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Investment question

Discussion in 'Investing Strategies' started by Glebe, 23rd Dec, 2005.

  1. Glebe

    Glebe Well-Known Member

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    Hi everyone,

    Got a question for ya. Let me try and keep it simple.

    Say you don't own any investment properties. Say you don't own any shares.

    Say you 'own' your PPOR - it's worth $600 000, and you have a $300 000 mortgage on it.

    Would you decide to invest in shares etc asap, or would you wait until you paid your non-deductible mortgage off first? If you're in a high tax bracket, the savings you make by paying down your mortgage interest is equivalent to about 13% pre-tax, which is pretty impressive when you know it's guaranteed.
     
  2. gazza

    gazza Well-Known Member

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    Glebe

    What about both?

    I would certainly be looking at paying down the non deductible debt of 300K asap. To help that , you could draw down the equity you have in the PPOR. This would give you 180K to invest ie PPOR 600K, bank loans you 80% = 480K less home loan of 300K. Take the 180K , margin loan at 50% and invest full 360K in income producing fund. If fund returns 10%, assuming borrowing costs of 7%, you have an extra $10800 pa to help repay your non deductible debt.

    Gazza
     
  3. Simon

    Simon Well-Known Member

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    I am with gazza.

    Who says you cannot have your cake and eat it too?
     
  4. TakeStock

    TakeStock Well-Known Member

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    You took the words right out of my mouth!
     
  5. gazza

    gazza Well-Known Member

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    Taking it one step further :

    capitalise the interest on the margin loan

    income from fund at 10% is now 18000 (from margin loan portion) and 5400 (from LOC) giving you $23400 to repay non deductible debt :D

    Note: this has the effect of increasing your LVR on your margin loan making you more open to a margin call so you need think this through before going down this path, after all SANF is paramount
     
  6. Jacque

    Jacque Team InvestEd

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    Glebe
    If I had waited until my PPOR was fully paid off until I started investing, I'd still be paying my house off today :)
    Doing a couple of trades in IP's allowed me to use the gains to finish off all the non-tax deductible debt :)
    All my debt is now tax deductible and I'm much happier with that!
     
  7. Glebe

    Glebe Well-Known Member

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    Thanks guys.

    Reason I asked the question was because at some stage I'll be selling my shares, buying a house and err buying a mortgage. I was wondering if this would or perhaps should prevent me from investing in other assets, but I guess not.
     
  8. perky

    perky Well-Known Member

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    I'm with Jacque, if it wasnt for our IP purchases over the last few years Julie and myself wouldnt have paid off our PPOR.....and to take it a step further the last distribution from Navra in October paid for half of the pool that we have just finished decking etc in the last few days. :D
    Good luck Glebe.
     
  9. Glebe

    Glebe Well-Known Member

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    Thanks, I'll save it for later though - I don't think I'll be buying for at least a year. Whilst I can live renting in flats and average houses, when it comes to buying our PPOR for some reason my tastes are much more refined :eek: I wonder why that is.