Is it really worth it to pay off an investment mortgage early?
Every year you can write off the interest as a direct expense, and if you have renters, they are basically paying your taxes down all year dollar for dollar. However, if you pay the mortgage off outta your hard earned money, and are still working you'll be paying more in tax (up to 50% in BC). You're basically giving money to the government with no perks. No my friends, I work as hard as possible to keep myself in the lowest tax bracket possible, and I don't need the rent to throw me over the top (yet). I think it is much better to save your cash for a new investment to gain more leverage. I could take 20K and throw it on my mortgage so I'm paying less interest in the long run, or I could use it as 20% down on a new building that will cause that money to triple in the next two years.
Brace yourself Taylor #1, this requires ... discipline. That hundred bucks you want to give to the foreign market could be crateloads of kimchi, so put it in a safe place, keep your income to a minimum, and stay true to your heart, soldier.
It's hard for me to remember what it's like to not have at least a million in the bank, but let me say this to the poor of society:
"take $40'000 out of your savings account and put a down payment on a house, then rent it out."
Because the sooner you do it, the sooner it will be paid down and working for you.
Mr. Taylor (#2) - thinks like a millionaire
7 comments:
Taylor 2, you may just have a point here. We need to start many posts on tax strategies. I like that word 'tax strategy'. Whenever I say it, my mind automatically translates it to 'free money loophole'. And I'm ok with that both ethically and morally, and here's why. First of all, they are legal and there for the taking. Second, it takes a lot of time to learn about them and those who find them themselves have earned the reward. Third, it costs a lot of money to get a good accountant who can do further magic, so you've also paid financially for it. I consider tax strategies to be a kind of investment - you invest your time and money into learning about them and hopefully you get some reward. Let's encourage each other on this and try to post things we learn about tax benefits like you did today. I think you have a good point about that interest on the loan. You can't do that with your primary residence! But... back to the main argument, you can do a lot of other cool things with your primary residence....like borrow more money for other investments...
Are you sure you pay tax on interest for you primary residence? Yo, I don't think so. Ask an accountant, because that is one of the biggest write offs you can take! Ask someone in the know. I had a mortgage chick tell me that my personal loan interest is a write off!
I need an accountant, and other smart people around me at all times.
btw, taylor-1, you smell.
Anything is possible. I will always proudly profess my weaknesses in the accounting thing. Do you have a good accountant? If you don't, I've connected to a stellar guy. Pricy but he knows his stuff. In a one hour meeting he may have saved us...I can't even calculate. It depends on how big our online business goes as to how much this little thing might have saved us.
If the interest payments on my personal mortgage are an income tax write-off, that's dope on a rope.
Problem is, being self-employed hasn't left me with much income to write-off yet! Sigh.
On the 'you smell' front, you happen to be right. I do smell. It's a manly smell, though, not an offensive one.
There were a couple of good points made.
1. Your accountant will be your best friend (if he's a good one... I said he because we are all men and we aren't allowed best friends who are women - your wife knows).
A. Tax benefits
- This is very important in investing, especially with large gains. This is why sometimes having a holding corporation is good. It will allow you to pay yourself money when you need it, but not too much so that you go up to a new tax bracket.
2. Put your money where your post is. Do the proper research, but the most important thing is to go out and make the investment (on a house that will give you money). I am guilty of not acting soon enough.
3. Tax Benefits
This is a re-statement of the importance of getting the tax benefits. Here is a nice article about principal residences... although it is from Victoria:
http://www.geoffmclean.com/for_sellers/articles/principal_residence.html
I'm glad you brought up the holding corporation again. Please see this post for more updates on 'group investing in real estate'. Things are starting to spice up on that front it seems. You know what is more cool that that post? The fact that I could still remember a href as html code to get that hyperlink working. My mind is so random. It works so well and so not well. How can there be such extremes? It's my burden to carry, as it were.
Good post there Joe. Turns out you are both right. Very nice to know that it doesn't look like you have to pay taxes on the appreciation of your principal residence (*Note - I was incorrectly calling it a 'primary residence' before. You both suck for not seeing that).
And just FYI I found this in the article:
"The definition of spouse under the Income Tax Act includes a common law spouse which includes a same or opposite sex partner who cohabited with the owner in a conjugal relationship for a continuous period of no less than 12 months."
Why don't they throw 'dog' in there, too? Or kitchen sink? This country is so conservative. Or better yet. Why even have laws or traditions? People just change them to their liking anyways. More on the definition of marriage for real-estate investors in a later post, or, after the return of Christ. Which ever comes first.
Disputable Joe. Please share with us, perhaps in a new post, your story of missing the investment boat. That is good for us to share here. We need to learn from each other's failures too.
Are you being cynical? You can't marry a dog or a kitchen sink.
I don't believe Joe ever missed the investment boat. He probably just learned his lesson watching taylor-1.
Uh, Taylor 2... That was my WHOLE POINT, mang. You can't marry a sink or a dog...YET! But just give Canada time at this rate. There is already someone fighting for the right to marry their dog. No joke. I guess that would give a whole new meaning to the term ____ing the dog? Sick freaks. In one way, though, these extremists end up biting themselves in the butt (which probably also turns them on) because the average Joe (not Disposable Joe) finally figures out that we have to draw a line or we end up as chimps in a zoo. AKA a return to conservative values - a good thing in most cases.
But, this is a business blog. And one knows you should never mix relgion and business. Wait! That was religion and politics. Religion and business is just fine.
And thanks for the correction, Taylor. Missing the investment boat is not a failure. And it's quite possible that there is a greater benefit for missing it because you can quickly apply wisdom to your knowledge. And we all know that if God would grant us one wish, we would all ask for wisdom.
Until next time, invest in heavenly treasure. There are too many moths down here... and rust (just ask my car)
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