Living off Equity concept

Hi property seeker

It's a dangerous strategy and given the new credit legislation it shouldn't be possible as you need to identify what the LOC will be used for and "living off equity" ain't going to cut it.

You're assumption is correct. Your debt will continue to rise. Therefore, you're relying on your portfolio to continually grow in value. What happens when the market stagnates for a few years or goes backwards?

Cheers

Jamie

Ultimately this concept involves living off borrowings and hoping that your capital growth will exceed your living expenses (and by a fair bit). A tax implication of this is that your living expenses aren’t tax-deductible so you slowly turn your investment (i.e. tax-deductible) loans into non-tax-deductible loans. Not necessarily a wise move. It’s an extremely risky strategy!

Capitalising interest involves paying the interest on your investment loans from the investment loans themselves. This strategy may mean you have to increase your investment loan limits (sometimes they end up greater in value than the property they secure). The advantage of doing this is that you can pay off your home loan faster. My experience is that you need to get a tax ruling to capitalise interest, and your primary reason given needs to be that you’re paying off your home loan faster. If you say you want to capitalise interest so that you can reduce your tax debt, it’ll be a miracle for the ATO to rule in your favour!

I hope this helps.

And good luck with your investing!

Sorry, and the answer to that question:

1. No. A taxpayer's purpose of 'paying their home loan off sooner' does not mean that Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936)¹ cannot apply to an 'investment loan interest payment arrangement' of the type described in paragraph 3 of this draft Determination.

see http://law.ato.gov.au/atolaw/view.htm?docid=%22DXT%2FTD2011D8%2FNAT%2FATO%2F00001%22

I should point out that I don't support living off equity in most circumstances, especially in these days of low growth. But doing it properly it can work – for a while at least. And rather than living off equity living off rents or dividends and letting loans capitalise may be a better way to proceed, especially if you have no other income and no outstanding private debt.

it seems that many of the previous posters really dislike the LOE apprach.

I wonder though if anyone in this forum, or anyone you know, actually lives via the LOE approach successfully?
It may be an exceptional case, but it would be interesting to hear of it to see whether it actually is possible.

Ditto

You dag!

Ooops – that comment is probably showing my age

You could look at borrowing some equity and investing into high yielding shares. Mst be careful tho. You could then possibly capitalise the interest on the LOC for hte shares and get some good dividends.

give us some rough numbers?

Property Seeker, what was the outcome on your question? I am not in your position but hope to be in. 5 -7 years.. Then what happens? As in how can one retire if the CG has not happened yet and some properties are still negative… Just wondering before I get there.. Wondering what you have decided….

Sam.,