Hi sisterhood,
Looking for advice from others who have been in the same situation..
I bought an investment property 5 years ago, good location and good rental return, and has already gone up in value (about $400,000 in the last 5 years)
we have a mortgage on this property for around $360,000.
I am trying to decide if it’s best to buy another investment property (have around $150,000 in savings for a deposit) or use that $150,000 to pay off a chunk of our home loan?
I know long term we would be saving on interest repayments to the lender and own our home quicker but then I’m tossing up if we should use that money to buy another investment property, it’s so hard to know exactly where to buy and if a investment will be a good idea at the moment as interest rates are more expensive and I’ve heard property prices are supposed to be dropping..
I also have another $40-50k in saving that will be left in savings for any emergencies.
We are a young family in our early 30’s don’t have any other loans or debts.
any advice would be greatly appreciated.
Pay off home loan or buy another investment property?
Pay off home loan or buy another investment property?
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11 Replies
Pay more off your mortgage
Depending on your situation such as employment and will it benefit you financially at tax time to buy another property. You would be providing a home to a family and helping in that way and reducing your taxable income with a loss. You also will be earning income if you pay this amount off of your rental. I would look for a cheaper rental home somewhere but wait for a year or so and see if prices come down. Wait it out just for now and see what happens unless you find a bargain house. I think they’ll start to drop now. Do your research but with that large sum, I’d buy an investment and sell it in 10 years then pay for your other home off.
You're a nice person.
In all my years, I've never heard someone mention one of the pros of buying an investment property as providing a home to a family.
I would pay off a big chunk of the rental. The quicker that is paid off the more you can save again.
Ultimately it is up to you but maybe a financial advisor would be a good start if you haven’t already done that
I would pay of $100,000 into the investment property and get a lower rate with a higher return, use the higher return to put ontop of the $50,000 you have left in savings then in 18 months to 2 years use the savings and a small portion of the equity (which would have gone up by then) to purchase a second investment property in an area higher in value. The rates will be considerably higher for a while because of the recovery due to coved, definitely wouldn't be buying now especially with such high rates
We have $150,000 to pay off our mortgage and another $50,000 that we will be holding onto in our savings account.
Depends on whether you want to be negatively or positively geared. Talk to your accountant
Obviously positively geared
See a professional.
You could do neither and start an investment in a managed fund or buy some shares if you are more aggressive.
Less work, still subject to CGT on sale, less income but less expenses, no agents and tenants and hopefully no losses each year
You could regularly deposit savings into the investment and take advantage of compounding interest. You could use these funds to pay off your debt later.
If you aren't too far from retirement and have a good income, you could also contribute some to super and get a tax deduction.
I would also suggest if you do pay down debt, to pay down any loans that don't give a tax deduction first. Obviously the interest on the investment property is 100% tax deductble.
Good luck, hope you work it out.
I am 32, don’t have any other loans or debts, I wouldn’t know what type of shares to invest in.. i was thinking if we pay $150k off our mortgage we would only then own $210k and our rental return in $760 a week so that would cover our mortgage repayments on the $210k and give me about $400 a week cash flow. Plus we would still have $50k kept in savings for emergencies.
It is best to see your accountant because your expenses + interest on investment property may be reducing one or both of your income taxes, depending who the owner of the investment property is.
You also need to consider the yield on the property versus any likely investment returns (%).
Also, having 50k sitting in a bank account could be a waste when there are good safe defensive investment options, which could provide a better return with liquidity if you need the funds quickly,
It's important to discuss with someone who knows your individual circumstances, so start with accountant and he can refer you on if he thinks its appropriate.
Good luck.