All Topics / Help Needed! / How much in-debt should I go?

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  • Profile photo of vyaw2003vyaw2003
    Participant
    @vyaw2003
    Join Date: 2006
    Post Count: 188

    I have 7 low value properties. I have a loan of $750k.
    I am a high income earner.
    My interest bill is around $30k per year.
    After all expenses and interest paid, my properties only return $35k.
    Should I obtain another property now? If I do my taxable income will be reduced as a result of paying more in interest. But it will obviously take longer to pay off the larger loan.
    I am keen on 2 properties (10 years old) totaling $450k (returning 6.6%), but that would put my total debt to $1.2m ($50k interest yearly bill). I think that is too much, even for a person with 9 properties. What do you think is the best strategy?

    I had considered selling to upgrade a property but have decided against that now (CGT).

    Profile photo of CattleyaCattleya
    Participant
    @cattleya
    Join Date: 2008
    Post Count: 121

    Hi Vyaw,

    So the properties overall are positively geared and you are paying even more tax?
    I obviously don’t know your situation, but if I were you I’d definitely buy again especially if I am only 29 yo. And at 6.6% the new properties are also positively geared – my mortgage is at 4.28% so 6.6% is awesome return.

    Why is a debt of 1.2m too much? If the properties are positively geared and the underlying principles are met, there should not be any problem.

    Good luck,
    Catt

    Cattleya

    Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Do you have the one loan for the 7 properties?

    No one can tell you what the best strategy is. You need to work out where you want to get to in the future – and then work back from there. Devise a plan and follow it.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,416

    Hi VYAW,

    But it will obviously take longer to pay off the larger loan.

    Hmm, if that is part of your plan, then you are likely right. But what if paying them off is NOT part of your plan? Have you given that option some thought?

    e.g. Did your Mum and Dad pay off a $40,000 home over 30 years? What if they had also owned an investment property valued at $40,000 and DIDN’T pay that off? Today that property could conceivably be worth $400k+, with a $35k loan on it. Is that any kind of problem, especially since it is positive geared?

    Could it be argued that NOT paying it off would free up extra $$ to buy another one? What do you think?

    Benny

    Profile photo of Emily EdwardEmily Edward
    Participant
    @emilyedward
    Join Date: 2015
    Post Count: 6

    Hi Vyaw,

    Of course I am not an expert but just want to share my personal thought with you.

    My plan is to buy one apartment with good location first and then after a few years, do refinancing. Through refinance, I can get more loan to buy more properties. When I become old and do not want to work anymore, I would sell some of my properties to pay off the price of my rest properties.

    What I want to say is that, even you are in debt of a large amount of money, your properties may worth more if you have chosen them carefully.

    Anyway, my words are just for reference as I do not now your situation exactly.

    All the best,
    Emily

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Emily

    I would be very careful in the current climate refinancing to release equity is nowhere as easy as it was a month ago.

    Seen many a forum client come unstuck when their lender has capped the equity release to 80% lvr.

    Cheers

    Yours in Finance
    0-40 Properties in a decade. Email me for a copy of my API interview.

    Richard Taylor | Australia's leading private lender

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