crc_error buying a IP!!

Discussion in 'Investor Stories & Showcase' started by crc_error, 3rd Feb, 2008.

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  1. dkmc

    dkmc Well-Known Member

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    I would go IO with offset account if you are disciplined
    you dont have to focus on repaying
    just keep it in offset and this keeps things flexible

    If you pay off principle - it means that - if you redraw that you need to do it for income producing purposes to keep it tax deductable

    If you keep in offset- it doesnt matter what you use this money for

    Have you thought about "moving in" for a month
    That way it will be CGT free from day one
    you can still rent it out after
    claim deductions and still have 6 yrs before you claim it back as your ppor.
    That may make a big difference if melbourne grows at 15% for 2008
    Also you may be eligible for the FHOG - stick that cash into the offset too
    check the vic laws for fhog -in the past some states stipulate a timeframe to stay some dont - get good information here though - as people do presume you have to stay 1 yr but if look at the fine print this may not be the case, depending on your state



    more managed funds? - nope
    putting your money in offset gets you a guaranteed 8% return, tax free - so its more like a guaranteed 11-12% return.
    Forget managed funds in this scenario.
    Good thing about the offset is u have access to those funds easily - unlike if you pay the loan off. Thats why I wouldnt go P+I

    You could keep funds in the offset - and depending on your circumstances use some for a deposit on an investment property
    This will maximise your leverage - which is key
    no point putting cash into managed funds when you can get certain 12% equivalent returns on your cash.
     
  2. samaka

    samaka Well-Known Member

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    Interest Only all the way - you can pay the loan down like a P&I if you like, and still have the flexibility of being able to redraw cash at will.
     
  3. D&K

    D&K Well-Known Member

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    IO always. As dkmc says, keep your leverage high, it's the main advantage of property. When you look at it, you might pay down $10k in the time the CG gains $100k - so why bother?

    The equity in that CG (not much by paying off the principal) can be used as deposits for other properties (or other investments). Generally, after a couple of properties, investors have plenty of CG to fund more deposits but start to run dry on cashflow.

    Warning, collecting IPs is addictive, you can't stop at one! Preserving cashflow with IO loans will enable you to collect a couple more. :D

    Dave
     
  4. crc_error

    crc_error The Rule of 72

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    so what if I put as much into the loan and then re-draw two years later and invest into something else? ie another IP or managed funds?

    However I'm questioning if its worth borrowing to invest into funds these days cause we mentioned above, paying down loan gets you 12% effective return.. and the long term return of sharemarket is 12% with alot more risk!

    Gorn are the days of cheap money and booming share markets.

    The only problem I see with re-draw is I'm currently paying $2000 per month interest.. thats a large mortuage bill! and then to redraw more to make it bigger will not be affordable.. its ok at present as tax man helps and so does tenant, but if I move in, it wont be affordable, or I will live on soup alone!

    If I bought a IP, it would cost $15k PA to keep or another $1000 per month pre-tax.. seems this isn't really realistic.
     
  5. samaka

    samaka Well-Known Member

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    Only for a while. Greed and stupidity will make sure another unsustainable sharemarket boom will occur.
     
  6. venger0

    venger0 Active Member

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    crc_error has also raised an interesting point - in this climate (9+% interest rate and on the way up), is it worth it to attempt debt recycling? does the rewards (after tax benefit of maybe 2%?) justify the risks?

    i'm in the same boat - so my current answer is: yes, but i will be buying smallish parcels with X dollars at Y regular intervals - certainly no big lump sums for me :)
     
  7. crc_error

    crc_error The Rule of 72

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    are you doing this on your IP or PPOR?

    I'm thinking its not worth the risk!!! risk your money for potentially 2% return..

    I agree, if anything do it on a smaller scale where your willing to risk losing the money..
     
  8. venger0

    venger0 Active Member

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    sorry crc_error, should have added that statement too...

    agree - it needs to be on a small scale.. how small? basically, for me, it means DCAing up to a limit of Z dollars where i know losing it will not wipe me out... timeframe is also important - i see this as my second super - so i am looking at 20+ years...

    and to answer your question, its my PPOR...
     
  9. tropic

    tropic Well-Known Member

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    CRC, why don't you pay the principal too?
    I am not about this interest only repayment.
    It's alright for investment but not your PPOR.
     
  10. crc_error

    crc_error The Rule of 72

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    its going to be a IP for a couple years before I make it my PPOR.

    This is why I'm wondering if I should pay P&I from the start, or make it P&I once I make it my PPOR.
     
  11. Rod_WA

    Rod_WA Well-Known Member

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    IO for your PPOR too, just put the principal repayment equivalent plus whatever extra you can into a 100% offset account.

    = Better cashflow (you control when to "pay down the principal" ie contribute to the offset)
    = contingency cash
    = maximum deductibility if you wish to turn it into an IP
    = most flexible all over.

    Just remember that you net position is improving at the same rate at P&I, consider that one day you'll have as much in the offset as you owe on the loan = effectively paid off, but still most flexible, eg what if you have P&I, pay it off, and then want to rent it out? Zero interest deductions. But if you have IO, you get full deductibility of the original loan amount.
     
  12. kierank

    kierank Well-Known Member

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    I agree - IO with 100% Offset is the way to go. If you go P&I and only make the min. monthly repayments, your repayments are mainly interest anyway - so go IO.

    If you convert the IP to your PPOR (things change - it might NOT happen), you can dump the Offset into the loan and reduce your non-deductible interest.

    Rod-WA gave you the benefits of this approach
     
  13. crc_error

    crc_error The Rule of 72

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    The other benefit as mentioned above, is the property MAY NOT become a PPOR, and the extra payments can be used to buy a PPOR. So if the money is in a offset account, I can use the extra money for a deposit for PPOR. Now had I put it into re-draw, PPOR isn't tax deductable, hence the loan would be messed up for tax purposed.

    I have decided how much I'm going to pay each month, and will have that amount automatically deposited into offset, so its like paying it off anyway..
     
  14. BillV

    BillV Well-Known Member

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    emmm... why don't you have all your money going into the offset?
    then shop using your credit card (using bank's money)and pay the CC off monthly.
    Cheers
     
  15. crc_error

    crc_error The Rule of 72

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    yes, I have considered that as well. but I'm thinking its harder to see what your doing. ie I can't control my monthly expenses. If I allocate a 'minimum' which goes into offset, then I know that I'm at least paying down my minimum each month. If there is a large pool of money, its harder to follow what your doing.

    The other problem is CBA wont allow mortguage payments to come out of the offset account, so I would need to have a auto transfer setup moving out the mortguage amount into the transaction account.

    how have others set things up? do you pay your wage into offset, and then withdraw each month what you need to pay your credit card?
     
  16. DaveA__

    DaveA__ Well-Known Member

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    with a mav you can... my pay goes into the streamline account which at the end of the month the repayments come from. Remember the nice difference with the misa is ALL savings accounts offset against your loans. While With the cba misa (offset account) has one account that offsets against your loan. You cant have a misa if you have got the mav package.Additionally you can also have a couple of savings accounts set up as its all free (as you have the mav). Ive got my emergancy account, bills/mortage repayments account and my general spending account. Gives you the way to spilt your money (for budgeting purposes) but still make it work hard for you in saving interest
     
  17. crc_error

    crc_error The Rule of 72

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    Hi Dave, I don't think ALL savings account offset, its only the MISA. The stream line account doesn't offset your loan. Whats the MAV package?
     
  18. DaveA__

    DaveA__ Well-Known Member

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    If you have a MAV it does offset (total debits less total credits = balance which is is charged on). If you have a MAV you cant get a misa... the misa is the offset account for cba (if you dont have a mav package)

    MAV is the cba professional pack - the $300 per year fee.
     
  19. BillV

    BillV Well-Known Member

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    CRC
    I don't know what your bank will allow.
    With STG I have setup my Visa for autopay every month.
    Cheers
     
  20. crc_error

    crc_error The Rule of 72

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    CBA told me about the MISA account, not the MAV, what is the difference between the two? do you have a link for this? Sounds like its a better option?