Pay what first; PPOR or IP?

[suggo]

Ok, not too sure which section I should be asking this in, so I'll put it here and the mods can move it if they think appropriate.
The Question;
Is it advisable to pay off your own home first on all occasions? I have a few IP's now and was thinking about paying some off one of them to bring it to a positive cashflow, the money that would be going toward this will come from my PPOR payments (PPOR will be paid at min). The thought process I have behind this is that it will improve our cashflow. Any compounding problems or the like anyone can see? General thoughts on plan?

 

[Les]

G'day Suggo,

Look at it this way - if you are NOT +ve cashflow on IP's, what happens?? Answer: The ATO kicks back a few of your bucks.


Now, what happens if you are not +ve cashflow on your PPOR? (Isn't that ALWAYS?????) Answer: Tough luck, buddy - keep smiling, and keep paying - no help from anybody. Keep paying it off with Aftertax $$$.


So, as is often said - pay off NON-deductible debt first - the deductible debt will get some Tax relief, while the non-deductible debt will always be "Yours - to pay out as/when you can".

Of course, if you have paid down your PPOR mortgage, it can be borrowed against to provide deposits for IP's - then it becomes DEDUCTIBLE.... And you have a bit of extra income (from the brand new IP just purchased) to continue paying down the remaining non-deductible debt on your Home Loan.

Always interested in opposing views, too - any takers ???? (I hope so - if we all agree, none of us learn any more - or, "If two people always agree, only one brain is working")

Dissenters welcome .......

Regards,

 

[Pele]

Gday

I am far from the most knowledgable person here but i think that the general strategy is to pay off all non deductible debt debt(ie PPOR) first. I cant see how paying off your IP will improve your overalll cashflow situation.

Pele.

 

[XBenX]

3 - 0, motion passed pay all non deductible debt first

 

[bundy1964]

Originally posted by Les
Dissenters welcome .......

As much as I like a battle of wits, common sence and favourable tax laws should end all arguments on this one.

Score now 4-0

bundy

 

[suggo]

Well I must say that I thought as much! I was hopeing someone would come upi with some way of doing this but alas!

5-0
Damn

 

[TheBacon]

Not quite dissenting

Option Number 2.

Move out of your PPOR and rent.

PPOR then becomes an IP. Dont bother paying it off.

This is one strategy the Mrs and I are considering to get into an IP quickly with little hassle.

Score still stands at PPOR 5 : IP 0

TheBacon.

 

[Sunstone]

Dear TheBacon,

The alternative that you suggested is VERY practical and gets around the issues of non-deductible interest.

Relates to your objectives at the end of the day.

Again another way that Suggo should be looking at using his money.

Cheers,

Sunstone.

 

[bundy1964]

Originally posted by Sunstone
Dear TheBacon,

The alternative that you suggested is VERY practical and gets around the issues of non-deductible interest.

Relates to your objectives at the end of the day.

Again another way that Suggo should be looking at using his money.

Cheers,

Sunstone.

I would think that would work best if rental cost was lower than holding costs of the PPOR.

You could also claim some of the rent for your home office without any of the CGT nasties when you claim part interest on your PPOR loan.

bundy

 

[suggo]

I do like that idea! It is an idea that the Investors club uses (not that I use the investors club). Thye do the family or best friend scenario, they purchase an IP and you purchase an IP and rent to each other thereby creating a tax deduxtiable loan for each.

 

[Jas]

That gets into dealing with friends/family on a business basis. Another current thread is talking about this, and the opinion is that it's not a good idea.

Jas

 

[john doe]

Hi,

I also agree you should pay off your non-deductible debt first. But that doesn't mean you can't invest further while paying off a mortgage on your PPOR. Noel Whittaker likes to point out that at current interest rates, you really aren't saving all that much in interest if you pay your PPOR off within 10 years. So he advocates calculating how much you would need to make in repayments to have your PPOR paid off in 10 years. Any extra money you have left over above this repayment amount should then be used for investment purposes. If you were to pay off anymore than this amount you could argue that this is an inefficient use of your spare cash as:
1. you aren't saving all that much in interest repayments
2. you are missing out on the opporunity to expand your investment portfolio.

John

 

[Sunstone]

Dear Suggo,

It's always great to have an open mind.

Amazing how seminars try and charge you for things that you already know or can learn from other people on this forum.
:-------)

On the family side I agree with Jas. Converting your PPOR to a rental does not have to be to a good friend or a relative. Get a good agent to manage it for you, manage the agent and you're on the right track.

Rental Yields don't always keep up with capital growth (especially in the current environment) and often you can get a desirable rental property for a much lower rental than you would otherwise think.

Cheers,

Sunstone.

 

[New Dad Soon]

OK, I'm gonna stick my neck out and offer what may be a slightly alternative view.

I read a while back that a recent tax ruling makes the PPOR tax deductible when combined with an investment property loan. While this raises the issue of x coll, the nett effect is that payment of the PPOR is quicker while STILL gaining your deductions.

I'm sure smarter tax operators than I can comment on the details of this.

Alternatively, sell your home to someone else or an entity and realise the growth, with you signed up as a long term tenant.

Take the cash and use as a deposit for an IP.

Cheaper per week and you can afford to keep another IP....., and you don't lose the CAP GROWTH.

 

[tonyd]

Hi NDS,

Split loans have been discussed recentlyhere

It's expected that the ATO will change the rules at a future date.

cheers, Tony

ps. enjoy your sleep while you can