Where to invest extra cash

Discussion in 'Investment Strategy' started by J&E, 23rd May, 2017.

Join Australia's most dynamic and respected property investment community
  1. J&E

    J&E Active Member

    Joined:
    15th Dec, 2016
    Posts:
    27
    Location:
    Sydney
    Hi,

    I have several investments properties all borrowed at 80% LVR.

    I have a PPOR fully paid off now.

    I was wondering what I should do with the extra cash that comes in after paying off any expenses including personal bills etc.

    I am 33 years old so am not looking to retire anytime soon so from a tax perspective I would like to know what would be the most ideal thing with the extra cash? Should I

    a) Setup an offset for one of the investment properties and start transferring funds in there so reduce interest?

    b) Leave the investment property loans as they are and just set up an interest earner account?

    Any other ideas?
     
  2. Brady

    Brady Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,561
    Location:
    Adelaide, SA
    1. Fund into offset against investment property
    2. invest funds where return is greater than offset savings (not likely interest earner). More like shares providing good grossed up yield (franking)
     
    Perthguy likes this.
  3. J&E

    J&E Active Member

    Joined:
    15th Dec, 2016
    Posts:
    27
    Location:
    Sydney
    Thanks Brady. But wouldn't that be reducing my negative gearing?
     
  4. zlatan9

    zlatan9 Well-Known Member

    Joined:
    30th Aug, 2016
    Posts:
    151
    Location:
    Brisbane, Sydney
    you'll find that mathematically, reducing negative gearing is better unless you can earn a rate of return on your spare cash that is greater than your investment property interest rate.
     
    Brady likes this.
  5. Colin Rice

    Colin Rice Mortgage Broker Business Member

    Joined:
    9th Jul, 2015
    Posts:
    3,183
    Location:
    Perth
    I would look to go to 80% on that via a "cash out " friendly lender serviceability permitting. The old maxim - "when you need money is when you usually cant get it so get it while you can" as it could be used for future opportunities considering the current landscape.

    33 years old and in the position you are in is to be commended :)
     
    Kevvy7, Sackie, Brady and 4 others like this.
  6. tobe

    tobe Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,814
    Location:
    Melbourne
    yes, but the alternative, a term deposit generates taxable income.

    If you want to preserve negative gearing, consider buying shares with a margin loan
     
    Colin Rice likes this.
  7. Ross Forrester

    Ross Forrester Well-Known Member

    Joined:
    30th Oct, 2016
    Posts:
    2,085
    Location:
    Perth, Western Australia
    Alcohol generates extra enjoyment and coupled together with business travel it becomes tax deductible.

    If you consume lots it your knowledge increases. Eventually you will be a keynote speaker on the topic and earn a fortune.

    Failing that an offset on an IP.
     
  8. Colin Rice

    Colin Rice Mortgage Broker Business Member

    Joined:
    9th Jul, 2015
    Posts:
    3,183
    Location:
    Perth
    It can because depending on the amount in offset will decrease the amount of interest paid therefore deducible interest is reduced. This is not such a bad thing as the aim of a property, ultimately, is to increase in value and provide a cash flow as well. Easier said than done.
     
    Perthguy likes this.
  9. Brady

    Brady Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,561
    Location:
    Adelaide, SA
    Personally I would be looking to do this - use equity in PPOR to invest in shares, I wouldn't be rushing out to do this. Would do the equity release now, have the funds available and buying when I had done enough research and was comfortable or even better if there was a dip in the market.

    Would continue to save funds in offset as a buffer for SANF