Interest only loan!
An Interest only loan has always sparked debate in both the home owner and property investment circles. I use interest only loans and I pay extra assisting in massive debt reduction against your own home mortgage. Most clients reduce their personal debts in record amounts –more than $30-$40,000 in the first year. On the investment side there are also big benefits. Interest is tax deductible, principal payments aren’t. It’s easier to manage the holding costs of the investments if you minimize the cost of payments during the ‘negatively geared’ period. As the property goes up in value, so does the rental income. The property should go from negatively geared to positively geared and then the extra rent reduces the investment debt. So it is all about the timing, and maximising the tax deductions.
Never, never, never sell your property
Over the past 100 years, Australian property has typically grown in value on average 10% pa. It’s not 10% every year, it works in cycles, usually 2 or 3 years of really good growth, 5 or 6 of flat and a couple of years of negative growth or retraction; meaning that a property can have flat or even negative growth over an 8 year period. The property growth cycle is often debated, but history shows this as fact. Though no one has a crystal ball for the future. Regardless of the growth debate, there are many benefits of keeping property – you incur buying costs only once, and pay no commissions on selling or capital gains tax. But by selling, taking profit and buying again you maximise the costs and minimise the profits. These costs can equate to $50 or $60,000 even before capital gains tax. By not selling, this money can be utilized as equity to purchase more property investment, and your existing property continues to grow as well as the new one.