What is the goal when getting a interest only loan?

Its scary how often I hear opinions like this floating around. (IRL, not much on the forums thankfully)

 

Yeah, i told him it's not what I've heard from most investors from here , but I'm still in the beginnings of investing so still so much to learn for me

 

No deduction because it is not commercial

 

That's the worse advice I have heard in a long time.

 

I spoke to them about it again yesterday , and they agree to pay off the personal loan as its bad debt , but then think I should go back to P&I after that

 

Im going to be harsh here. If you can't comprehend this concept and claim to be a 'property investor' going on many visits to half of NSW, than you really need to go back to basics.

 

Paying down debt is good, but not paying it down can be better.

By doing this you will basically be throwing future money away.

 

This discussion has been really helpful to me as well and i have same situation as the poster:
Just wondering which option you guys see as better one in terms of owning another IP, and tax gain:

• I own a IP for 3 month now on P&I - is it a better option to change interest only now? Or leave it as is and pay the P as it is but save...
• From the savings in offset,get the next IP or pay on the existing IP and re finanace?

Thanks again for your help.

 

It will be better to change to IO immediately - unless you have no non deductible loans and/or have problems holding cash as you are a spender.

For the second question it will depend on the situation - owners, future plans etc. But no immediate tax differences if the owners of the offset and the new property will be the same.

 

I dont understand Terry, if he pays IO he wont pay it off.
Does it mean he should wait for CG?
What if the area wasnt a CG area eg, muswellbrook?

 

Paying less means he frees up more of his cash flow and can therefore afford to hold onto more properties.

As for other question, don't buy in crap areas then

 

CG is really irrelevant.

An IO loan with an offset will result in the same interest being incurred as if the loan was paid down (providing offset is not spent where it otherwise wouldn't). In fact it will result in less interest.

There are 2 issues to consider
1. tax
2. cashflow

Tax position will be improved by having cash in offset. Cash can be used to purchase private expenses and the interest resulting from using it will be deductible.

Cashflow = less money paid out each month.

 

Thanks for the advice and this has been a bit of learning for me as well - many things that i wasnt told by my existing broker anyway..
Say i am on 140k salary base and have a 480k property, for which i pay around 1750 i/o. Oviously there is a rental income of around 22k/yr.
If my goal is to reduce my salary to 100k atleast and gain some tax back, the only option would be to renovate etc or buy a new IP ??
Or else the difference for -ve gearing would only be around +- 5k.
My aim pretty much is to be able to service the loan and reduce some income, claim tax for now. Is this something thats normal or am i missing something around here? I am only asking because it seems many people either dont know or they dont really wanna give this info..

 

Its common, but not normal!

The purpose of investing is to make money, not reduce tax. If you want to reduce tax you could make a deductible donation or reduce working hours.

 

Probably my question was wrong...
I guess my aim is that i can live of 100k-tax.
Now i want to own -ve geared properties with 40k.
At the end i want to work as much on salary but gain CG out of my investments and claim some money back by -ve gearing.
What is probably the best way to do this?
Do i need to come see you to get a proper advice Terry?

 

The best way to reduce your income is to write me a cheque for 40k each year. Ill give you a legit tax invoice.

Net effect is that you have 100k so only pay tax on that, giving you say ~18k tax return. All good?

 

Hahah not even...
I know it might sound stupid but than i am just trying to learn because i dont know....
All i want is to get some IP's like everyone else..

 

You're probably still stuck on the idea that "negative gearing is a good thing".

As D.T said, to intentionally make a loss of 40k is like spending 40k to get back 18k. The only plausible reason for doing it is if the CG on the property/properties exceed the the 22k loss

 

Good on you for getting in here and educating yourself, there are a lot of people who rely on the guidance of the bank or a poor broker to tell them what to do or worst yet in your case a friend who instead of paying down the principal or keeping it in an offset puts money into a term deposit! WOW that is some truly awful advice.

 

As others have said, investing in -ve geared properties purely or even mainly for tax purposes is illogical and will take you backwards.