Signing up tomorrow...

Great website...
After some mind scrabbling and 5 mths of looking around, sign up for our first IP tomorrow.

Have decided the following course, and any comments/suggestions/advice would be very much appreciated, we are certainly not wealthy investors. By the same token we can weather a few storms which might come. It surely can't be so complicated as to discourage investing ?

Older 2br house on good block of land and location (tenanted).
Funded : Bank 55% us 45%.
After settlement we proposed having $ sum equal to about 70%+ of the Mtge in an offset A/c.
Property Mngr : yes
LL Insurance : yes

Aim is to pay off asap then knock down rebuild in a 5-10 yr time frame.
Am I forgetting something ! (hope not...!!! )
 
Aim is to pay off asap.....Am I forgetting something ! (hope not...!!! )

Yes, you are forgetting about leverage. IMO I would not be paying any of that lovely tax deductible debt down - especially when you are running a 55% LVR anyway. :confused:

Each to their own I suppose ;)
 
Thanks for comments folks. I guess we have an aversion to debt !
Have watched too many people get into too much trouble particularly in recent times !!!

Not too concerned about tax advantages as the ultimate purpose is to pay it off and build a new home for the future. In the meantime the rent can pay off part of the purchase price.

The more difficult part of the exercise for me is establishing how much we should actually have in the offset and should it be 100%. If I understand it correctly interest is charged on the balance not offset, which would mean the rest of the mthly pay't reduces the principal at a greater rate ?
At the end of it all the loan payment period can be halved, we have a house debt free and we still have our money in the Bank (plus personal savings).
 
Hiya

id suggest you borrow as much as you can, to 80 %, and place the spare cash into the 100 % offset.

In doings so your NETT debt is no different than with your proposal, but you have more control, some better risk management.

That same aversion to debt you mention would be well fed with the above :)

ta
rolf
 
Rolf's advice is gold - I was interested in IP's about 6 years ago, but since then I got married and travelled the world for a few years, and now we're back in Brisbane with a bun in the oven, so back into it I go. This forum is great for simple nuggets that can change the way you think about investing - I have no debts either, and the natural aversion to them that comes with parents who didn't believe in debt and were big on the "save until you can afford it", but you do learn that there are GOOD debts and BAD debts. Well worth looking more into it, a mind shift away from your ingrained habits can end up making you thousands, just by understanding money.

I thought I'd sneak a stupid newbie easy question in here too - if I have a $300,000 I/O loan with an offset account, and I have $50,000 in the offset, are my interest repayments calculated on the $250,000 total debt? Seems to be my understanding - at some stage, I'd want to stop putting money into the offset though when it becomes less tax effective for me to have lower repayments to deduct?

Anyway - love this place.
 
I thought I'd sneak a stupid newbie easy question in here too - if I have a $300,000 I/O loan with an offset account, and I have $50,000 in the offset, are my interest repayments calculated on the $250,000 total debt?

Correct.

Seems to be my understanding - at some stage, I'd want to stop putting money into the offset though when it becomes less tax effective for me to have lower repayments to deduct?

If your PPOP is payed off and this is an investment loan then yes, the lower your repayments are the higher your profit (or lower your negative gearing) so it may put you into a higher tax bracket. Only a concern if you have something else to invest the money in. So you may consider at that stage another IP or investing the money in shares etc. If you don't have anything else to invest in then there is nothing better after tax than reducing your debt (utting money into your offset), deductible or not, rather than spend it.

Gools
 
Another vote for only placing down 20% for a deposit and balance in the offset account.

Maybe have a chat to your accountant before you sign to discuss how you are going to structure the purchase (your name, both names, split 99 % higher income earner 1 % lower, buying under a trust setup) try to take a view into the future when making the choice you can make the bad assumption that it does not really matter when you only have 1 IP but next thing you know you might be on your way to 3 and 4 and the structuring now can save you thousands down the track, also once you have signed the contract you may be up for extra stamp duty if you decide to change it before settlement (unless you add a clause allowing you to do so at time of signing).

Cheers,

Fourex.
 
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