Financially free at 32 – My 10 year property journey

It would depend what the lesser number is - a bird in the hand is worth 2 in the bush. And the point is that he is claiming to be financially free. And the probability might seem low but markets that have gone up quickly can go down even more quickly when they are built on debt and expectations of capital gain.

 

@Jack Chen - Dude, killed it! We are looking to invest into the Brisbane market for our first IP.

My burning question... if you had $500K to invest in property, where would you buy today?

 

Hi @danel thanks for the kind words! Have you looked to the sharemarket or commercial property? I find residential property a poor income producer for the amount of capital tied up in them.

If you're open to investing in shares for the dividend income, have a read of this blog (credit to @Snowball):
Dividend Investing - A Perfect Fit For Aussie Early Retirees? - Strong Money Australia

Great question.

I still like LICs and I still like property.

At the very least, I'll still have rental income for the franking credits to offset.

How are you planning to mitigate it?

 

Hard question to answer as I know nothing about you. What do you want out of your first investment? Why $500K?

 

How does this work? I thought the franking credits basically enable the dividends to be tax free at your end (at circa 4% net return), presumably bc the company has already paid tax.

How do the dividends reduce the tax paid on your rental income??

 

Jack,

thanks for posting this valuable information.

Can I please ask a question re the above :
My understanding is that when you pull equity from an IP it is:

1. If you invest this equity $ into 'good' debt (like LICs/ETFs/Deposit-for-new-IP) then the interest payable on your Equity-Access-Loan will be deductible, if you put this equity into Offset-against-PPOR then the interest wont be deductible.

2. Typically done via an 'Equity Access Loan'. These generally have a higher interest rate than either an I/O-Investment-Property-Loan or a P&I-PPOR-home-loan; (which means it's not worth putting equity $ into a offset account...??)
So, what sort of Offset Account did you leave these equity $ in?

If my understanding isn't correct, could you please explain this to me in a bit more detail...
Thanks!

 

1) I'm not an accountant but generally investment debt is deductible. Not sure why you'd want to put it into the offset against the PPOR. Can you elaborate?

2) For equity releases I've always taken out investment home loans with interest only repayments and then parking the proceeds into its own offset account. That way you won't need to pay any interest on the loan until you start drawing down on the offset account.

Hope that helps!

 

Hi guys,

I'm an accountant for what it's worth.

If you pull equity from an IP but the purpose of the equity pull is non deductible (living expenses , holiday etc), then this portion of the IP loan would not be tax deductible.

Hope this helps.

John

 

But are you a tax agent?

The purpose is not really relevant, it is the use to which the borrowed funds are put that counts. If you borrow to fund living expenses the interest would not be deductible.

(but you might borrow to pay investment expenses and then live on rents or dividends....)

 

CA, not a tax agent.

Purpose / use. Same same.

 

Accountants cannot give tax advice unless they are also tax agents or lawyers.

Purpose/use may be the same, or not, I guess it depends on what you mean by 'purpose'.

'As the cases, including Kidston, all show, the characterisation of interest borrowed will generally be ascertained by reference to the objective circumstances of the use to which the borrowed funds are put.'
Roberts and Smith ATC at 4388; ATR at 504

 

Thanks for the tip Terry.

 

On a public forum ? For free ?

The advice is free and anyone can give it - even a CA..

 

I would agree, but only where it is not implied that the person giving the advice is licenced.

 

All, it should be assumed/understood that nothing on this forum is "advice". Just helpful opinions.

 

Just curious if you are financially free, why are you still toiling away and not enjoying the fruits of your labour?
Maybe you need to read the FIRE thread. Life is not a dress rehearsal!

 

How much land tax are you paying each year? Its got to be a head ache? Please reply

 

I am not going to tell you how much land tax I am paying, of course. But it's a pain, yes.

 

Im not asking you. Im asking OP (Jack Chen)

 

Phew.