Paying Down Strategy

[mystery]

Thanks Rixter, .... appreciate the feedback.

 

[jaycee]

If you left yourself in a taxable income position then yes of course you would have to pay tax..but why would one would want to pay tax is beyond me - simply buy another IP.

Damn shame that, having to buy more investments and therefore increase ones net wealth even further just in order to minimise ones taxes.

So the income, RENT, is taxable and you minimise it by esuring you ahve enough negatively geared investments to minimise your tax..

Just wanted to see it clarified for me at least to be able to put what you said in context with your reply to bespoke earlier - so you do / would pay income tax.....

Originally Posted by bespoke View Post
Wow, thanks for that Rixter, much appreciated.

I do have a question.

When you go to draw down on IP 1 (or any other for that matter) could you theoretically, funnel the rent into your account for living expenses and let the remainding mortgage be taken out of the LOC, thereby maximising (and increasing) the deductible debt, and minimising the amount of non deductible debt on that LOC?

You can do that but also remember you are not paying any payg tax in the first instance, so have nothing to claim back.



All my loans are IO (to maximise my cashflow and use to cover holding costs on additional IP's) and I channel all taxes back into my investment LOC's.



Always have a property cycle (7-10 years) of equity already available for access in your LOC's. Also use a Cashbonds strategy as backup should I need to increase DSR.

I hope this helps.

 

[jaycee]

How do you calculate this Rixter ?

Always have a property cycle (7-10 years) of equity already available for access in your LOC's. Also use a Cashbonds strategy as backup should I need to increase DSR.

 

[Rixter]

How do you calculate this Rixter ?

Always have a property cycle (7-10 years) of equity already available for access in your LOC's. Also use a Cashbonds strategy as backup should I need to increase DSR.

ie If you require 50k p/a income X 10 years = $500,000
ie If you require 100k p/a income X 10 years = $1,000,000

Hope this helps.

 

[jaycee]

How is "require" defined ?

 

[Rixter]

How is "require" defined ?

I hope THIS helps.

(...for financial independence.)

 

[D.T.]

Such a smartass Rick

Jaycee: By 'require' he just meant whatever your per annum retirement / financially independant goal is

 

[Rixter]

Such a smartass Rick

Well, I guess the scoreboard's looking smarter than yours!

 

[Alex P Keaton]

its all about cash flow, the more cash flow you can create, the quicker you can leap forward..

you dont need to necessary pay the houses completely.. but pay most of them down.. I would pay them down via offset accounts.. as I'm doing now..

after been forced to sell 2 IP's in 2005 due to raising interest rates.. I have found that gearing to the max is a no no.. I tryed to grow to quickly, buying 3 IP's in 3 years back in 2000.. rents didn't keep up with rate rises, and I was caught out with a large negative gearing costs of $30k PA. it would have only continued to get worse as rates continued to go up..

Hi crc

How are you going now? Hows your situation

I agree you have to be so careful when you buy your next property and know that you can afford to hold all your ips.

Here is a reply i made in another topic



Thanks, yeah i'm determined, however I'm beginning to realise that you have to be very cautious and make sure your financially ready for your next IP. I was thinking 2011/2012 to buy number 3, cos I should have the equity by then. I'll keep 2012 as my goal but i'll make sure i can afford to hold the ip.

I was looking at my bank account today and realise my property is negatively geared by about $100 a week (before tax) I also have another loan for the stamp duty. So currently paying around $200 a week.

Once the stamp duty loan is paid out in December I'll again being saving and I think I'll wait till my rent increases a bit and I'm only out of pocket around the $50 a week (before tax) before buying again. I have also learnt that its not just the regular payments such as mortgage, pm fees, there are also repairs that are costing a bit too that i need to be mindful of. I've already had a couple of repairs, and also maintenance such as new alarm battery.

The important thing is... i have to be confident i will be able to hold all 3 properties when i buy #3. I'd like to save a bit more into my offset to help with expenses and SANF. I also may have to replace my aging 13 year old car at some stage in the near future if it dies or i have problems with it. I have had physio, dental, accountant, podiatrist, optomitrist this year. Which... looking back is the best thing that has happened to me because its re-inforced the fact that I need to be so careful with my money because there will be a number of expenses that will come up that you are not expecting.

This all needs to be taken into account when weighing up whether or not you can afford a new property. You dont know whats around the corner hey. Hmmm I might post this in another topic

I just stress to people, dont over commit.. your better growing SLOWER, rather than over commiting..

I hear ya mate! Although I wont be ultra conservative like you in paying most of the loan down in 7 years before buying again! I'll find a middle ground. Perhaps by buying every 2 - 3 years. i think this is a sensible approach for someone on $50 K pa salary.

 

[Intrinsic_Value]

in a nut shell debt is only 'useful' under the following conditions:
(a) cash flow positive
(b) underlying price of the asset will grow faster than the negative geared amount
(c) financing environment remains constant.

You can assume that property will double in the next 10 years, but this is hope. I never invest based on hope

 

[WASP]

I would buy 1 good house, focus 4-5 years paying it down.. even pay it off in 7 years, then buy second IP, and do the same, second IP you can pay off in 5 years, 3rd IP you can pay off in 4 years..

With this plan, in 10 years time if you own 2-3 fully paid off homes, you will have over 2 million in equity.. same cant be said with these highly geared property portfolios..

How does this work out?

Pay the first house off in 7 years
Pay the second house off in 5 years (thats now 12 years)
Pay the second house off in 4 years (thats now 16 years)

How do you work out that you will have 2-3 fully paid off homes in 10 years time with over 2 million in equity??

I do believe that debt can be a servant, but these days more likely an unforgiving master.