This is my first post, I’m hoping I get it right. We have 3 Units in Queensland, the suburbs being Milton, Chermside and Buderim, all close to utilities. All are currently rented and we are in the process of refinancing them, so I’m wondering as the unit prices in Brisbane have dropped and if we keep them for say another 5 years, is it worth doing P&I instead of IO? Hopefully, we will be able to fill the gap in the price reduction when we decide to sell.
Impossible to answer, not knowing your figures, when you bought what are the losses, so you need to calculate the numbers and decide what do you want to achieve from your IPs? I sold few lemons over the years as my strategy is never to sell, even they were neutral or positively geared, so I could take opportunity costs elsewhere. Sometimes the gap in price is justified if you invest elsewhere, but please also learn on your mistakes. Remember, if you claimed depreciation over years that is added back to the cost base, hence even if you sold for same price or less there still may be CGT to pay too! You need plan B for changes in circumstance like this or buffers, or offsets, so you can hold for at least 10 years or so. Property is a long term investment, so what is or was your investing strategy?
Hi Carol Certainly there is an over supply of Units in some suburbs but not all Unit prices here in Brisbane have fallen. This coupled with the fact there are some really sharp P & I interest rates for investors at the moment and I am not convinced i would panic sell. Depending on the yield you are receiving well worth hanging on in there.
Thanks for replying. Our major strategy was to build for our retirement as we are both in our mid 50s but with the property market the way it is, its not going to happen as good as we initially thought. I understand that property is a long term investment but I guess Im just getting the jitters which I will have to overcome. So if we do P&I on the units, how does this effect the tax? We would love to have someone in Perth who can assist as we are still on the learning curb.
Hi Carol I should email you a copy of Richard Taylors (Richard is the owner of Mortgage Capital & Taylored Financial Solutions) API interview on how he retired at 40 by paying down debt and creating an income thru rental properties with a net worth of > $26M. In essence you can only claim the interest component as a Tax deduction so as the principal amount falls the amount of interest also falls reducing the Tax claim however this is just one area of building a property portfolio and you should never base your properties around Tax deductions. With the right loan structure and mortgage product the savings could help you pay down the debt creating a separate rental income.
Thanks Marietta, I would appreciate a copy. I will admit I was brought up being told not to have too much debt and at the moment, its doing havoc with my head but I know the old saying "You have to spend money to make money", can also apply.
nothing wrong with being conservative, debt do kill if you use it to buy an asset that is losing money debt can be good if the asset value rises but if it going the other way not only you lose your money, you lose other people money which then you have to pay back and it will cripple your future investment opportunities
Had a client t with an off the plan purchase come in low today. $495k purchase 2 years ago value $450k now.
As others have said, it’s a long term investment. Correct me if I’m wrong but as the market is flooded, the builders will slow down. Once the new units are sold, prices will increase, how much who knows.
I reckon that in 5 years...it will be all apples..the market there is just recovering....the supply of units will dry up over the next 3-5 years as people have shouted oversupply in Brisbane and the brakes have been hit hard.
Hi Carol, There's a few things to consider when looking to pay P&I rather than IO - it depends a lot on your borrowing capacity and longer term goals, whether you'd like to buy more property and whether you have existing owner occupied debt. Depending on your current IO rate, you may find a good P&I deal that will allow you to keep similar payments to your current IO ones - this can work well when P&I is in line with your other goals and current circumstances. In regard to the valuations on the properties, if you're concerned about valuations being low it's possible to order valuations upfront to ensure you're not going to be stuck paying LMI. We often order a few different types as they can vary quite a lot depending on whether it's a modelled estimate or a full valuation.
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