Mortgage Free - has anyone on BF achieved it at a relatively young age ?

[bunsen burner]

Please give an example on when paying down the loan on your PPR is not the best option. Keeping rate's of return similar.

It's not that simple.

Shall I pay off my PPOR loan or shall I pay off my IP loan? When you put it that way it's a no-brainer.

But the original comment was made in reference to the dated mindset that the goal of lending money is paying it off. This is not necessarily so and in most cases it isn't.

Often it's better to leave your PPOR mortgage ticking along, access a bit of equity for an IP deposit, and then gear yourself so rather than saving or paying off your PPOR you are using that money to service other IPs.

It's all about how you want to set up and the option of paying off your PPOR is only part of the overall equation and therefore should only have a small amount of weight to how you decide to structure your PF.

As I said, the "must pay off loan" mentality is dated and a limited mindset.

 

[bunsen burner]

You need to sell the property to recieve that.

Incorrect. It's possible that you can go pull 80% of it out as equity.

 

[Visions]

Incorrect. It's possible that you can go pull 80% of it out as equity.

Most lenders will go to 90% for cash out nowadays. Of course LMI is applicable then.

Basically it comes down to risk profiles of individuals with what they want to do with excess cash. The risk adverse will want to pay their home loan off as quickly as possible with no interest in investing of any type, the risk takers will try to use their money in a way that will increase their future assets/income. I see it every day in my job.

 

[bunsen burner]

I was using 80% as a rule of thumb.

 

[JohnW]

Im still in the camp that paying down any loan on your PPOR is the better option. And the most effective option if your interest rate is 7% thats effectivly an 10.5% return (tax rate of 34%).
The attitude of withdrawing your equity to invest elsewhere, has caused lots of problems for lots of people.

My thoughts on an investment property are that they should be looked at after you have paid additional into your PPOR mortgage, and after you have maxed your concessional super conts. Not before.

 

[bunsen burner]

Im still in the camp that paying down any loan on your PPOR is the better option. And the most effective option if your interest rate is 7% thats effectivly an 10.5% return (tax rate of 34%).
The attitude of withdrawing your equity to invest elsewhere, has caused lots of problems for lots of people.

My thoughts on an investment property are that they should be looked at after you have paid additional into your PPOR mortgage, and after you have maxed your concessional super conts. Not before.

Not sure why you're so small minded and tunnel visioned about it? How much property do you own if you don't mind me asking?

 

[JohnW]

I have a PPOR and thats it.

Its not tunnel vision, its I guess my risk tolerance.

I see no need to take risk when a more than solid return can be had with no risk at all. Obviously if your home is paid off and super conts are maxed then sure why not. But personally I prefer to take the risk free returns available before taking on risk

 

[vealesy]

I have a PPOR and thats it.

Its not tunnel vision, its I guess my risk tolerance.

I see no need to take risk when a more than solid return can be had with no risk at all. Obviously if your home is paid off and super conts are maxed then sure why not. But personally I prefer to take the risk free returns available before taking on risk

Super is risk free?

 

[bunsen burner]

I have a PPOR and thats it.

Yet you're on here dishing out advise on property investment?

I see no need to take risk when a more than solid return can be had with no risk at all. Obviously if your home is paid off and super conts are maxed then sure why not. But personally I prefer to take the risk free returns available before taking on risk

I see, so investing in real estate is a risk but super isn't?

face -> palm

 

[bunsen burner]

Well that'll be it for me. I'm off to the micro surgery board to hand out some advice.

 

[Lyyynnnchy]

I have a PPOR and thats it.

Its not tunnel vision, its I guess my risk tolerance.

I see no need to take risk when a more than solid return can be had with no risk at all. Obviously if your home is paid off and super conts are maxed then sure why not. But personally I prefer to take the risk free returns available before taking on risk

Well some of us arent happy working until we're 60 and retiring with a small amount of super. I'm looking to retire before im 40 with a constant stream of income coming in from property

 

[Visions]

Im still in the camp that paying down any loan on your PPOR is the better option. And the most effective option if your interest rate is 7% thats effectivly an 10.5% return (tax rate of 34%).
The attitude of withdrawing your equity to invest elsewhere, has caused lots of problems for lots of people.

My thoughts on an investment property are that they should be looked at after you have paid additional into your PPOR mortgage, and after you have maxed your concessional super conts. Not before.

As you mentioned, your risk tolerance is low and that is fine, everyone is different. However claiming paying down you PPOR is the most effective way is incorrect. If you take the time to research and train yourself, there are plenty of ways of using the additional money to get better returns by investing, and there are plenty of examples in the real world of people succeeding.

I also wouldn't mind asking how you came across the 10.5% return figure?

Well some of us arent happy working until we're 60 and retiring with a small amount of super. I'm looking to retire before im 40 with a constant stream of income coming in from property

 

[JohnW]

As you mentioned, your risk tolerance is low and that is fine, everyone is different. However claiming paying down you PPOR is the most effective way is incorrect. If you take the time to research and train yourself, there are plenty of ways of using the additional money to get better returns by investing, and there are plenty of examples in the real world of people succeeding.

I also wouldn't mind asking how you came across the 10.5% return figure?

In what ways have you researched and trained yourself?

The tax concessions available with super do make it the most effective way of investing. And I would assume that you all know that super is not an actual investment. It is a vehicle that provides tax concessions for investing. So in answer to the question that super is risk free is yes it can be, but it depends on your asset allocation.
Making concessional contributions and investing in term deposits is risk free and you would be well ahead at the end of the day.

If you take the rate of interest and devide it by 1-MTR then you will have your answer on how i came up with 10.5%. You would need to earn 10.5% pay tax and end up with 7%. To me I would take the low risk/no risk of putting money into an offset account in this current world.

 

[JohnW]

Well some of us arent happy working until we're 60 and retiring with a small amount of super. I'm looking to retire before im 40 with a constant stream of income coming in from property

Fair call, not sure how my suggestion of using super would lead to having little in super? I conceed that the age restrictions can be off putting. But to me the potential to pay zero CGT in the future more than offsets it. Obviously you would need to be in pension mode. If not CGT of 10% to me is much more attractive that paying at your MTR even with the 50% general discount

 

[JohnW]

Yet you're on here dishing out advise on property investment?

I see, so investing in real estate is a risk but super isn't?

face -> palm

That fact that you consider super an asset class suggests that you dont really understand things. Would you consider cash in the bank risky? Or govenment bonds?. My comment on risky investment or non risky investments if not really important. My point is more about making use of the tax system and other concessionaly taxed options. Personally I think reducing my tax payed is pretty attractive, and doing it by putting money into my super and not by paying interest is even more attractive.

Question? would you rather pay $10k in interest and recieve a deduction of $3,400 (34% MTR) or place $10k in super and recive a deduction $3,400 (34% MTR) and have $8,500 in your super account to invest?

Just wondering what makes you qualified to preach advice but it is "face -> palm" worthy when some one suggest something different?

 

[bruceharmes]

Well some of us arent happy working until we're 60 and retiring with a small amount of super. I'm looking to retire before im 40 with a constant stream of income coming in from property

there's no way you will be retiring at 40 and living off rental income !

 

[JohnW]

Super is risk free?

See my post re super not actually being an investment. Consider it a structure to invest in, not an actual investment

 

[Visions]

In what ways have you researched and trained yourself?

Taking investing in property as an example, in a simplified fashion you can do your homework and conduct due diligence to find out which areas have growth potential, what kind of rental yields they offer, vacancy rates, median house prices, etc, to make informed decisions on where you want to invest and how you want to go about it depending on your goals.

Similar in regards to say investing in shares, bonds, ostrich farms, whatever. If you research and educate yourself enough, you give yourself the best opportunity to make informed decisions and have your money work for you.

If you're lazy and invest on whims and whispers, then you're at a great chance of blowing it.

The tax concessions available with super do make it the most effective way of investing. And I would assume that you all know that super is not an actual investment. It is a vehicle that provides tax concessions for investing. So in answer to the question that super is risk free is yes it can be, but it depends on your asset allocation.
Making concessional contributions and investing in term deposits is risk free and you would be well ahead at the end of the day.

I can't say I know anyone who has got very rich via super. Yes it can be effective, and you will be ahead but there are better opportunities out there on where to put your money.

If you take the rate of interest and devide it by 1-MTR then you will have your answer on how i came up with 10.5%. You would need to earn 10.5% pay tax and end up with 7%. To me I would take the low risk/no risk of putting money into an offset account in this current world.

I agree with your statement above, but you said earlier that the effective return was 10.5%. It's not, the effective return is 7%.

 

[JohnW]

If you were to recieve 10.5% return and pay tax then your return would by 7%. Thats my point. If the way i explained it wasn't clear my bad.

Most of the wealthy people I know have done so via super. Im talking net wealth of between 1-5mil. Now recieving tax free income and tax free growth. Revieving an income of between 100k and 500k no tax, I consider this wealthy.

Most people who are wealthy do indeed use tax effective structures to achieve their wealth.

Any way you cut it, making use of tax concessions available is the most effective way of investing. In my view paying down a mortgage is tax efficent, as is using a superannuation fund to invest. Investment properties I feel should be looked at after the other two points have been exhausted.

 

[Lyyynnnchy]

there's no way you will be retiring at 40 and living off rental income !

Read my "purchasing property in the US" thread. I have been investing for 5 months in the US having purchased 2 properties (5 apartments). After the 2nd has settled I will be earning around $3,500pm rent. Net will be around $2,750. After 6 months I'm about a quarter off where I want to be by the time I'm 35. Hoping to be earning around $20,000 net pm by the time I'm 40. To do this I need about $800,000 worth of property in the US (with no mortgage against them). 1/8th of the way there with 15 years to go

 

[JohnW]

Read my "purchasing property in the US" thread. I have been investing for 5 months in the US having purchased 2 properties (5 apartments). After the 2nd has settled I will be earning around $3,500pm rent. Net will be around $2,750. After 6 months I'm about a quarter off where I want to be by the time I'm 35. Hoping to be earning around $20,000 net pm by the time I'm 40. To do this I need about $800,000 worth of property in the US (with no mortgage against them). 1/8th of the way there with 15 years to go

Sounds great! well done. Do you have any worries about having all your investment eggs in US property? Or do you have other similar investments elsewhere?

 

[Lyyynnnchy]

Sounds great! well done. Do you have any worries about having all your investment eggs in US property? Or do you have other similar investments elsewhere?

Not at the moment with only $100,000 invested. I'll have 10 - 15 properties by the time I have $800,000 worth and these will be spread across Florida and Atlanta so not entirely in the 1 basket as the housing markets are completely different in each US state.

I'm also very bullish on the US housing market in the medium to long term, I dont expect to see any capital growth in the next 5 years but while my properties are returning 30% i'm not too worried about that.

After doing plenty of research, imo the US is right at the bottom of an economic crash and the only way is up. In some states house prices have fallen close to 80%. The apartments I am buying are priced around the $20,000 mark. There arent in regional towns or anything like that, they are in city centres. I cant see the prices dropping any further.

I also think the AUD will come back to around the 85 - 95c mark in the short to medium term which also give me some capital growth in a different way.

 

[JohnW]

where are you borrowing or where are you going to borrow the funds? In the US or in Aus? Rental yeilds are 30%? Do you pay tax on this income in Aus or US?

 

[Lyyynnnchy]

where are you borrowing or where are you going to borrow the funds? In the US or in Aus? Rental yeilds are 30%? Do you pay tax on this income in Aus or US?

All in this thread

http://www.bigfooty.com/forum/threads/purchasing-property-in-the-us.978552/

 

[bruceharmes]

Read my "purchasing property in the US" thread. I have been investing for 5 months in the US having purchased 2 properties (5 apartments). After the 2nd has settled I will be earning around $3,500pm rent. Net will be around $2,750. After 6 months I'm about a quarter off where I want to be by the time I'm 35. Hoping to be earning around $20,000 net pm by the time I'm 40. To do this I need about $800,000 worth of property in the US (with no mortgage against them). 1/8th of the way there with 15 years to go

If in fact you are getting a 30% net return on your properties you'll find market forces will eliminate that high return very shortly but good luck none the less, I developed a property in London when I was over there and it has set me up for life.