Q: I am 30 years old and have a full time job. Last year I bought an investment apartment with a loan from my bank and also an interest-free loan from my parents.
Instead of being negatively geared, the unit is now earning positive after expenses and deductions, which means I will have to pay more tax.
Would you be able to advise what I should do with my excess savings:
Make additional mortgage payments
Repay my parents’ loan progressively
Invest the savings in different fields
A. First off, well done for being so conscientious about your financial future at such a young age. You didn’t mention how much you paid for your apartment, but it’s positively geared so I can assume that there is a good deal of equity there.
I’m not a financial adviser so I recommend you speak to your accountant regarding any taxation issues, but in my experience a positively geared property is not a bad thing. It really depends on each investor’s personal circumstances.
Not being privy to your relationship with your parents or their financial situation (which both appear to be very good), I would pay the bank off first and then pay your parents back after that.
You can direct the additional income you receive from the property back into the mortgage you have from the bank, which will reduce the amount of interest you have to pay and also help to build up the equity in the property.
Building up equity in your property will open up opportunities to refinance. You could also use the equity to buy another property, or put the money into other investments.
With interest rates so low and lenders all vying for a piece of the pie, it’s a great time to be in property investment. It might be worth talking to an MFAA accredited mortgage broker like Aussie to discuss and weigh up some options obligation free.
The important thing is that you have gotten into the property market at a reasonably early age and, if you have selected a good area close to infrastructure and with strong rental demand, you stand to build your wealth over time.
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