Has anyone paid off their ips and used the snow ball effect ?

It would be less risk involved in a downturn

 

LVR is the key but buying into strong performing markets is just as important IMO, otherwise you can go backwards.

 

No they won't, you prepare for it.
That's why I said find a level of debt you're comfortable with. It's a long term game.

 

Totally different

 

To you and I, yes but not to the banks

 

No, very different, but it does mean the repayments are lower or no repayments if offset is full or more than loan.

There could be problems having offsets full though if over 250k

 

But i wouldn't have to pay interest on them right ? If the off sets are FULL ?

 

Right

But there are various differences with taxation and borrowing capacity - estate planning as well.

 

I don't think I want to be debt free. Playing with debt is what gives me the will to live. I don't see the point of having 1 mil in assets returning $50ky instead of 3 mil in assets and 2 mil in debt also returning $50ky..... Having no debt is risk averse, but there are other strategies to manage risk rather than just getting rid of it. Maybe my answer would be different if capital/income growth potential was the same for the two options?

 

Sounds like rewards are wanted without any risks to me. Never gonna happen.

Don't forget there is also risk in the 'pay down IP one by one idea'. The risk is it never eventuates or eventuates with meaningless amounts of cash flow because a decent enough asset base was not able to be established while you were pouring all your income into 1 loan.

 

Build a base.

 

Like what? What kind of prob?

 

If there was a crisis or meltdown, govt guarantee is limited.

 

You can't withdraw as in a financial crisis banks can dissallow offset withdrawals.

 

Every time that we have money in the bank we feel that we have/will have a problem - time to borrow.

 

If rent goes down and the person is still able to old then that is okay.

If CG goes down that is also okay as long as the long term it goes up.

If you buy a house for 500k and you have a 400k loan (80LVR) and then one you pay off the loan and house is now worth 400k you lost 100k. In the same scenario if you bought a house 500k/400k loan and didn't pay off the principal and kept 400k in offset you are still at the same spot of losing 100k.

If you then buy another at 400k using the offset money (or more) and then the property went back to 500k you have gained 100k and if they then double you have gained 1M or total 1.1M compared to 500k. I would rather 1.1M over 500k, I guess you prefer the 500k...

 

I am not sure whether this is the snow ball affect......but here goes...this is the strategy I use.

I use a combination of following strategies for equity growth:

1. Paying only I/O on all loans
2. All personal and property expenses where possible are put onto credit cards and paid off fully on the due date via direct debit
3. I have started building newer properties which have very high depreciation content.....this is used to minimise tax on earning from positive geared property.
4. All my pay and rent go into a offset account...reducing interest paid
5. Rents are pushing where possible every year
6. I shop around on bank IR and push this down where possible 0.15% on 4-5m in borrowings is significant
7. Debt is reduced b putting money into offsets..once one place is paid off and start on another on. In my case I might be paying into a few offsets.

I have now well into a 8 figure portfolio...using these strategies...I am compounding savings of 180-220k plus per annum. This does not include any capital gains this is icing on the cake. This compounding effect grows very fast as your portfolio grows and as time increases rents and equity.

Ultimately...if you construct a reasonable portfolio it is possible to have large positive income f say 150k per annum and have very little tax due to depreciation credits.

 

Start with 1 property first.

 

Hi

I am but a small player (unlike Sash above) ..

But i am indeed using this so called snowball thingy strategy...

I have paid off completely 1 investment loan and will be using all my net positive rents to pay off the next within the next 12 months...(plus salary and dividends of course)..and then move on to the next...

Having said that, if the market is not so bubbly (in Sydney) i would have change dcourse and buy another investment property (for my kids)...

But this way , i can at least get a safe return of 4% thereabouts (ie average mortgage rate)..boring i know!

 

Very similar to with the guaranteed CPF rate in Singapore......