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Viewing 8 posts - 1 through 8 (of 8 total)
  • Profile photo of littleaussielittleaussie
    Participant
    @littleaussie
    Join Date: 2010
    Post Count: 27

    Hi,

    We currently have 5 investment properties and a $335,000 PPR mortgage. I'm pregnant and looking for a way to increase our cash flow for when bubs arrives and also to help us pay down our PPR quicker. Would it make sense to pay down the smallest investment loan currently($109000) and then take the extra payment I've been making to that as well as the rent $230 p/w and put it into our mortgage? Or is it better to leave that debt alone and just make the extra payments to our home loan?

    Thanks

    Profile photo of kong71286kong71286
    Participant
    @kong71286
    Join Date: 2009
    Post Count: 261

    From what you've stated above it looks like you want to improve cashflow by reducing your debt, and are unsure about which debt to pay off

    According to the ATO website, you are able to claim interest expenses from investment properties, but not from your PPOR

    http://www.ato.gov.au/individuals/content.aspx?doc=/content/00113233.htm

    For this reason, it may be better for you to opt to reduce the interest associated with your PPOR loan

    This could be done by simply paying off the loan, or by having an offset account against this loan

    Hope that helps cheeky

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Def pay down non deductible debt first.

    Consider selling one of the houses, ideally one in your name only, when you are not working and pay down the non deductible debt.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of PLCPLC
    Participant
    @plc
    Join Date: 2012
    Post Count: 400

    Don't know how your investments are structured, but if the investments are P&I repayments, changing to IO will free up some cash which can be diverted elsewhere.

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
    Email Me | Phone Me

    Melbourne based Mortgage Broker | Making Finance Simple

    Profile photo of DerekDerek
    Member
    @derek
    Join Date: 2004
    Post Count: 3,544

    How long do you think you will cease work? The answer may make a lot of difference to your grand plan.

    Are your properties cashflow positive? If they are then your mortgage repayments and expenses are covered by the surplus rentals.

    If they are not then find out which property is costing you the most and maybe, consider selling that off as per Terry's suggestion. You may find the sale of one property might make a lot of difference to your overall situation.

    If you are going to plough excess money into a loan account, and your own home is most advantageous, then make sure you have redraw facility just in case you need to access additional cash along the way. If your home loan does not have redraw facility then look at an offset option. This is moreso the case if there is a chance your existing home may not remain your home forever.

    Profile photo of littleaussielittleaussie
    Participant
    @littleaussie
    Join Date: 2010
    Post Count: 27

    All of our properties are held within family trusts and are cash flow neutral – slightly positive, so we don't have to sell. I was thinking of paying down the smallest and using the rent to help pay down our PPOR or fund other expenses while I'm off work. As my income will be reduced the tax shouldn't be too bad 0 -15% as this years tax rates have changed, I believe the first $18000 is tax free? If the trust makes the distributions to me this should be the tax rate.. When I return to work and my income increases again I could set up another trust and purchase a couple more properties and use the excess cashflow from the loan I paid down to fund the shortfall. The way our trusts are written we can pass money between them to fund shortfalls before tax is applied.

    Can someone please let me know if this will work? Thanks for your responses. :-)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Its silly to pay down an investment loan while you still have non deductible debt, even if your investments are in trust and you have no income.

    BTW, an adult can earn about $20,400 pa and pay no tax.

    Trusts can distribute from one to another, but you must be careful not to distribute to a newer trust as you could infringe the laws against perpetuities. Also the income to the recipent trust cannot be offset by just spending it, but can only offset it against expenses.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of DerekDerek
    Member
    @derek
    Join Date: 2004
    Post Count: 3,544

    Certainly pay down your own home at the moment. This debt gets no assistance from the tenant or tax department and by getting it out of t he way as quickly as possible then your cash flow will improve as you'll have no home loan repayments to meet.

Viewing 8 posts - 1 through 8 (of 8 total)

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