Pay off home or buy an investment property?

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Permalink Reply by nikki on October 20, 2008 at 21:41

Buying an investment home is a great way to pay off your home if you buy in the right area for the right price.

Open an offset account attached to your home loan and put all income into that including rent from the investment home. Use an interest free credit card (55 days or so) for all expenses and pay the investment loan once a month when its due. The money in the offset reduces your home loan and the term of your home loan. Investment home loans are good debt as they are tax deductale. Your home loan is bad debt. . Everything spent on investment loan is tax deductible or added to the cost base for capital gains purposes. Sometimes you can apply to the tax office for a Variation of Tax where your tax refund is paid weekly in adavnce on top of your pay to help cover costs. Investment loans reduce your personal tax and you will get a decent refund depending on the deductible claims you are entitled to eg: Interest paid on the loan, depreciation, and tenancy costs.. Talk to an accountant about this.
The way I see it is property will never be worth $0 but shares can and property earns you an income and grows in value. It is an asset you can sell on retirement or if you hit hard times.

Good luck :).

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Permalink Reply by Brent on October 21, 2008 at 15:40

Thanks Nikki.

Yeah, I am looking into this more now. I've set an appointment to see my accountant with my budgeting and calculations to see if I work everything out correctly.

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Permalink Reply by nikki on October 21, 2008 at 22:18

Cool! Good luck to you :) Keep us posted.

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Permalink Reply by Karen on October 22, 2008 at 12:14

This is great advice from Nikki!

And really, at the end of the day you can't go wrong with the right attitude and the willingness to educate yourself. So long as you don't get too far ahead of yourself and you look at investing as a long-term strategy, you'll do OK.

Best of luck with it all!

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Permalink Reply by MelbourneLass on November 6, 2008 at 3:58

Hi Brent,

I'm a newbie as well :-)

I think if you are looking at buying an investment property, then you need to make sure that you can afford the repayments of it, should interest rates increase, and that you can also cover the mortgage on it should there ever be a time where it is not tenanted ( assuming that you are looking at renting it out obviously) that you may get "bad tenants", of course hopefully you get good ones, but that in the event you have a bad one, that doesn't pay up the rent, that you have enough to cover that period or if not rented out, plus your existing mortgage, and you have to weigh up things like insurance on the 2nd property against damage/plus housing insurance costs. I think if you are buying an investment property, look at buying a place that is in a good area to rent out, and not the 'best place' in the street, but go for a house or unit that you can do a bit of work on yourself, be that gardens etc or painting, without having to put in huge $$$ costs, that you can then rent out, buy something close to train station or beach not too far out of the city, and by buying a cheaper place that needs some TLC but is in a desirable area, then you have something that you can sell later on if needbe. I think with any investment you have to do a lot of math, and also weigh up potential risks should situations change, like emplyment or interest rates, and work out if you think you have those things covered and in the event they do it won't leave you in financial hardship.

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Permalink Reply by JeffK on November 7, 2008 at 9:29

Wise words MelbourneLass! I get the feeling you know a thing or two about this... ;)
JFK

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