• Australian (ASX) Stock Market Forum

Negative Gearing on shares with a mortgage

Discussion in 'Stock Market Nuts and Bolts' started by DaLong, Apr 3, 2016.

  1. DaLong

    DaLong New Member

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    Hi all,

    i believe I am in the very common situation that I have redraw available in my PPOR mortgage and am looking to invest in shares.

    Instead of funding my share purchases with cash, I can redraw money from my mortgage to invest.
    Two benefits arise from that:
    1. The interest on the redrawn portion of the mortgage because tax deductible as it is used for income producing purposes.
    2. The interest rate is lower than any margin loan available in Australia

    There is an ATO tax ruling from 2000 (link below), outlining some of the requirements to do this correctly.
    https://www.ato.gov.au/law/view/document?DocID=TXR/TR20002/NAT/ATO/00001

    Despite the clear benefits, this doesn't seem to be talked about a lot. Am I missing something?
    Can anyone share their experience with this?

    Thanks in advance
     
  2. JJZ

    JJZ Well-Known Member

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    Hi DaLong, welcome to the forum :)

    Do you any experience trading shares? I am also newbie, if you are as well, I would have thought it would be safer to study, learn and make a start with a smaller account before literally betting the house .

    JJZ
     
  3. systematic

    systematic Well-Known Member

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    It's a very common strategy. You've pretty much summed it up.

    The negative gearing only occurs if the income you receive from your investments (dividends) is less than the interest payable. I realise that's a reasonable assumption, but keep it mind that just like an investment property, your money received (rent/dividends) count.

    Obviously whether you should do it or whether it's a good thing to do is up to you to decide / get financial advice on. But theres nothing uncommon about it. There's plenty of articles about it, afr had one last year here
     
  4. DaLong

    DaLong New Member

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    What i'm suggesting should be an alternative to investing cash you want to invest anyways.
    The amount invested can be as little as you like. e.g. taking $10,000 out of the redraw and move it to your brokerage account. The outcome for your mortgage is the same (taking $10k out of the mortgage to buy shares and putting $10k savings into it; vs. using $10k savings to buy shares directly).
    I have experience in investments due to my day job in asset management, but looking for some more information on structuring personal finances.
     
  5. So_Cynical

    So_Cynical The Contrarian Averager

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    Keep good records, handy if you can call the redraw something so that the interest stands out, i have a line of credit where each withdraw can be called something and the interest and fees are itemised.
     
  6. Wysiwyg

    Wysiwyg Everyone wants money

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    Just wondering what the strategy would be? E.g.

    Buy -
    Only stocks in ASX100
    Only stocks paying high dividend
    Only stocks trending up

    Sell -
    Never
    Profit target
    An individual percentage loss
    A portfolio percentage loss
    Trend change
    Company good/bad news
    Global good/bad news

    Gotta have a strategy that works or you'll get stung either way. :xyxthumbs
     
  7. DaveDaGr8

    DaveDaGr8 Well-Known Member

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    Split the loan and have an investment loan account and a personal loan account off your mortgage. Use them exclusively. Adjust the loan amounts via the bank if neccessary and never dip into the other account, not even for a day.

    While technically you can run both in the same account it's not worth the risk.
     
  8. priya0710

    priya0710 Member

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    Market fluctuations are very frequent and highly unpredictable. To control your loss try to keep yourself well updated with the movements in the market.
     
  9. Knobby22

    Knobby22 Mmmmmm 2nd breakfast

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    I do it.
    As mentioned earlier split the loan .
    My set up is.
    Dividends are put in offset account of house loan.
    The share loan is interest only. You want to maximise this and pay off your house loan not your share loan.. Interest payments are made from housing loan offset account(where divs go).
    Any drawdown, profits from shares should go into share loan offset account to ensure tax compliance.

    I am doing well from this at present.Dividends pretty much pay the interest on the loan.
     
  10. tech/a

    tech/a No Ordinary Duck!

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    Just like any other business that uses
    Home equity to secure working funds.

    Great if you can turn a profit.
     
  11. Neri123

    Neri123 New Member

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    I don't know if it's profitable to work at hone?
     
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