The Secret Sauce To Paying Off Your Home Loan FASTER in Australia 2024 (Debt Recycling Guide)
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- Опубліковано 19 чер 2024
- In this video, I’m going to show you how you can save thousands in tax and pay off your home loan faster by debt recycling.
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#Debtrecycling #homeloan #investingaustralia
⏰ TIMESTAMPS
0:00 - Intro
0:05 - What is debt recycling?
1:09 - First way to debt recycle
4:51 - Second way to debt recycle
6:56 - Advantages of debt recycling
7:33 - Risks of debt recycling
8:29 - Is debt recycling for you?l
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I was told my my tax man this won’t work if you live in the home? But I’m sure you said you can do this while living in the home..?
Which it it please? I live in Adelaide..
Hi Bryan,
Think there is a flaw.
If you look at your video at 06:32
You make $2000 in dividends at 4%. However you pay an extra $2500 (5% interest on 50K)
You are losing $500.
I’d rather leave that $500 in the offset and pay off the principal rather than losing.
Your strategy will work if it’s earning more than 5%. But hey in todays market you have to atleast make 6.34% to beat your mortgage interest rate.
can you do this with a investment property. What are the ways to reduce tax for an investment property?
@@Venkata_kumar_us Hey mate, the 4% is just from dividends. You need to take into account share price appreciation as well. The stock market usually averages 8-10% per year in the long term. It's not guaranteed to continue of course but we investing in the hope it does. Plus you will get a tax credit on the interest rate since you borrowed to invest.
so good the only utube vid that I don't have to speed up the talking!
Haha thanks! I also speed up UA-cam videos when watching.
1 Minute in and you've done an amazing job of giving a simple breakdown of the concept. Liked and subscribed for sure!
Thanks for the support!
Mate, you are a legend. Pure gold class information without the bs. Please don’t change.
I appreciate that mate! Don’t worry, I’m all for the Aussie people. More videos coming soon 🫡
Have a thumbs up sandwich! Definitely given me food for thought! This is a much needed vid for Aussies!
Great video, well done man.
Thanks mate 👊
Easy said than done ✅
sandwich time, thanks this explanation is simple and concise.
Thanks Adam. That's what I like to hear 😄
I have watched this video and could not stop myself watching it again and again until I got better understanding. Especially for the people having very little knowledge in this field. Subscribed the channel
That's great. Glad the video was helpful 👍
Same!
Thanks Mate! :-) This is very helpful!
Cheers!
Well sandwich it is 😊. Thanks for the genuine and useful tips.
Thanks mate! Glad it helped you 😄
loan sandwich, great info as always. Im keen to give this a go. Thanks Bryan. Great video as always
Great to hear, Sheldon. Wish you all the best 😄
Sandwich! Thanks for this, found it very helpful
Glad to hear! 🤝
great Video, thanks
Cheers Shannon 👍
Great video! (sandwich) .. thanks for laying this all out
Cheers Vincent 🤝
🥪 very informative 👍🏻
Thanks! You're making me hungry 🥪
Depending on your Debt-to-Income Ratio it's definitely worth it. However, with current interest rates and extra expenses, you'd better make sure your income can cover the cost of holding investment properties. Could you present a cost model with a timeframe for this exercise. A Gantt chart easily explains the step-by-step process.
Hi Bryan, thanks for the video which is better than a stake sandwhich. Do you think it is a good time to do a ''debt conversion'' this time of high interest rate for those in mortgage?
Sandwich! Thank you for sharing your knowledge, Bryan.
Thank you! 💙
Sandwich. Great video ❤
Thank you! ☺️
What a good sandwich today. Thanks.
Subscribed to that sandwich. Cheers mate
Welcome to the family! 💙
Awesome...thank you Bryan...
SANDWICH :)
Cheers Adam 🥪
Thank god you did reality check on options towards the end of your video. In theory yes, but with many changes post covid many people have had totally change money management. strategies.
Absolutely. Debt recycling is great if you mean all the prerequisites but its definitely not for everyone.
I didn't understand the Sandwich part until the end. 😂
Great video. Thanks
This is a great video, real informative and tells you how to use the system, my problem is Im too risk avert to try it, sandwich.
Cheers mate. That’s fair enough. It’s not for everyone. It’s just another tool in the arsenal at the end of the day!
Thank you Bryan. Sandwich
Thanks mate 🥪
Sanga! Great video ✌️
Thanks mate 🥪
You always give me new ideas , thanks mate . Sandwich 🥪 😅
That's what I'm here for mate! 😎 how's the crop looking this year in your garden?
@BryanInvest Things are going good thanks. Been a bit busy with other things in life. But the garden continues to do its thing 😁
You should also mention the benefits of fully franked dividends/imputation credits. Great video! :) on a side note ive always preferred the term "debt conversion" i think its far more intuitive.
Absolutely mate. Thanks for pointing that out. Debt conversion sounds more modern 😎
whats the advantage of a fully frank credit other than the obvious it has no tax to pay. But would this not normally come from an stock purchase, rather than an ETF which makes it a little more risk?
Hi @bryan, thanks for the video, very informative; how would this work if you are currently in a primary place of residence (for example 200k equity on 600k property and wanting to get a new loan to purchase a new primary place of residence (keeping the original property as the investment asset)
Sandwich! It’s great you have emphasised all is involved. It is not about magic!
Thanks Debora. Yes, this is definitely not a magic pill.
Steak Sandwich! Oh man... my brain is boggled with all this great info, Bro! So much to think about haha! Thanks for sharing, Bryan
Thank you! You're making me hungry bro. I hope this video awakens the hunger inside you to push on with your investing journey 👊💙
Thanks for the vid. For your second way of debt recycle, this means you pay less repayment compared to the first way (coz interest only loan is always higher than home loan rate) and it is not technically borrowing equity from the bank anymore but using your own cash. Is that right? Does this increate the home loan you paying for the original home loan given you are using the extra cash for investment instead of offsetting the home loan? Thanks
This is fire 🔥
Appreciate it mate 👊
Hi, thank you for your video. Is there a way fo debt recycling for investment property with equity? Thanks!
This is one of the best videos I have seen on debt recycling. You covered it so cleanly and comprehensively. kudos!
Does the investment have to happen in a dividend generating stock?
I do options trading to generate income. I assume this would also qualify as investment loan eligible for tax deductions right?
I am planning to use my current money from my trading account to pay off the loan account and then redrawing to fund the trading account to continue my share and option trading!
Great question. I’m not 100% sure. I think it depends if you qualify as a trader in the eyes of the ATO. Check out this article: www.insightaccounting.com.au/2015/09/are-you-a-share-investor-or-trader/
You might want to double check with a tax accountant about this while also structuring your loan accounts correctly with them.
I love your videos Bryan but I need advice on who to go to for more detailed advice on this strategy. Who do I go to for help? I would really like a company who manages all this for me, or even an advisor who can help. Our tax agent does not seem to help us with this. Please point me in the right direction if you can suggest something please?
Love your videos and love a good sandwich
I appreciate you Mitchell! 👊
Hey Bryan
Thanks a lot for sharing your knowledge. I have learned a lot from.
Can you also share your views on how to buy property as a primary residence. I am new to Australia and confused where to buy. Should I use mortgage brokers, is the price right for this property. How will my investment perform. I am living in Melbourne. As my experience tell me that when too many people talk about some share don’t buy it until everything cools off does the same rule apply for property. Can you make detail video about your views on this topic please.
Hello. Welcome to Australia. I will definitely make a future video on this topic. 😊
I didn't know about this 🤯 thanks bryan! sandwich 🥪
Thanks for watching! 😄
Should the dividends go into line of credit account, or can it be part of reinvestment plan to maximise the tax benefit?
Bryan I keep thinking something is missing in your example: the interest on the new loan 2! In the chart at 5:34 the new loan 2 will have an interest cost that needs to be paid. Without digging into your own savings, this interest cost is funded by the dividend income. So if Interest cost is say 5% and Dividend Income is also 5%, there is no net cash leftover to pay down the bigger housing loan 1. In order for this to work, the dividend % earned has to be greater than interest %, and only that small differential would be what can be paid off Loan 1
Hi Lakun, I understand what you are saying. The interest on loan 2 would have to be paid regardless. In fact, it’s the main reason we can claim a tax deduction. Without a debt recycling strategy, you would be paying the same amount of interest on 500k vs 450k + 50k. So yes, you would have to dig into your own savings to pay the interest (which you would be paying anyway). The main idea of debt recycling is to get that tax deduction on the interest (loan 2) you were going to pay anyway.
Kindly request you to reduce your speed of speaking plz
@@darshirathod1213 you can use the youtube speed setting and play the vidoe at slower speed (a .75x should be good enough)
Sandwich
But what no one will tell you as there is no magic wand, is where to invest. I would assume as we are needing the income you would be looking for a greater dividend yield rather than growth. Also if they are better dividend yields would you not DRP or get the payout to bad debt, and then redraw same amount to buy the same etf again.
Few selective videos/channels I watch at 0.75X speed; otherwise, it's 1.25X or higher. Respect!😁
Haha! I am honoured 😂
Thanks for the yummy sammich!
You’re welcome. Glad you enjoyed 😄🥪
Agree! The bigger share the bigger dividends. 😊
My question now is, is there a chance that your shares crash if managed by a wealth management?
There is always risks when investing in shares. That’s why some investors go for ETFs/index funds since there is less ‘human management’ involved and you’re just automatically buying the entire market.
When you compared option 1 vs Option 2 (6:30). There should have been an Option 3 with not touching your Offset amount of 50K..considering you have a 100% Offset arrangement with that $50K, you save the entire interest payable on that 50K vs saving only the 35% tax on the interest paid on that $50K shown under option 2.
So essentialy:
Option 1: $1300 returns from share dividends
Option 2: $ 2175 ($1300 from share dividends + $875 from tax savings on interests)
Option 3 (Suggested in comments above) : $ 2500 savings by keeping money in Offset account
I am happy to be proved wrong
Hi Sawab, I understand what you're saying. However, I have mentioned in the video that debt recycling makes sense IF you were planning to invest into shares anyway (so investing without receiving tax benefit).
We can debate about investing in shares vs keeping money in offset all day long. There's not really a correct answer. What you are not taking into account with Option 1 and 2 is the historical expected overall return of shares in the long term which is about 8-10% on average per year. Eg. Option 1 & 2 should be $1300 from dividends plus any share price appreciation. Of course this is not guaranteed which is where the risk lies. I understand that the offset interest is a guaranteed tax free return and is a good option for some who are more risk averse. However, people invest in shares hoping they can beat the offset interest rate which historically it has. Otherwise, no one would bother investing and just keep all money in offset.
So the point of the video is not offset vs investing. It's the most tax efficient way to invest IF you have already decided to invest outside Super.
@@BryanInvest Sure thanks for the clarification , so taking out money from an offset account and investing in anything which provides a return rate higher than my ROI on my current Home loan would definitely makes sense.. By the way your video content and presentation are excellent and provides massive value
@@SawabAhmed Thank you, Sawab. I appreciate that! 👍
Good sanga banga this one.
Appreciate it, mate! 🤝
Any bank or financial institution you recommend for the line of credit? I am with NAB and their line of credit rate is: 9.28% while my home loan is at 6.34%?
Hi @bryaninvest, thanks for the helpful,video. I have a couple of questions for you. If you are choosing share investments (my preferences is ETFs), should you focus on high dividend paying shares for this strategy or high capital growth? Also, do the dividend paying shares need to be Aussie or will global work too?
Hey Alexis, I have a long term outlook and plan to hold for ages so I prefer more capital growth. With dividends, you will have to pay tax everytime even if you set up DRP. As long as the stock is bought from the ASX, they should be paid in AUD. So there many global ETFs on the ASX that still pay AUD.
@@BryanInvest thanks Bryan. So the true benefit derives from the total return growth (capital and dividends combined)… dividends are only necessary to ensure it is an ‘income generating asset’ and therefore the loan is tax deductible debt? In fact, a low dividend paying asset is better because it means a larger net income loss and improves the tax benefit if I am thinking correctly?
What I see in Option 2 (6:31) is that you made $1300 from dividends and you made $875 by savings on tax but you paid out $2500 as interest so you made a total loss of [$2500 - ($1300+$875)] = $ 325.. so essentially its not making for you but taking away an extra $325 .. without this strategy, you wouldn't have paid that $2500 on interest anyways as you have offset it using your $50K savings ....Am I missing anything ?
Yes, I see your point but you're not taking into account the share price appreciation. Historically, the stock market returns 8-10% on average per year. This is not guaranteed of course but that's the risk you take as an investor. Anyway, the point of the video is the best tax efficient strategy for people who have ALREADY decided to invest outside of super. Not people who are deciding whether to invest or keep money in offset.
hi, can i still do this with an investment property mortgage? or is it only for PPOR mortgage?
Yep 100% with an IP, am currently doing the same now. Although we plan to make it a PPOR in around 15yrs
Whilst it is a good concept on how to work around in getting more tax back through an investment property, there’s still an extremely high risk of
a) not finding a tenant
b) have a tenant who pays enough to cover your principle per month
C) hoping to God that nothing in the house needs repair because you’ll be further out of pocket
And probably most of all as you would find in majority of the paying off debt cases;
D) the debt issue is 80% behaviour 20% financial situation.
Majority (not all, but majority) of people who end up making more income don’t utilise it for what it was initially set up for in the first place.
The example in the video was for investing in shares, not an investment property.
I get your point though. However, every investment carries risks. There will always be a ‘what if’. It’s just finding out how much risk you’re willing to take that will still let you sleep at night.
Would be interesting to see how debt recycling is done with real estate.
I think it's a bit more complicated with real estate but would be a great topic for sure!
984th...Thanks Bryan. Sandwich with cheese.. Any links of videos that talks about stocks paying dividends?
Cheers mate. Here you go: ua-cam.com/video/Rbc_F2QxgSU/v-deo.htmlsi=tt7ntsDEYxwbPutC
Other vid talks about redraws being a negative vs offset accounts, but here loan 2 redraws are encouraged. Which is the best for someone considering on purchasing a PPOR?
Redraw only becomes an inefficient tax problem if the purpose of the 'loan' is for personal expenses. In this case, we are using it for investment purposes so the tax is treated differently. I prefer offset accounts because they are more flexible.
Thanks for the sandwich
No worries 🥪🥪🥪
Hi Bryan,
Thanks for the video. What are your thoughts on Gold? For gold, do you suggest physical gold or gold stocks? For gold stocks which are the better ones in Australia with higher liquidity?
Would really appreciate your response on this one.
Hey mate, I don't really invest in gold so don't really know too much. I did some research a few months ago and you can invest into gold ETFs like QAU or GOLD which tracks the price of gold. In terms of physical gold, I would have no idea. You should probably read some reviews online to make sure it's safe. There has been some controversy in news about the quality of some of the gold bars.
As Bryan said you can invest in GOLD.ASX as an EFT and also PMGOLD which both give you a physical gold allocation, rather than just a paper based trade some offer.
If I already have a $50k share portfolio, any way I can transition that to be tax deductible?
Sandwich. You'd give Busta Rhymes a run for his money you speak so fast! Great vid and share. Thanks
Thanks Stuart. Can you believe that’s me already slowed down? 😅
Can you simply redraw any extra payment in the home loan, transfer it to a new account and name that account "line of credit" and use it the same way or does it have to be a second loan - Line of credit?
never mind, answered it myself as it won't work unless the account is split into two as it would make it impossible to calculate the interest charged on the 2 x accounts and that's the reason, the second account is recommended.
So let's say i have a rental property with 300k left to pay, I should split the loan and instead of just investing the 100k from the offset account (which i was planning in the first place) i should pay the account down to 200k and redraw the amount? How does paying off the loan and redraw affect the equity i can use for a future ppor? We're rentvesting at the moment ..
Yes that's correct. I don't think impact future equity. You still end up in the same place. I would recommend speaking to a tax accountant to set up your accounts properly.
Could you recommend any tax specialists? The accountant I see (franchise) are useless
Hi Bryan, you talk super fast for the information to sink in so it's information overload at high speed that I have to stop and start the video to write everything down. Thanks for all the info, we appreciate you 🙏🏾
Haha, sorry about that. I'm naturally a fast talker. I've been trying to slow it down for the camera so hopefully future videos will be a bit slower. I appreciate your support! Wishing you all the best.
Just finished my sandwich. Can you do a video about offset vs savings accounts vs investing in shares?
Great video idea! Thanks
Say you have that 500K (200K fixed, 300K variable) mortgage with 100K in offset
If we want to use 100k to invest in ETFs, I understand we split the mortgage to include a 100k interest only loan (so now 200K fixed, 200 variable and 100K)- when paying down the 100k from offset,
1. does it matter which loan we pay down and is there a preference?
2. Once we have paid down the loan by 100k, do we have to use the total 100k split loan to buy shares or can it be done in parcels?
Thank you
pay the non-tax deductible debt first, redraw on this portion and create a split loan. Use the funds from this split loan to invested in share (can be done as lump sum or parcel)
PPOR is dual ownership (husband & wife).. Using platform like Stake, it can only be single investor? Assume this would only be half the tax benefit ?
That’s a really good point. I would think it’s fine since the tax is benefit the same household but not 100% sure. Best to check with a tax accountant or go with a joint account broker just in case.
Hi Bryan, just stumbled onto your account and loving it! Question, let's say I split the loan and take out 200k of equity to invest. with the 200k, can I combine that with my existing shares in the same stake account? or does it need to sit in its own account and be separated from my current existing shares? Hopefully that makes sense. thanks Bryan (:
Hi Jiimmy, thanks for the support! Yes, I believe that shouldn’t be a problem as long as you keep the buy confirmations and keep a record if you ever sell any of the ‘older shares. Just make sure you speak with a tax accountant to properly structure the loan in the first place. Good luck 😉
Option 2 - interest is deducted from income so net loss is actually $500. For that you get a 30% rebate of $150 so cost is $350. Therefore you need your shares to grow by that amount to make it worthwhile. Even then there is capital gains tax to pay.
Thanks for sharing, ppl often seem to skip explaining the part where the cost far exceeds the tax return. Still be great, if you could cover the cost (or should I say forced savings).
The capital gains tax will be a tax deduction because it's associated with mo ey made from debt.
I dont understand why with option 2 you have to pay 50k the second loan and redraw immediately?
@@thealcobies because if you have 5pk in cash rather than it being from a place of profit you get a loan put 5pk into it then take money out so then it becomes money from debt
@@vkturbo7676ohhh thank you. I watched the vid again and it was from offset.
It’d be good if you included an example of interest costs in your calculations. Especially in the first part of the video, it gives the impression that if you borrowed $100k of equity for 4% dividend yield, you’d be able to put all of that $4k back into Loan 1. But that’s will never be the case if there’s interest payable.
I did mention in the example it works best is an interest only loan. The idea is the shares provide a 4% dividend plus approximately 4% share price growth (the historical average return of the stock market). The interest payable would be tax deductible which would not be the case if you don’t debt recycle. This strategy is for someone who is looking to invest in shares anyway. I’m not encouraging you to get a loan to buy shares if that was never your intention in the first place.
Hi Bryan, say if I had $100K sitting in a redraw account of my investment property saving myself 6.5% interest - would it be more beneficial if I redraw it to invest in shares instead so I can maximise my tax benefits or leave it as is to pay off the mortgage faster? Thanks in advance
Theoretically, it could work out better if you did. However, 6.5% is quite high. I would just keep it in the redraw/offset. That 6.5.% is a guaranteed return and tax free. Whereas, nothing is guaranteed in the stock market. It would make more sense to debt recycle in a lower interest rate environment.
Cheers Bryan.. appreciate your input
I’m currently looking at debt recycling or just keeping my money in offset since I’m not too confident about the stock market presently. Do you think it’s a good time to invest? (Sandwich)
If you're not ready to invest then keep your money in the offset account. Then continue to learn about the stock market and psychology behind it then you can revisit this strategy when you're feeling more confident.
Sandwich. Could also suggest some tax accountant who will understand what you said. So we can use that tax agent. Majority of the tax agents don't care they just file what you give them so suggest a few or suggest who you use. Sandwich
Hey mate, which state are you from? Well, they should care because they can get in trouble for giving their clients wrong advice. Debt recycling should be an easy concept to understand for a tax accountant.
Provide tax planning advice and lodge tax return are two different level of services😂
These videos are so helpful, if you dont mind receiving feedback, i would just slow down in your diaolgue
Thank you! And I absolutely welcome feedback to give my audience a more enjoyable experience. A few people have mentioned this so I’ll do my best to speak slower 😊
But aren’t you also paying more for the original loan now that it’s gone from $300k to $400k? How does that cost factor in to your total made for the year?
Yes of course, but you’re using that $100k to buy hopefully appreciating assets that will grow well beyond $100k in the future. Plus the interest is tax deductible. This strategy is for people who were already going to invest in shares.
Basically good old risk and return. You are simply risking capital in the expectation of making more income and capital growth than the cost of money after tax benefits. Risk is quite high now I would guess.
I will be implementing this if there is a significant market correction.
Nicely put. You nailed it. If you're a long term investor and were planning to invest in Index ETFs anyway then this is way more tax efficient.
sandwich!!!
I am currently facing a dilemma : I am about to use the cash saving to buy a home for my daughter, it will be as an investment property & she will still be paying basic rent to serve the loan . With the current 5% interest rate, the cash in the bank has been giving me good interest income which I use some portion to invest in stocks. But now if the money move into the offset, not only I lost interest income, I need to top up or collect enough rent to pay the mortgage at 6.3%. I even wonder if I will have to sell shares (unwillingly) to offset mortgage liability … if anyone can advise if there is a better Win Win strategy ..
I think your question is more philosophical than a financial one. From a financial standpoint, if you have a home loan then parking your money in the offset is the superior choice versus leaving it in a HISA since the offset will give you a guaranteed tax free return which is even higher than a HISA. If you want to help out your daughter buy a home then there is no magic pill solution where you can keep your cash in a savings account AND help her with the deposit. It's one or the other. Wish you all the best.
@@BryanInvest Yes! you are right! Thank you 🙏 I know what to do now
When you pull 50k from your home loan you will increase your home loan which means you will pay more interest there. That additional spend was not included in your calculation.
Actually you are not increasing your home loan. The example I used is you have a 500k home loan + 50k in offset. Then you split the loan into 2. Loan 1 = 450k. Loan 2 = 50k. Then you use the 50k in your offset that you already have to pay off loan 2 then redraw (borrow).
@@BryanInvest ok, it's crazy if that's legal :)
@@pabichpawel it's absolutely legal. Just need to structure it correctly :)
If it seems too good to be true, it isn't. This is doesn't work unless you can get a greater return than your home loan interest, and you have to keep your home loan on variable rates to keep 100% of any pay down or offset value (i.e. keeping it on the highest interest rates!!) Paying the money off your home loan directly is 100% RISK FREE and incurs NO TAX.
Yes, I stated all this in the video. Also, you do not need to keep your home loan on a variable rate. It can certainly be done with a fixed rate. It's certainly not for everyone. It's for people who are going to use the money to invest anyway.
Invest $100k and with 4k dividends pay offvthd loan... But im sure the debt payments would be more than that
You have to weigh the risk vs reward. If you use equity then yes you are hoping to get a better return than the interest rate (with a tax deduction). If you want ‘less risk’ then you could consider using cash you already have like in the second example. That way, you were going to use money to invest anyway, so may as well get some free tax deductions from it.
What if you buy the wrong shares?
That’s always the risk. This strategy is not risk free. However, the strategy is for people are were going to invest in shares anyway.
SANDWITCH :D :D - can you slow down a bit for dummies like me :D
Sorry mate! I actually speak much faster in real life but I’ll try to slow down a bit more 😂
Best strategy is property vs to your low capital growth in shares.
Property
$40k deposit
Bank will loan 90%
Capital Growth
$400k @ 9.8%
Return : $39,200
It's no surprise that property is the winner
And repeat the process with more properties
I love property but you're not including hidden costs/issues like stamp duty, interest rate increases, bad tenants, repairs & maintenance, psychological stress, lack of liquidity. You will need more cash in your pocket to cover all these things. Of course the upside is huge if the property market continues to go up and the tax benefits is unmatched.
Who could help someone set this up? A tax agent?
Yes, any qualified tax accountant should be able to help you set on up properly.
How complicated is this to implement? I have heard my colleagues talk about this. Could I set it up myself? SANDWICH
If you're a beginner, I highly recommend speaking to a tax accountant first.
What are the risks tho?
I talk about this in the video: ua-cam.com/video/kDUJ23KIbZI/v-deo.html
well yes but if everyone did this therer would be no taxes for schools, hospitals, health etc im happy to pay tax as should you be.
I totally agree that paying tax is a duty by all citizens and residents. It is important to maintain a functioning society. However, everyone already pays a generous tax rate to the government in Australia. This video is not about avoiding all tax, but if there’s a legal tax deduction, then you can choose to take it.
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Hi Bryan, loving your contents.. I am trying to get my head around what you have explained in 5:30.. Say I have $500k home loan and ask my bank to split to loanOne $450k and loanTwo $50k and I transfer my $50k savings to loanTwo and redraw $50k the very next day and invet in divdent index funds.
Then say I get $2k dividents after 1 year and interest on $50k is $3k/year at 6% interest. So I will have only 1k tax deductable or can I make tax deduction on total $3k interest ?
But with tha current interest rate of 6% if I leave $50k savings in my offset, that is already saving me $3k/year interest.
Hey Harsha, I believe you can claim the interest on the full 3K. The amount of dividends you receive doesn't really impact how much of the 'borrowed interest' you can claim. What matters is that it's an income producing asset so even paying 0.1% dividend should be enough to qualify.
Also, usually shares increase in value through share price appreciation + dividends (which are both not guaranteed). So it's whether you trust the shares will return more than the 6% in interest rate. Debt recycling merely helps you save more if you already plan to invest in shares anyway. If you don't think it will then you can leave your money in offset.
Sandwich!
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You didn’t account for the repayments on the investment as you pushed the dividends to the home loan!
I did mention an interest only loan as the most optimal option.
@@BryanInvest yes even interest only loans require payment of interest which you didn’t account for
I'm hungry after that. Gonna get myself a BLT sandwich!
Enjoy the sandwich mate!
Sandwich.
It's a silent "B" in "debt", so it's "det". Don't even try to slide it in softly.
It's the same with knuckles. Silent K. Or write. Silent W. They're all leftovers from French, Latin, old English etc.
Wow, I thought you were pulling my leg but you’re right. I was never taught to pronounce it like that. Thank you for pointing it out. It’s a big load off for me going forward because I always struggle to pronounce the B in a sentence. Saying ‘det’ is so much easier! 😄
@BryanInvest no worries. Another favourite of mine is when you go into 7/11 and at the end of the transaction, the cashier says "would you like a receipt" but they always pronounce the "P". It's a silent P. So the word should sound like ree-seet. But it comes out as ree-seep-t.
@@davidunwin7868 that one I knew! Haha. Cheers David.
Storm financial.....? Anyone?
Banh Mi Thit
But that means…if you originally have 500K debt in your non tax deductible, you will have 500k debt tax deductible in the future. You still have the 500k debt. 🤔.
Your principal amount is paying off the debt so it won't be 500k later on. You're just taking advantage of the tax savings to free up more cash to invest/pay off the bad debt. Also, the debt you are recycling is being invested into your shares portfolio, making it larger every year, so there is also the option to sell off your shares if you want to pay off the 'tax deductible' debt.
Looking back a month after, what you said now makes sense to me.
@@atepatty6216 That's awesome. Thanks for the follow up comment. I appreciate it 😊
What you have failed to state here is, If I owed 300k on a 500k house, and then took 100k of equity out, I would be paying the bank an extra 1000 dollars per month. So I would go from, 2k per in Principle + Interest to 3k per month. Over 12 months thats 12k, On a return of 4k share investment it makes no sense.
It shouldn’t be 12k (repayment) vs 4k (expected dividends)? It should be interest on the 100k vs expected return (dividend + share price appreciation). Also, the interest rate is tax deductible so theoretically the cost should at least be covered by the expected 4% dividend (assuming the interest rate is around the same). Over the long term you are hoping to receive a historical return of 8-10% on your shares which is hopefully higher than what you are paying in interest (plus tax credit).
I also mentioned this works best with an interest only loan. You can do this with a principal + interest loan if you can afford the extra cash flow but then 12k is irrelevant here because you are just paying back the loan. You borrowed money to own 100k worth of shares and you’re just reducing your debt.
Please note that there are a lot of assumptions here. Debt recycling is not a ‘sure thing’ as mentioned in the video, but it could make sense if you’re looking to buy shares outside your loan anyway.
@@BryanInvest Thanks Bryan. If you would like to revist this topic in a future video with examples, at the time, covering repayments and what you can claim on tax, I would appreciate that. Thanks. and you have earned a sub.
@@dpg2004 Thanks mate. I appreciate it. I will keep that in mind for the future. Wish you all the best 👊
Sandwich. 🥪 😃
Get in my belly 🍽