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Paying off investment property

Discussion in 'Investing Strategies' started by Liverpool St, 11th Oct, 2013.

  1. Liverpool St

    Liverpool St Well-Known Member

    Joined:
    21st May, 2007
    Posts:
    96
    Location:
    Sydney
    Hi,

    I am in my 60's and have paid off my PPOR and have 5 IPs with a mortgage of $300,000 (LVR 12 percent). I am wondering if I should pay off the mortgage, considering that it would increase my tax.

    BTW, I am employed and will remain so for the next 12 months or so and salary sacrifice the maximum. My wife is retired and the properties are in joint names.

    Thanks
     
  2. Waimate01

    Waimate01 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    157
    Location:
    Sydney
    Not advice, but: it will increase your tax because it increases your income and reduces your costs. Not the worst thing in the world. Grab yourself a spreadsheet and do two scenarios, one where you keep the mortgage and continue to use your excess cash in whatever way you're using your excess cash right now, and the other where you use the cash to cancel the mortgage. Run it through with your marginal tax rates and don't forget the medicare levy.

    Mostly, it'll come down to what you're doing with the spare cash right now. If it's invested adventurously and brilliantly, and returning a high rate, then maybe keep your mortgage. If it's invested conservatively, then paying off the mortgage might be a wise move. But you've gotta do the figures yourself on your own situation.

    There are many people who scoff at the idea of a positively-geared investment property, but I'm not one of them. There's nothing wrong with paying a bit of tax because you're making money. Someone with more cash than they know what to do with can sometimes do quite well paying down an IP loan. Not advice.
     
  3. Liverpool St

    Liverpool St Well-Known Member

    Joined:
    21st May, 2007
    Posts:
    96
    Location:
    Sydney
    Thank you,

    I quite like the idea of lowering the debt. Time to smell some roses

    LS
     
  4. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
    273
    Location:
    Berwick Vic
    LS,
    Wealth is about assets less debt and which you focus on depends on where you are in the investing and work life cycle. Those under 40 to 50 should be concentrating on building assets and preserving capital, in your 60's it should be about reducing debt if you have built your asset base already.

    Salary sacrifice into super is often a tax effective strategy but with the limit of the $25k pa cap, it may still leave you with surplus funds. If you do have surplus funds from your salary and rental income after that, then debt reduction should be considered. Alternatively look to invest these in income or growth assets in your wife's name, even if they are placed in cash management or term deposits &/or direct shares depending on your risk appetite.

    As Waimate suggests, do some numbers to see what works best for both of you. It sounds as if you are one of the very few that will be able to retire financially free, well done.
    Greg
     
  5. Liverpool St

    Liverpool St Well-Known Member

    Joined:
    21st May, 2007
    Posts:
    96
    Location:
    Sydney
    Thanks GregR,

    Much appreciated. Like most people here on the forum I had the mindset to set up for retirement early. My PPOR here in the Sydney Eastern Suburbs is unencumbered and the 5 IP's have a mortgage of $300k. I have income of about $140K per annum (plus my salary)....

    I don't know how long I can keep working as I look at my supervisor and he is an oxygen thief. I could live reasonably well on the income without the salary...see how I go

    Thanks

    LS.