PROPERTY INVESTMENT- PRINCIPAL AND INTEREST DEBT OR INTEREST ONLY 

 

If you are investing in property and all your debt is tax deductible, then it depends on your attitude to risk, and your proposed portfolio growth , as to whether you should be funding only interest free debt, or principal and interest.

The more aggressive you are, and depending whether you want to accumulate a portfolio of several properties, the more likely it is that the debt will need to be interest only.   This will ensure that properties can be accumulated without over-committing your income in the eyes of the banks. You obviously have to pay debt back eventually, but on this basis you can pay it back upon downsizing your property investment portfolio

Alternatively,   you can consider paying back progressively by making principal and interest payments over the life of building your portfolio.

Features and benefits of principal and interest debt payment are as follows:

pay less interest

lower financial risk

pay off mortgage quicker

Features and benefits of interest debt payment are as follows:

better tax rebate

accumulate more property sooner

improved cash flow

Principal and interest payment is cheaper, but paying principal and interest debt can sometimes mean outgoings are too high to enable you to borrow further.  If, for example. the property investor pays interest only, then the purchase of another property may be affordable.  Many investors also believe too that the potential capital gains to be made by accumulating more property can also outweigh the cost of paying more interest.

 

 

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