Property Investor vs Accountant/Financial Advisor

[Mushu Eddie]

I have 70k saved up potentially ready for a property purchase in the high 200k range however my wife has a land loan of 150k which we will build the family home on in the future. Naturally the accountant/financial advisor I?m assuming would suggest putting the 70k into her loan therefore reducing her non-deductible debt, however on the other hand would I be right in thinking a property investor would go in the other direction & use these funds toward a property purchase for better longer term returns?

I?m no finance specialist but with basic math reducing the land from 150k to 80k would save almost 4k in non deductible interest however on the other hand a property that for example was 300k returns on average 5% would give me 15k yearly & therefore 10+k better off? Then in say 5 years use the equity to purchase another? Im sure the wife would enjoy lower repayments but I think longer term we invest in property; hopefully someone can agree investing is the way to go. Thanks Eddie

 

[devank]

Use the 70k to pay the loan. Then take out LOC and use that as deposit for your investment.

 

[Colin Rice]

Whats the land worth?

 

[Mushu Eddie]

Thanks Devank! I was originally thinking that but sorry I should have mentioned she is on a very low salary which will restrict her borrowing capacity, especially since she has the non deductible land loan against her name

 

[Mushu Eddie]

Hi Colin, Land sits nicely at 400k+ which hurts for the fact that she earns under 30k a year & cant use the equity & invest further

 

[Colin Rice]

If you work Mushu then your income can be used towards serviceability even if the property is 100% owned by your wife.

 

[Mushu Eddie]

Colin, looks like you have triggered an option I wasn't aware of, great news! We're only recently married so hadn't even thought of that! I'll have a chat with my mortgage broker & let you know what options lay ahead. Thanks a million! Eddie

 

[Colin Rice]

Your welcome ME

Feel free to share the advice given to make sure it is to your greatest advantage.

 

[Terry_w]

ANother alternative is to pay down the loan and then use redraw to reborrow the money. You will then be able to get access to the deductions and the money.

 

[TPI]

Hi Eddie,

My general approach when faced with the option of paying down debt versus growing your overall asset base is to opt for growth.

Although paying down more expensive non-deductible debt makes sense, you can potentially achieve even greater after-tax returns by leveraging into more property - and this will have a long-term compounding effect on your overall investment returns.

This assumes though that you pick the right property, if you don't, then you could be in a worse position!

In any case, as devank suggested, you could do both by paying down the non-deductible debt first and then re-borrowing for deductible purposes - if you have the serviceability to do this.

 

[TPI]

ANother alternative is to pay down the loan and then use redraw to reborrow the money. You will then be able to get access to the deductions and the money.

Terry w, wouldn't you need to get a separate LOC/loan though for this to be deductible?

 

[Terry_w]

Terry w, wouldn't you need to get a separate LOC/loan though for this to be deductible?

nope. Borrow money (interest on) is deductible so even if you use redraw it is claimable.

But it is less than ideal because it will result in a split loan. so much perferrable to split if possible.

 

[TPI]

nope. Borrow money (interest on) is deductible so even if you use redraw it is claimable.

Ok that makes sense, better to separate but can be done, and perhaps dependent on how much you can redraw (ie. if there are any minimum/maximum limits to this).