Why dont ppl pay IPs off?

Discussion in 'Investment Strategy' started by property world, 27th Jan, 2016.

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  1. Cactus

    Cactus Well-Known Member

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    I still believe my example stands up. You don't have to buy another IP in the same person/entity as the first. And the fact it is in offset gives you the flexibility to take it out without re-valuing the fallen asset.

    The point of my post was greater flexibility. That is all. In my opinion you cannot argue that flexiblity is not greater under IO with offset and equal repayments.

    must run I have to collect my cherry picker from the depot in Sardegna.
     
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  2. Gockie

    Gockie Life is good ☺️ Premium Member

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    Anyway, my answer to the original question is, I agree with Caltan. The money is more useful when you don't commit to the higher repayments, you can buy more IPs (more IPs = bigger base to hopefully grow from) or you can do whatever with your money, great if an emergency comes up. If its tied up in repayments, its hard to use.

    As an investor still in my growth phase the only property I would have as P+I is on the PPOR. Its not tax deductible and there's a nice feeling to own it outright.

    Plus I suppose over time, having less debt on it allows you to borrow more for IPs (because the banks see you have less debt commitment on it!)

    Others may have their PPOR as IO if they are being more aggressive. That's ok, I think it could be benefical in the earlier years of investing when you just need to build a large base and you haven't hit a serviceability wall. I don't see interest rates going up in the near future...
     
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  3. kierank

    kierank Well-Known Member

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    Spot on.

    Also, once you have built up some equity in your PPOR, you can set up another loan (IO with an Offset :) :)) and use this second loan to go buy an IP, the interest charged on this second loan is tax deductible.

    Whereas, if you had an Offset on your first loan (no matter if it was IO or P&I) and withdrew money from the Offset to go buy an IP, the increased interest charged on your original loan is NOT tax deductible.
     
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  4. Johann_

    Johann_ Well-Known Member

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    I have had and always will have my IP loans set up with both P and I.
    Over the years we have reduced our IP debt by doing this... with no PPOR debt or any other personal debt now is the perfect time to reduce our debt. Even our Share portfolio is all cash no attached debt to it as well.... on the FEB 20th we settel on the sale of our development site and profit will go towards paying down our IP. so in FEB we will have another property paid off :).
     
  5. Steven Ryan

    Steven Ryan Well-Known Member

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    Looking forward to hearing more.
     
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  6. Terry_w

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

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    This my thread on how living off equity (variations of) can speed up retirement in a more tax efficient manner
     
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  7. Big Will

    Big Will Well-Known Member

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    As am I
     
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  8. 1474

    1474 Active Member

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    Its all just a capital vs cash flow balancing act.
    If your short on cashflow, pay down some debt, If your short on capital, sacrifice cashflow.
     
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  9. dabbler

    dabbler Well-Known Member

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    I am fully aware that it would not suit some, they need to look into all the for and against arguments to see what suits them, some loans do not have offset & if it is of no benefit, re financing to get an offset may not be what should be done.

    See, that's the thing, what one does can be absolutely no good for what another does. There is no one path that is best for all. And I believe it is beyond a forum to know what would be best unless very detailed accounts and goals are given to work through, just saying.....someone has to play devils advocate.
     
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  10. property world

    property world Well-Known Member

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    Im glad my thread created some great debate and thats what it was intended for.

    I think IO with an offset is the general consensus but what i took out of it is there are many ways to skin a cat and differing circumstances and positions can be the cause for this.

    So offset your basically paying off the loan without actually paying it off but just having greater flexability with that money

    Thanks pw
     
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  11. Kate Moloney

    Kate Moloney Well-Known Member

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    I'll be able to let you guys very soon, sorry about this, been asked to stay quiet for reasons that will soon become apparent :)
     
  12. Sackie

    Sackie Well-Known Member

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    Maybe not 'quick' buck, but 'quicker' buck certainly exists.
     
  13. Big Will

    Big Will Well-Known Member

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    The quicker the buck just really means quicker the result + or -

    100k walk into a casino put it all on red either walk out with 200k or $0, great if you pick the winner 5x in a row (100-200-400-800-1.6M-3.2M) I would be happy with that hourly rate. However getting me to put up the 1.6M for number 5 would be very very hard to do even the 100k I wouldn't be able to do.

    Go to a bank put it in a cash account earning 3% interest and you got $3,000 (minus tax) which will slowly compound.

    Take the 100k take out a loan and leverage it at 80% for a 500k purchase and earn roughly 10% (overall) ~ 50k p.a. minus 5% interest on the 400k loan 20k = 30k.

    All has their risk and timeline.
     
  14. Sackie

    Sackie Well-Known Member

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    @Big Will I agree with you they all have different risks, although I don't agree that making a 'quicker' buck is necessarily as risky as 50/50 (actually more because of the zero) on a roulette wheel. Just my opinion though.
     
  15. neK

    neK Well-Known Member

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    Quicker does not necessarily mean riskier. Knowledge is a form of risk mitigation.

    Following the casino example, card counting is a way of risk mitigation. Its not illegal, its just that casinos don't like it.

     
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  16. Sackie

    Sackie Well-Known Member

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    @neK yes mate thats what I was trying to get across. :)
     
  17. Terry_w

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

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    Or borrow to pay for expenses on all the ips and deduct the interest. The interest could also be paid with borrowed money and this be deductible too depending on the circumstances.
     
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  18. Steven Ryan

    Steven Ryan Well-Known Member

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    One of the best things I have seen posted here.

    A truism at its finest.
     
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