Question from Mary updated on 15th July 2016:
I am 48, single and a contractor so, while I always have work, it's never a certainty. I own an apartment in Freemans Bay (cv $515,000 so the value is probably high sixes) that will be fully paid off in five years. I owe $128,000 on it.
I recently bought my first investment property for $597,500 on an interest only loan. My plan is to buy another rental once my place is mortgage free, put the new place on an interest only loan and start paying off the first investment property. Is this the right strategy?
What are the tax ramifications of starting to pay off an investment property?
Our expert Kris Pedersen responded:
Firstly, your current structure is definitely correct - ie: concentrating on paying your personal residences mortgage off first before starting to pay off the investment debt.
It is worth taking some advice from an accountant who has a good property investment understanding. However, at face value, the main ramification is that by paying the debt down it should eventually become positive cashflow. This means that you are likely to have to pay some tax on the profit being received - however, this isn't necessarily a bad thing.
Based on the information provided, your strategy looks to be a good, solid, safe strategy.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz