Newbie IP questions re: repayments

[1200det]

Scenario: Single 29yrs old with $70K income

- I own my own home in which i loaned $100,000 and have sinced repayed $95,000 of the loan amount.

- Im looking to purchase a unit for $160,000 which will return me $190 a week rental

##Is the idea that i repay the unit loan amount off as quickly as possible by the means of pumping as much as possible on top of the rental return , Or taking the loan over the maximum term and repaying minimum amounts and negative gearing ?

 

[Perth Investor]

The goal should always be to reduce debt. But first reduce the debt on your owner occupied property (which it sounds like it has been reduced to nearly zero), and then reduce debt on your investments.

Having said that, I would still put the investment loan interest only, and put spare money in an offset account, which gives you more flexibility, and still reduces the effective debt.

Noel

 

[want2bewealthy]

Id be purchasing 2 properties using your existing equity,
Those funds will be 100% tax deductible, the main aim of the game is leverage, you dont want to pay off any principal toward your property, you would pump that back into your non deductible debt, your home.

 

[Witzl]

Welcome to the [other] forums!

i'd agree with want2bewealthy. You have a decent amount of equity in your home, which you could access to use as a couple of healthy deposits on a couple of investment properties. Of course you need to consider what is affordable for you in terms of weekly cashflow, but considering how well you've done in paying off your mortgage i'd say that isnt too much of an issue.
You might need to cut back on the cars a little tho

I would recommend reading a couple of books before jumping in. Some of my favourite picks, and what i read to get me stared are:
- Rich Dad, Poor Dad, R. Kiyosaki
- Cashflow Quadrant, R. Kiyosaki
- More Wealth from Residential Property, Jan Somers
- How to build a $10million property Portfolio in 10years, Peter Spann
- How to Build a multimillion dollar property portfolio in your spare time, Michael Yardney
- Richest Man in Babylon, (author illudes me atm)
- Nothing down for the 2000's, Robert Allen

These are awesome books to get you started on the wealth creation path, and will help turn your mindset around to the right type of thinking to be successful with your investments.

 

[1200det]

Witzl = Nice to see you here lol , Two cars have been sold in the past few weeks which has brighten the lights to port some cash into a property so i dont buy more cars.

- All makes sense now altough why the Interest only loan and not the principal + interest , from my calculations there is about $40 a week more outlay with the principal+interest ?

 

[Witzl]

the idea of interest only is that it allows for more money in your weekly cashflow equation. If you have the spare cash you CAN pay down som principal.... but it is not essential.

IIRC - In Michael Yardney's and Jan Somer's books, they both go into details and reasoning about why paying off the principal on the mortgage is not necessary, if you have a long term buy and hold strategy. From memory it's something to do with the long term effect being minimal vs the ability to use that cash now.
Someone else will likely chip in and answer my question

I thoroughly recommend reading both those books.... they were my favourites.

 

[Invest]

the idea of interest only is that it allows for more money in your weekly cashflow equation. If you have the spare cash you CAN pay down som principal.... but it is not essential.

IIRC - In Michael Yardney's and Jan Somer's books, they both go into details and reasoning about why paying off the principal on the mortgage is not necessary, if you have a long term buy and hold strategy. From memory it's something to do with the long term effect being minimal vs the ability to use that cash now.
Someone else will likely chip in and answer my question

I thoroughly recommend reading both those books.... they were my favourites.

I am also interested to hear about paying off principal or not talk.

 

[PrimeCommercial]

Well, in the first 5-10 years of a 25y loan your paying off bugger all principle. Your much better off putting that extra $40pw or whatever it works out to be paying off non-deductible debt (as mentioned before) or taking on another IP and channelling the $40 into there.
After 5-10y the affect of that extra $40pw paying of the principle will be negligable compared to payed of non deductible debt or purchasing another IP.


As Perth Investor mentioned, I'd go Interest On;y and put any extra that I might like into a 100% offset account. This will effictively do the same as paying down principle but you have access to it anytime you want.

 

[1200det]

Excellent thankyou for the prompt replies , Makes sense.

Now for the Lending companies that offer an Offset account with the Interest only loans.

 

[Witzl]

Most of the major banks will do it.... the best thing you can do is find a good mortgage broker who has experience with doing loans for serious property investors (not just mum & dad buying a holiday home, etc).

Sit down with the broker and tell them your plans, what you would like to have, and what you want to achieve. There are a couple of mortgage brokers on these forums, but im not sure if any are in canberra.

 

[want2bewealthy]

Most of the major banks will do it.... the best thing you can do is find a good mortgage broker who has experience with doing loans for serious property investors (not just mum & dad buying a holiday home, etc).

Sit down with the broker and tell them your plans, what you would like to have, and what you want to achieve. There are a couple of mortgage brokers on these forums, but im not sure if any are in canberra.

plus 1, also, there are good mortgage brokers everywhere these days and it can all be done via internet and or telephone, I do understand the satisfaction of face to face traditional chats though,