Paying off debt faster. Tips needed!

Discussion in 'Investment Strategy' started by ankit3695, 2nd Mar, 2021.

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  1. ankit3695

    ankit3695 Member

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    Hi Guys,

    I'm a new guy on this forum. I have been browsing content for few months now and thought I'd ask some advise regarding my debt situation.

    I am looking to purchase investment in near future and have an existing property where I live. I bought the property for $540,000 in 2019. I now have $487,000 remaining. I am paying principle and interest.

    At present I have some ongoing education expenses related to my profession so unable to save much, however my annual income is about $200,000 (before tax)

    From reading Terry's tax tips, it seems the likely scenario to purchase an investment property would be along the lines of using equity on the existing property. Setting up two separate loans, one for main residence and one for investment property. The main residence will be P&I, while the investment will be interest only.

    The land value of my current property has gone up by $20,000. I have not yet gotten the home evaluated. So assuming the only equity I have is amount I have paid off + $20,000, this gives me an equity of $73,000.

    So to invest I should use this value (which will be larger once I am in position to buy) as a deposit towards the investment property i.e. this will be Loan B and should be Interest only. So to pay off debt faster on my main residence, I will use the income from investment property as well as my own income?

    Does this sound like a right way to take?

    Thanks!
     
  2. Trainee

    Trainee Well-Known Member

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    You make 200k but cant save?

    learn about offsets. This is useful if you, like a lot of people, upgrade ppor in the future and keep this place as an investment.
     
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  3. ankit3695

    ankit3695 Member

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    I have ongoing education expenses about $60k a year for next 2.5 years, my wife is a uni student and I have a kid. So insome is spread a bit thin. Like I said I will be in a position to buy in near future. Will read up on offset. Thanks.
     
  4. Trainee

    Trainee Well-Known Member

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    You are saying (net of education expenses, which are likely deductible) 140k income for a family of 3, with a fairly low ppor loan.
    Many people could save a lot out of this.
    If you think you can save more, you can. If not, you won't.
    At your stage (just starting out), you don't have much assets to grow to provide deposits. So you need to save.
     
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  5. Scott No Mates

    Scott No Mates Well-Known Member

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    Create a budget based on the median income, anything above that, save (& contribute to your CPD). There's probably $40k without trying.

    An area with $600k homes doesn't warrant 2 Mercs/BMWs/Rangies in the driveway.
     
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  6. skater

    skater Well-Known Member

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    There's likely not really enough equity to help you.

    Like the other posters have said, you need to spend less. A lot less! Your mortgage is very small & you have a high income, even with the $60k (seems excessive) expenses.
     
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  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Budgeting may be the best strategy in this instance.
     
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  8. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Out of interest, what sort of course costs $60k per year?
     
  10. skater

    skater Well-Known Member

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    I thought it was his wife's Uni expenses, but just re-read & it's his own work related expenses. Seems a lot!
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Its probably tax deductible too which will bump up the after tax income even higher.
     
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  12. ankit3695

    ankit3695 Member

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    Ok seems like the general concensus is too much spending on my behalf. I will look to budget more but unfortunately my education expenses will not go away straight away, which makes the bulk of it.

    Also from responses it seem like I do not have enough assets to have an equity for further loan. Again will look to save more.

    Just to clarify, I am a sole trader and 60k goes towards my orthodontic training. It does not include my wife's university fees, which is another 10k on top. I do not own any high end cars. I have a lancer and a mazda and the mazda I pay 600 a month. Every third month my income goes into tax.
     
  13. Firefly99

    Firefly99 Well-Known Member

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    You don’t need to justify your spending or cars to anyone! But yeah it looks pretty high. Perhaps even the Barefoot Inveator book might help to get the budgeting under control (it’s not great for investment but you’re likely going to need to get the budgeting under control to have cash for later investment).
     
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  14. skater

    skater Well-Known Member

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    What you spend on cars or other things is your business, but if you want to get ahead of the game financially, you have to 'pay' yourself first.

    Let me put this into perspective for you. This is in no way a criticism, but it is what I have done.

    I have just recently bought a new car. It was around $40k, and I paid cash for it, BUT, here's the kicker.

    This is the first new car I have bought since I bought a basic Suzuki Hatch for $5k in my 20's, over 30 years ago. All cars since Hubby wrote that car off, have been bought for cash, and as cheap as they come. My latest one was a 2000 Diahatsu Terios. That's right, a 21 year old car! I bought it for around $3k and drove it for maybe 8 years. It still runs well, but was starting to get age related issues, so it went. Two years ago we also upgraded Hubby's car which was of a similar age.

    Why did we wait this long to buy 'good' cars? Because to me a car is nothing more than transport. It is a depreciating asset, and money spent on cars is money that can be spent on increasing our net worth.

    I know that $600 a month won't get a high end car, but that's $600 a month that, if it were me, I'd be putting towards my future.
     
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  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Look at ways to reduce your tax as that could add a lot for a small effort. Using the money saved you can help reduce non-deductible debt faster which not only saves interest, but will save you move tax later when investing and it builds up equity faster.
     
  16. jaybean

    jaybean Well-Known Member

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    Yeah mine is going to be 22 years old this year. DELAYED GRATIFICATION! I am going to finally buy a new car probably 2 years from now and even then it's highly likely to be a Yaris...or maybe something flashier (no more than 40-50k tops). Now that I have maxed out my serviceability and bought my PPOR, I feel like it's time. I contemplated waiting until I fully paid down my PPOR first but with only 300k of debt on it, I figure it's time to splash out and finally buy a car that has 100% paint on it instead of 50% lol.
     
  17. Firefly99

    Firefly99 Well-Known Member

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    Just jumping here re: cars, I’m all for not spending a fortune but safety features are also important and newer cars usually do a lot better in that regard.
     
  18. jaybean

    jaybean Well-Known Member

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    No doubt. I've always struggled to spend money on one. I've always thought...20-30k...that's half the deposit on a new IP.

    Now that I've maxed out my serviceability I can finally stop thinking like that and splurge a little.
     
  19. Lacrim

    Lacrim Well-Known Member

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    Could just buy a used 3-4 year old car with low kms. As good as new, and half the price.
     
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  20. jaybean

    jaybean Well-Known Member

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    I don't know anything about cars so I'm always worried I'll get ripped off.

    Besides, after driving this same car for 22 years (probably 24 by the time I'm finished paying off one last loan) I feel I deserve to do something slightly irresponsible :)