Page 65 - Smart Money

Chapter 3

Keeping your loans separate will assist your accountant to work out the
interest you are paying on the investment loan. This is really, really, really,
important. Should you stay with the same bank? You can, but I would still
have two separate loans. I would probably recommend you have them
with different banks if you can, so you don’t have all your eggs in one
basket. If one bank decides to up their rates by 2%, it doesn’t affect 100%
of your investment portfolio. If the bank changes their policy, then you’ve
only got one loan with them instead of two, so I think it is better to have
them split between different banks.

If you have a mortgage on your owner-occupied property, then
you should almost always have your investment property on an
interest only loan, because you can claim the interest on your
investment property against your tax, but not on your own
home. You want to pay your own home loan down faster because
you can’t claim that, whereas the investment property you can.
Obviously, with these sorts of strategies, you need to speak to
your accountant.

Negative gearing is when you have a $2,000 repayment to make, for
example, and your rent only comes to $1,800. In that scenario, your
property is negatively geared by $200 because the rent falls short of the
repayment amount. If it is positive, your repayment might be $2,000,
and the rent you are receiving is $2,200, so you are getting a positive
payment of $200. Whether your property is negatively or positively
geared depends on the strategy you are trying to achieve. Again, that is
something the accountant needs to comment on.

If you buy a property in an area where you can get really good rent and
it doesn’t cost a lot, the repayments can be quite affordable. For instance,
in Kwinana in Western Australia, you could buy a nice four-bedroom,
two-bathroom house for around $300,000 and the repayments would
be around $1,200 a month (at current interest rates). But if you were
getting $1,100 or $1,200 a month in rent, the only reason you would
have to put money to it would be if the property was not leased, or if
something went wrong with the property. You would be paying interest

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