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Debt Recycling Question

Discussion in 'Property Finance' started by TaylorTako, 6th Oct, 2016.

  1. TaylorTako

    TaylorTako Member

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    I've been lurking these forums for a while now, and have came up with a bit of a plan and a couple of questions regarding it, would appreciate any help..

    I wrote out the whole scenario, but decided to delete, was way too long-winded.

    The end result after debt recycling is this:

    400k PPOR PI loan is completely paid out.

    The Property/House is owned.

    Replaced with a 400k LOC loan that was used to invest in long-term stocks with decent dividend returns (4-7%).

    My question is, NOW WHAT?

    1. I either use my dividend returns from my 400k portfolio to pay off the interest and principal of the LOC loan...

    2. I partially use the dividends to pay purely the interest of the LOC loan and reinvest the remainder.

    3. I reinvest ALL the dividends returns back into the stock, compounding the portfolio further and pay the interest of the LOC loan indefinitely.
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    Adelaide, SA
    Depends on the desired timeframe / goal.

    Those are all valid options, but have different results.
     
  3. TaylorTako

    TaylorTako Member

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    Live in the property long term, buy an IP asap.
    Continue building and growing share portfolio with blue-chip, high dividend yielding stocks.

    For the next 40 years, i want to continue accumulating sources of passive income.

    I'm just curious which option would hold me back the most..

    I feel like option 1 works the best for my goals?
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Convert the loc to a term loan and get dividends deposited there for starters.
     
  5. tobe

    tobe Well-Known Member

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    3. definitely, as its the option that has the most firepower (dividends plus repayment of interest from your other cashflow)

    Alternatively choose 1 or 2 and then redirect what you would have paid into new tax effective and geared investments.
     
    Terry_w, albanga and Perthguy like this.
  6. albanga

    albanga Well-Known Member

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    Agree with @tobe. I would be going three all the way! Pick up any decent book on compounding to see why this will be the best long term outcome.
     
    Terry_w likes this.
  7. TaylorTako

    TaylorTako Member

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    5th Oct, 2016
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    Location:
    Victoria
    Thanks guys, I feel like you're right with converting the LOC to a term loan, then i'll pay the interest from the loan with the dividends...

    The question is, considering i'll want to take out more loans (most likely for property)..

    With this in mind, would it be worth reducing the principal of the 400k term loan in regular payments.. To pay this off quicker, therefore ensuring i can actually take out more loans for more property?

    Or, should i purely pay the interest off this loan, leave the principal as is, and use this 12k a year (in interest) to decrease my taxable income and just use dividends to cover these repayments whilst re-investing the remainder?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If you can dont pay down any loans but keep borrowing. This may not be possible because of servicing so if you go IO and keep cash in the offset you can decide at the time of the next loan.
     
    Tranquilo likes this.