Chris Bates

speaker

1,659 appearances 5 recordings 1 series first heard Jun 2021 last heard Dec 2022

Chris Bates’s voice in public audio — every appearance, attributed to the second.

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Australian Finance Podcast · Property investing strategies (advanced) with Chris Bates · 4 Oct 2021 podcast

And they've got their loans now at $800,000 because they paid down that $900,000 loan down to $800,000.

So this person's in a $400,000 equity position, but from a bank's eyes, that's only $160,000 because of reducing the property value to 80%.

So what that person could do, depending on their income at that point in time, they could withdraw $160,000 to go and buy other investments.

They could use it for a deposit on an investment property and then go and borrow 80, 90% on the investment property, or they could use that $160,000 to buy shares.

they could use it to do further renovations.

And hopefully they never go and use it for lifestyle spending, which like buying caravans or going on holidays, which definitely does happen.

You know, houses do get used as credit cards, unfortunately.

It's not something we encourage at all.

But in that situation, someone could then use that $160,000

to go and buy shares, right?

And that would make a lot of sense from a tax point of view, because what you would have is $160,000 going into shares, but also $160,000 of deductible interest.

The interest on that $160,000, let's say it's $5,000 a year, would be used in your tax return, would be a deduction

offsetting the dividend income that those shares would provide.

So it's negative gearing shares.

And why that makes sense is because this person's got a home debt that's still outstanding, that $800,000, what they want to be doing is putting all their money into paying that off because that's non-deductible.

And then as they get equity, they want to be using that to sort of buy other things.

And so that sort of gives an example.

Why you wouldn't go and buy shares with cash is because it'd actually be better to pay off the home

and then redraw on your mortgage to buy the shares and have lower non-deductible debt, which is your home, and then more deductible debt, which is your shares.

Absolutely, because people naturally have a short-term mindset.

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