Know What To Consider When Buying an Investment Property for the First Time.
Here’s what I was talking about in the video:
So, let’s say you’re buying an investment property for the first time, what is there to consider? Well, of course, what kind of property you’re going to buy, whether you’re going for rental return, capital gain, or super gain. I’m gonna talk a lot more about them. But, in terms of how you do it, your home loan is a loan that you service with your after-tax dollars and it’s not tax-deductible. You do not want to pull anything out of that offset account for any use where it’s tax-deductible in any way, rather be for business or your investment property.
So normally, what you would do when you buy an investment property is you would want to borrow 104% of the purchase price. That’s the full amount, plus the stamp duty. In fact, if you’re going to buy an investment property and spend $20,000 on a new kitchen as soon as you buy it, you would borrow 104% plus the $20,000. Anything that you spend that’s deductible, create a new loan account. Don’t go messing with your offset account against your home loan and increasing your after-tax home loan. This is very, very important.
If you were to buy a property, worth a million dollars, you might want to borrow the 24% against your home. We set up loan B for 24% of the purchase price, and then against the investment property, we do the 80% loan against the purchase price. So, you’ve borrowed 104% but you’ve kept them separate. Don’t get fuss that loan B against your home loan is secured by your home. What makes a loan tax-deductible has nothing to do with what the collateral is, okay? It’s got to do with the money trail about what you actually use the money for.
So, people like doing that so they have a cross-collateralised agreement, there’s my home, there’s my investment. Your 24% loan and your 80% loan don’t even have to be in the same bank, right? You still owe 104% of that investment property. If you go and buy a car and you get to claim that through your business, let’s say we did one for a real estate agent the other day, we did loan C $50,000. Don’t just drag the money from your offset account or from your business account. Anything that you do that’s tax-deductible, please borrow it. I said to the real estate agent, “Why do you want to go and get a chateau mortgage and pay this car loan off over five years and pay $50,000 dollars into something that is tax-deductible, right?”
I would much rather keep the car loan of loan C interest-only or at least stretch the term to 30 years. So, it’s virtually, it’s just about like interest only. And, instead of paying $50,000 into your deductible car loan over the next five years, throw that in your home loan, right? Also, car loans really affect your ability to borrow money. The capacity that service calculators are so affected by car leases, HECS, personal loans, and credit cards. So, I’m a big fan of stretching things out to 30 years. Anyway, I wanted to explain that. Thanks for watching!