Hello Steve and a big hell to everybody,
This is my first ever posting in this website. The best thing I liked about this site is, no one is trying to market their ideas, here. That is indeed, a very healthy sign. Steve has done an excellent job by providing this portal for all of us.
I am 26 years old and I earn about 61K package. Very soon I am about to bag an $85k base job. I have been seriously considering to invest in property. But before I actually step into that, I want to clear all my doubts and set a clear cut goal.
With a take-home salary of $3300 p/m I easily manage to save about $2300 p/m, with the rest being my monthly expenditure. Once I actually get this $85K+ job, then I will have an extra $1000 up my sleeve. By the way I would also like to metion that there is a possible contribution by parter, in future. However, at this stage I haven’t taken these two parameters for granted until they actually materialize. I would rather be pessimistic in this aspect.
Now I have about $3300 in my bank account, set aside so far. By Dec-03 I will be able to gather a lumpsum of $12,500 (i’ll somehow try to bring to $13K). Because my salary income combined with my parter’s income will be more than 100K for the next taxable year (his salary is $56K+), we might have to pay more tax instead of getting a refund. Just to avoid this I don’t want to waste my money on any private health insurance (as my aim is not just to avoid tax, it is to be profitable from all angles).
So shall I start shooting the questions, now?
1) I am considering to invest in the out-skirts of Sydney as I can easily get cheaper houses with decent land. I see no reason in spending upwards of $300K ( you don’t even get a decent flat, forget about a house) in Sydney where you never know what the repurcussions could be. My backup reasoning behind this is, I can (a) beat the tax to some extent (b) get on the path to financial freedom (c) with a small investment pattern I can minimise the risk of facing any ambiguous interest rate trend (d) last but not least, I can start building equity. Can you please “sanity-check” my justifications.
2) Secondly, this one I am not totally sure, I need your help here. I am considering to take up an Interest only loan. Because I feel that I am good at saving money, I thought of setting aside the principal money, while still paying the interest. Are there any better ideas to generate more money from this principal. And how tax effective is Interest Only loan strategy.
3) Last but not least, I have set up a parallel investment plan of initally investing $1000 in managed funds/Govt bonds/shares and thereafter contributing about $200-$300 per month. This seems quite possible for me, as I am very close to fattening my net salary.
So my near future goals are three – Get that $85K+ job, Buy an affordable house in NSW regions and finally invest in managed funds. I consider your advice very valuable. I would rather become a fool in your eyes, rather than invest foolishly and repent for rest of my life. Please give me you expert advice.
And Steve, I would be thrilled if you take some of valuable time in expressing your views and suggestions.
Kindest Regards
RT From SydRT,
In answer to your questions on tax effectiveness of IO.
An IO loan is more tax effective than a P&I loan as it is only the interest component that is tax deductable.
One idea is to set up an IO facility with an offset account where you might credit the principal payments. This will me a method of saving and you can readily access this when you need a deposit for the next property.
This will have the effect of earning you approximately 6% on the savings although it will be virtually taxed.
There are other ways to invest this money for a higher return however you need to be comfortable with the idea that higher return = higher risk. Investing in the offset is almost risk free. The only risk is that of missing out on a higher performing investment.
Cheers,
Simon Macks
Mortgage Hunter
[email protected]
0425 228 985Thanks very much Simon, for your advice. So what do you suggest about my other part of plans. Do you think I am going on right path?
Regards
RTRT,
In answer to your questions on tax effectiveness of IO.
An IO loan is more tax effective than a P&I loan as it is only the interest component that is tax deductable.
One idea is to set up an IO facility with an offset account where you might credit the principal payments. This will me a method of saving and you can readily access this when you need a deposit for the next property.
This will have the effect of earning you approximately 6% on the savings although it will be virtually taxed.
There are other ways to invest this money for a higher return however you need to be comfortable with the idea that higher return = higher risk. Investing in the offset is almost risk free. The only risk is that of missing out on a higher performing investment.
Cheers,
Simon Macks
Mortgage Hunter
[email protected]
0425 228 985
[/quote]“Just to avoid this I don’t want to waste my money on any private health insurance (as my aim is not just to avoid tax, it is to be profitable from all angles).”
Ummmm im a little confused here. You would rather pay an extra $1000 in tax (1% surcharge on 100k) than pay around $600? for the cheapest approved health plan? You are throwing away $400 a year plus not having the benefits of the health plan. theres no law saying you need to buy the ferrari of health plans.
Why you would want to ‘invest’ in a negatively geared Sydney property also confuses me. prices are on the way DOWN!
I like the managed funds idea though.
Crashy, you say prices are on the way down. Where did you get that info? Have you personally lost money on I/P’s? From what I am reading, the housing market continues to be moving ahead, albeit I think it may slow down somewhere in the future. Reading a few of your previous posts you seem to strongly push the share market (nothing against that) but why do you constantly seem to be trashing the housing market??
Regards
Marty
Hey Crashy,
Looks like I have really confused everyone here. Let me clarify, again.
I said I would rather start investing on NSW regional areas (may be even outside NSW) than spending the same on a private health cover. You know why? Because by taking a health cover, surely I will be able to mitigate my tax burder; but for that, it doesn’t give me any other advantage.Whereas, if I invest on property, atleast it will serve me as a future deposit for my second house. As I mentioned earlier, I won’t be buying anything in Sydney.And ofcourse I will look for properties with +ve cashflow. I am not after negative gearing’s so-called “tax benefits”.
Now please re-assess my views
Why do you make it sound like you must choose one or the other?
why cant you save $1000 in tax, pay $600 in health fund fees, AND invest in an IP? the $400 you save will HELP you pay for an IP, not STOP you from buying one.
ps you did say “outskirts of Sydney” not NSW regional.
The topic ‘Are my plans, feasible???’ is closed to new replies.
