old male currently earning $170,000 gross a year and paying an average $60,000 in tax p/a I have a very stable job as I have been with the company for 4 plus years.Over these last 4 years I have wasted a lot of money on depreciating assets as you do when young.

I currently am renting in a duplex in Caloundra on the Sunshine Coast with my mum and the owner is keen to sell it, I have had it evaluated at between 350,000-360,000.
I cant see my income changing a hell of a lot over the next coming years as I have good job security.

Should I buy this duplex on interest only and rent it out to my mum and (live at my girlfriends house) legally ?

Or should I buy it on principal and interest and live their?

I expect to have 20% deposit around June at the latest the owner is in no rush to sell and happy to wait for me :)

Also if I was to buy the property it will be a private sale how much do you think I can knock off the price ?

I do not want to be living with my mum for the rest of my life and plan on getting either another investment or a house for myself when I return from working away.

My dad also lives in Redcliffe and is telling me I should look at investment properties down that end of town, but I think the sunshine coast option as I can trust my mum isn't going to destroy the place. and I don't have to pay agent fees

I like to have my fingers in every pie. I find myself becoming more money hungry each day and am currently having a go at the share market. I am playing with $25,000 at the moment but am looking at getting a margin loan and buying in some managed etf funds.

After all I just want to bring my taxable income down. Any advice would be greatly appreciated.
 
If you have good money habit - and thats one of the core principles to make an IO structure work,

id go IO with 100 % offset under most client circumstances

ta
rolf
 
Also if I was to buy the property it will be a private sale how much do you think I can knock off the price ?
The equivalent of what a REAs commission would be.

My dad also lives in Redcliffe and is telling me I should look at investment properties down that end of town, but I think the sunshine coast option as I can trust my mum isn't going to destroy the place. and I don't have to pay agent fees
You should be buying where the highest CG is likely to be - and I suspect that would be Redcliffe out of the 2 options. Other options like nearer to the Brisbane CBD would perhaps be better.

You are confusing investing with the emotions of family.

After all I just want to bring my taxable income down.
You can only achieve that by losing money. Why do that?? :confused:

You can get some paper losses like building depreciation in property investments. But shares should be making you money and increasing your taxable income. :cool:
 
After all I just want to bring my taxable income down. Any advice would be greatly appreciated.

Agree with prop - isn't the aim of the game to increase income?

Investing in property primary for taxation benefits is a bit flawed - you need to lose $1 to get back 40 cents.

Sure - some of the taxation benefits from investing in property are sweet (depreciation, etc) but shouldn't be the primary motivator behind any investment decision.

Cheers

Jamie
 
thanks for the help guys really appreciate it, still trying to get my head around it all read in a few books those exact comments.

Are you able to give me a rough idea on what the average REA commision is i have never had to deal with these types of things?
 
thanks for the help guys really appreciate it, still trying to get my head around it all read in a few books those exact comments.

Are you able to give me a rough idea on what the average REA commision is i have never had to deal with these types of things?
The usual commission rate for REA is 5% on first $18,000 and 2.5% on the remainder. Using those rates and looking at 350k purchase price you would be paying $9,200 in commission. Hope this helps .

Mitch
 
Are you able to give me a rough idea on what the average REA commision is i have never had to deal with these types of things?

Hiya

It can vary by quite a bit. Depends on the anticipated sale price, what you can negotiate and the level of competition for your business. I've got one for sale at the moment - I think it's 3% on a $200k IP

Cheers

Jamie
 
I like to have my fingers in every pie. I find myself becoming more money hungry each day and am currently having a go at the share market. I am playing with $25,000 at the moment but am looking at getting a margin loan and buying in some managed etf funds.
Be very careful with this one ;)
 
If i put 20 % deposit on 350,000 home and pay principal and interest the rent from my mum would cover the loan as I woulnt live there.

is there any benefits to doing that or am i still better doing interest only with 20% deposit ?

and please clarify why
 
If i put 20 % deposit on 350,000 home and pay principal and interest the rent from my mum would cover the loan as I woulnt live there.

is there any benefits to doing that or am i still better doing interest only with 20% deposit ?

and please clarify why

because at some time you may want to buy a new PPOR or need a chunk for other non dedcutible purposes.

If you keep your cash, your cash, then you have improved future flexibility and likely to have better tax management long term.

Aside from forced savings, and sometimes an improved credit score, principaland interest rarely offers an advantage

ta

rolf
 
If your mum is expected to be a long term renter you can trust and you have good cash flow, go IO with an offset account and retain your cash while reducing your interest + get any Capital growth.


____________________________________________________________
James

Investment property leads - delivering consumers looking to purchase IP.
 
If you have the ability to not spend money you have access to IO as you can draw against the offset when you are looking at buying another property of if an emergency comes up e.g. major car repair you can withdraw and use the money knowing that it will just go against your home loan.

P+I if you cannot control your spending that well.

For myself my PPOR is with IO with 100% offset and works well. For my sister who has the complete other end of spending habits (earns $1 spends $2) I would/have recommended her P+I for her PPOR.
 
great thanks guys

i am going to see the accountant in a few weeks to discuss further but just a heads up, reading the post above

If I was to live in it with my mum and just do IO how does that work with the whole investment idea? is it all still claimable ?

And as this is also my first home am i better getting first home owners grant and living in it for a year ? or just doing interest only and live in it with my mum ?or interest only and live with my gf at her house ?
 
Not sure on QLD FHOG rules but if for VIC (unless rules have changed).

You need to live at the property within the first 1 or 2 years of settlement for a continuous period of 6 months straight.

If is a similar rule I would get the FHOG and live with mum for 6 months as IO then move out. If you don't claim the FHOG and move out right away then you will not be eligible for it as you own a property.

However you really need to work out if IO works best for your or P+I does.

For me the FHOG is an easy answer as I would rather get some of my tax money I pay each and every year and have only gotten back a very small % (FHOG and just recently partner payment for having a child). Never used the public health and never went to public (catholic & private). Yes I do know the government subsidies these things.

Compared to other people who I think have gotten more money from the government then they have paid in tax.
 
What is your mum's situation? What happens if you leave home and don't buy the house that she will live in? Would she rent elsewhere?
 
great thanks guys

i am going to see the accountant in a few weeks to discuss further but just a heads up, reading the post above

If I was to live in it with my mum and just do IO how does that work with the whole investment idea? is it all still claimable ?

And as this is also my first home am i better getting first home owners grant and living in it for a year ? or just doing interest only and live in it with my mum ?or interest only and live with my gf at her house ?

There is no longer a first home owners grant in QLD for established properties, only new.

There is however no stamp duty for first home owners buying under $500k (saving $8k) and stamp duty is cheaper for owner occupiers than investors.
 
she will be staying in the property unless the current owner wants her to move out she has lived there for 5 years and is capable of paying the rent on her own
I am pretty sure all I will get is no stamp duty which is still a bonus anyway.
 
Agree with prop - isn't the aim of the game to increase income?

Investing in property primary for taxation benefits is a bit flawed - you need to lose $1 to get back 40 cents.

Sure - some of the taxation benefits from investing in property are sweet (depreciation, etc) but shouldn't be the primary motivator behind any investment decision.

Cheers

Jamie
The other argument is; that we assume folks are going to buy a house and make repayments anyway.

So, do that as planned, but do it in such a way that returns some of the repayments and costs back to us via the tax return.

This is another form of increasing the income when looked at it this way.

The average (PAYE) person buys a PPoR, and gets absolutely nothing back from their expenses to hold it.

This is how I've always looked at it, and the mindset is that the "forced saving" of the home loan is not all money out the door.

Back to the topic; I recommend always paying down debt where it is possible to do so - even if it is investment debt. Offset accounts are adviseable.

But, the private debt should be paid out first, then attack the investment debt.
 
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