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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Appearances
And so let's say,
you want to save $50,000 over the year.
Instead of just putting $50,000 out of your offset account to buy some shares, like a diversified portfolio that you spoke about there, Owen, what you're probably better off doing is paying off your house, $50,000, and then refinancing and releasing $50,000 of equity as an investment loan, and then investing that money into your shares.
Because what you're doing is you're creating a tax-deductible debt against those shares, and you're lowering your non-deductible debt, which is your home.
which is kind of that debt recycling strategy that sometimes people talk about.
What you do is you pay off your home loan.
That increases your equity in that property.
you withdraw that equity and then you use that to buy assets like shares and you have a tax deduction interest off it.
against the house is that what it is yeah and so you've got to be really careful because you are investing money right so this is you know disclaimer um you need to know what you're doing when you're investing your money but let's say you and you long-term fundamentals etc etc which we won't go to but assuming that knowledge from a finance point of view and a tax point of view if you had a property worth five hundred thousand dollars and your home loan was say three hundred thousand dollars you can release equity up to eighty percent on the value of that property so four hundred thousand
And so in that situation, you could get an investment loan of $100,000 against your home and that's the money you would use to go and buy your shares.
And if you had $100,000, you'd just pay off your mortgage from $300,000 down to $200,000 if you wanted to or you'd use an offset account really.
So that's really what you're doing is using equity in your home or an investment property and using that to buy, you know, shares.
Now, there's no margin call on this because that's why it's and it's usually a much lower rate.
It's at 3% versus a margin loan might be at 5% or 6%.
And so if that cost of capital is cheaper, then the return has to be cheaper, lower to make a profit.
So if you've got equity in your house, you shouldn't really be doing margin loans, really.
And if you've got equity in your house and you've still got a mortgage, you shouldn't really be buying shares with cash.
You should be paying off your mortgage and redrawing and buying it with debt.
Just a better tax strategy.
Yeah, I wouldn't still be.
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