Ever wondered how some people tend to build wealth and property whilst you continue to battle the bills and life's challenges, never really reaching the position where you can buy an investment property?
It could be due to several factors.
Now, all of these factors could in part be true. The better your income and equity position, the better the financial start, and the more effective your strategy will be. But how can you join the club and build your wealth portfolio? Understanding debt recycling could be your newest secret weapon.
It's crucial that you educate yourself before you attempt an advanced strategy such as debt recycling. visit my previous article on this topic HERE.
Understanding this powerful distinction is the foundations to why some savvy investors are able to pay off their owner-occupied home loans in record time whilst investing in property simultaneously.
Once you have developed sound financial knowledge, it's now time to sit down with your financial adviser and learn which strategy is right for you. You may not be ready for debt recycling just yet. This involves having a personal home loan as well as investment property debt (and/or other investment debt). You will also require a sufficient level of accessible equity and be comfortable holding an increased level of debt over your home and investment property. Once again, education and a sound understanding of strategy are critical to your success.
Debt Recycling is a debt management strategy to enable you to utilise your cash flow to pay off your owner-occupied (bad debt) home loan sooner, whilst at the same time, accruing equity in your home which is utilised to purchase an investment property. All debt is secured by your home and an investment property. The income generated from the investment property as well as any allowable tax benefits are used to pay off the non-deductible debt (bad debt) on your home loan. Once enough equity has been accrued, the investment loan is increased by the amount which was paid off of your non-deductible home loan and the money is then reinvested to continue the cycle again and again until all non-deductible debt is eliminated.
In summary, debt recycling is the process of creating an ongoing cycle which turns ‘bad debt' into ‘good debt', to allow you to pay off your owner-occupied home loan sooner.
NB: It is important that you are aware of the ATO tax rulings and any changes which may arise. Visit the ATO website or speak to your accountant or financial adviser to ensure you are kept up-to-date and clear on what are acceptable tax deductions.
In order to prepare for this type of strategy, you should assess the following requirements:
If debt recycling is clearly not for you at this point in time, you can still engage clever strategy to pay your home loan off sooner. Speak to your financial adviser or mortgage broker and learn the debt reduction strategies which can work for you.
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