P&I vs. IO when you have paid your own mortgage off?

[MIL]

I understand why you would use IO on investments loan while you still had a loan against your own home (pay your own loan of first). Now we have paid own own home off, should we have one investments loan P and I with extra repayments being made? Just read Anita Bells book which talks about paying the loans off, verse Richmastery's IO always rule. Interested in what everyone has to say.
Thanks
MIL

[whitt]

yes you are correct MIL. IO is sometimes good if you have non-tax deductable debt such as your own home loan.

If you do not have any non-tax deductable debt then you need to work out what strategy best suits your situation.
There is no right or wrong way of investing as each persons situation is different.

IO can be good when expanding a portfolio as your payments along the way are easier.

VS

P&I can be good to help reduce your debt levels, which in turn increases your cash-flow and debt servicing ratios.

Both options can give the same outcome depending on your situation, age etc.

MIL would you be able to sleep without worry at night if you had 20 + properties or a huge debt?
*If the answer is No then maybe P&I is an option to consider. Stick with a handful of quality properties and pay down the debt.
*If the answer is Yes then maybe IO and an aggressive portfolio could be an option.


Whatever you do make the choice yourself. Research both options and decide what best suits YOU!!! As I said there is no wrong way of investing, just different paths to take on the journey. Choose one which you will enjoy.

[MIL]

Thanks Whitt.

Our income isn't great at the moment (I'm at home with two preschoolers at the moment). We've got about $700 a month tagged for investing, plus anything that I earn (which is considered a bonus).

I was playing around with amortistation tables last night (so much for going to bed early!!). Buying a property around the $250,000 mark would still take around 13 years to pay off if the rent, refunds and our $700 a month were used to pay the mortgage off. I guess I need to work out what we could otherwise do with that $700 a month and see if 'something else' could provide us with a better return.

I think maybe a compromise would be have one property P&I and the others at IO.

[whitt]

I think maybe a compromise would be have one property P&I and the others at IO.

OK you are now getting started on working a system to suit yourself.

Next maybe you should go right back to step one for investing and decide:
* WHY DO YOU WANT TO INVEST?This is your ultimate reason for investing. This reason for investing gives you something to strive for.
*How you are going to invest and what method you will use. Eg. Trading, Reno's, buy and hold, development etc..
*What will you do later on with any cash-flow or equity that you may create. No point blindly following the herd if you do not have a strategy in place.

Next if you have time Follow my signature and read my investment tips article. In it I mention a book By Andrew King which could be of help to you. Should be in the library or your local bookstore.

Don't worry about the time it may take to invest.
A quote which may interest you from a fellow investor Kieran Trass says " Investing is more like a marathon than a sprint".

[Gerrard]

Great advice Whitt - I agree with everything you said.

So many people say they are investing for cashflow, but haven't thought about what they are going to do with that cashflow. Is it for today, or is it for the longer term (i.e. retirement years).

Either way, if you are serious about generating cashflow then the best way is to reduce debt. Every dollar you pay off will increase your cashflow, and reduce your risk.

2 main ways (that I see) to reduce debt are to make regular repayments on your loans (P&I is a good disciplined way to do ths), or sell other properties and use the left over $$ to pay off big chunks of your loans.

Either way, reducing debt = greater cashflow = reduced risk. Personally I don't plan to own a large number of properties. My target is roughly 5 properties (depending on values, rents, etc) debt free, with another couple up my sleeve to try and pick up some long term capital growth.

Gerrard

[MIL]

I think another part of our plan

would be do a few do-ups/flicks and use the profit as cash deposit for the next keep and hold deal to reduce the loan on these properties.

I appreciate reading your advice and experiences.
Many thanks
MIL

[Dean@Massiveaction]

Hi Mil. If your house is debt free then I would absolutely go the P and I route on your IP's. There is no better way to produce permanent increased cashflow than having no debt. I have converted 1 mortgage to P and I and am over paying it slightly. Most banks will let you do that without any penalty. It turned a 23 year mortgage into an 11 year mortgage. As long as you do it one property at a time it will not slow your investing down much if at all. the plethora of nodoc products these days makes it very easy to keep borrowing, especially if you can show you know what you are doing. So to be safe, get your debt down!!!