What is the best outcome help needed.

[brocky05]

Hi Everyone

I have just been approved by the commonwealth for 2 loan one for purchase of land and the other for purchase of new house. I'm in a tight spot considering what is the best thing to do financially for myself. First some background info.....

My income $65K pa
Partner $20K pa

Currently have $24,000 in the bank doing sweet all nothing

I currently have an investment property I bought in 2009 for $452,000 I currently still owe the commonwealth $145,000 for it. I collect in the hand approx $350 per week letting it. My original plan was to own it outright before I went house hunting for myself this way the rent I collect each week and my pay will help me smash into the loan of the PPOR however I got impatient.

New loan sitting ready to be taken out on land $170,000
New loan sitting ready for purchase of house $275,000 Combine both loan for PPOR $445,000

What should I do now keep chipping away at investment or leave it alone, its in my partners name also so I can only claim tax benefit of 50% and last year I only got $1500 back in tax so its not really very tax advetageous. Where should I be scaling my payments down to on each loan for maximum benefit. Is there some sort of mathematical formula for this so I can make sure the commonwealth takes the least amount from me.

Also they are putting me on the wealth package no discussion on interest rate yet but on the papers he has written 5% but said we can discuss that all later. I have already asked for a good deal and told him I have looked at Ubank. I think its based on variable rate what should I be able to get him down to as im not afraid to walk and get a better deal as lets face it the biggest mortgage lender in Australia should be able to give a loyal customer a good rate.

 

[albanga]

I am not at all qualified to talk about tax but one thing I do continually read on the forums is that you pay down bad debt where possible.
I know you said you could only claim $1500 but isn't that better than nothing and if you keep compounding $1500 each year into your non deductible debt then I am sure it will make a fair dint over time.

I'm sure one of the tax gurus on here (Paul or Terry) will probably have a better answer for you though.

 

[Rolf Latham]

if you are going to buy an owner occ then id be looking to convert the investment loan to IO asap, and channel all my cash toward reducing my new owner occ loan.

Id also be looking at some form of debt recycling so you can pay the home loan off a bit more quickly

ta
rolf

 

[Terry_w]

Hi Everyone

I have just been approved by the commonwealth for 2 loan one for purchase of land and the other for purchase of new house. I'm in a tight spot considering what is the best thing to do financially for myself. First some background info.....

My income $65K pa
Partner $20K pa

Currently have $24,000 in the bank doing sweet all nothing

I currently have an investment property I bought in 2009 for $452,000 I currently still owe the commonwealth $145,000 for it. I collect in the hand approx $350 per week letting it. My original plan was to own it outright before I went house hunting for myself this way the rent I collect each week and my pay will help me smash into the loan of the PPOR however I got impatient.

New loan sitting ready to be taken out on land $170,000
New loan sitting ready for purchase of house $275,000 Combine both loan for PPOR $445,000

What should I do now keep chipping away at investment or leave it alone, its in my partners name also so I can only claim tax benefit of 50% and last year I only got $1500 back in tax so its not really very tax advetageous. Where should I be scaling my payments down to on each loan for maximum benefit. Is there some sort of mathematical formula for this so I can make sure the commonwealth takes the least amount from me.

Also they are putting me on the wealth package no discussion on interest rate yet but on the papers he has written 5% but said we can discuss that all later. I have already asked for a good deal and told him I have looked at Ubank. I think its based on variable rate what should I be able to get him down to as im not afraid to walk and get a better deal as lets face it the biggest mortgage lender in Australia should be able to give a loyal customer a good rate.

A few contradictory statements above so I am not sure what is going on, but it sounds like you have no PPOR debt yet, but are paying down an investment loan.

Did you realise that every $100,000 paid off the investment will mean $5000 less in tax deductions?

At the same time you will be paying move in non deductible interest.

Over the next 30 years this is going to cost you a fortune.

 

[brocky05]

Did you realise that every $100,000 paid off the investment will mean $5000 less in tax deductions?

At the same time you will be paying move in non deductible interest.

Over the next 30 years this is going to cost you a fortune.[/QUOTE]

Hi I have not got the loan for ppor yet but has been approved will be taken out shortly.

Call me stupid and yes I probably am but wouldnt paying IO for many years just give the bank $250,000 in interest which could have been money in my pocket if I paid of earlier? Also what happens when I fully do own the Investment property do I then pay tax on the rental money collect like payg employee....

Sorry I dont know much as you can probably tell. Would love to learn it all though

 

[albanga]

First and foremost I really recommend you speak to a qualified accountant as you are potentially costing yourself a lot of money. There are a lot of options on these forums (Rolf, terry, Paul are all exceptional).

I am just a property enthusiast so my advice is purely from my understanding but what you are suggesting to paying down your investment loan is only relevant when you have no non deductible debt and even then if your a good saver I would not recommend it and instead have it in an offset account to give you far more flexibility.

You said you currently do not have a PPOR but that does not necessarily mean you have no non deductible debt. If you have a credit card, personal loan, car loan.etc then this is the debt you should be paying off and not your IP loan because the less interest you pay the less you can claim and if you have a form of debt I mentioned then i imagine the % component will be significant (20% on a CC, 12% on personal).
The reason everyone will tell you IO on the IP is because instead of making principle payments into that you should be making them into non deductible debt meaning you can always claim the full interest.

Even if you have 0 non deductible debt then the ideal strategy I believe would have not been paying down your principal on the IP as you have but instead having an offset account so you would have been paying less interest but now when you buy your PPOR you simply use that money in your offset and now your IP loan is again at full and hence can again fully claim the interest.

Since you have paid down a substantial amount of the loan then you are going to need to look at options like debt recycling when as I said you really reslly need the help of a good accountant. Contact one of the experts on here.

 

[Terry_w]

Hi I have not got the loan for ppor yet but has been approved will be taken out shortly.

But you will have a PPOR loan. Not planning ahead is going to cost you thousands every year for the next 30+ years so it is worth taking the time to learn a bit more.

 

[tobe]

great work paying off your investment property.


Dont listen to the doomsayers on here. You havent wrecked anything.


After you have moved into your new house, dont forget to buy a couple more investment properties so you can take advantage of the negative gearing tax benifits.

Those tax benifits can help you pay off your newly built house quicker.

 

[albanga]

great work paying off your investment property.


Dont listen to the doomsayers on here. You havent wrecked anything.


After you have moved into your new house, dont forget to buy a couple more investment properties so you can take advantage of the negative gearing tax benifits.

Those tax benifits can help you pay off your newly built house quicker.

I may be missing something here but how can owning a negatively geared portfolio help the OP pay of his PPOR debt quicker? Ofcourse if it is cashflow positive then it makes sense but if not then he will need to come up with the shotfall each week which is money he could be using for his PPOR debt.

If you are meaning it will help him pay his debt quicker in the form of growth then fair enough but IMO that is a truly speculative play and if the market does not move or even go backwards then he is back even further.

There is endless negative gearing debates but personally I would not advocate it Solely on the basis of the "tax benefits".

 

[Rolf Latham]

I may be missing something here but how can owning a negatively geared portfolio help the OP pay of his PPOR debt quicker? Ofcourse if it is cashflow positive then it makes sense but if not then he will need to come up with the shotfall each week which is money he could be using for his PPOR debt.

If you are meaning it will help him pay his debt quicker in the form of growth then fair enough but IMO that is a truly speculative play and if the market does not move or even go backwards then he is back even further.

There is endless negative gearing debates but personally I would not advocate it Solely on the basis of the "tax benefits".

investment mainly for tax benefit by nature tends to be a loss making situation, but not always.

A debt recycle strategy suitable to the posters risk profile combined with a neg gearing strategy may help to close off the personal debt more quickly.

in the end though, almost all IP strategies rely on the escalation of property value, while the value the debt remains constant OR reduces due to inflation.

Strategies and goals need to be geared to the clients risk profile and resources and not shoe horned into the oen solution that Im seeing more and more of with things like SMSF and property.

ta
rolf

 

[brocky05]

So what would I be best doing given my low income I doubt I would be able to purchase another property if I did I think less than 200k would be my limit which would probably just be a unit. So how could I make my ppor debt go down quicker by negative gearing. I just dont understand much about it.... or am I just better sticking to my current ip and ppor

 

[albanga]

So what would I be best doing given my low income I doubt I would be able to purchase another property if I did I think less than 200k would be my limit which would probably just be a unit. So how could I make my ppor debt go down quicker by negative gearing. I just dont understand much about it.... or am I just better sticking to my current ip and ppor

Hey Brocky,
All I can recommend now is picking up the phone and calling an expert. Rolf clearly knows his stuff and is across this so do yourself a favour.

One bit of advice I can give now with certainty is a good team is going to be the difference between a good investor and a poor one. For so long in my life with everything I have been under the motto "But I cannot afford to pay for X persons advice" when in essence that choice has cost me so so much more in time, angst and ofcourse money.

If you were to spend a few hundred dollars getting advice and a plan from someone then I can guarantee a ROI within the first year, no doubt about it.

These forums are great for asking questions and getting feedback as you have but I think your at the point where the feedback is you are potentially costing yourself loads of money.

That all being said though it's still an amazing effort you have paid down so much debt! I would love to be in your situation! Congratulations and good luck