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## Seeking Advice on Debt Recycling for Investment Property

Hi All,

I am seeking advice on debt recycling for my investment property. I currently own this property on my own, purchased about 7 years ago before meeting my wife. The property is valued at approximately $750k, with a mortgage of $300k. Recently, I purchased a PPOR with my wife for $800k, and the mortgage stands at around $630k.

Given that my investment property is now positively geared, my mortgage broker suggested that I could benefit from debt recycling to maximize my tax return.

## Exploring the Concept of Debt Recycling

Debt recycling is a strategy that involves borrowing against the equity in an investment property to invest in more assets. By continuously recycling debt, it is possible to build wealth and reduce debt over time. The key idea behind debt recycling is to convert non-tax-deductible debt (such as a mortgage on a family home) into tax-deductible debt (such as an investment loan) to enhance tax efficiency.

## Evaluating the Pros and Cons of Debt Recycling

Before diving into debt recycling, it is essential to weigh the advantages and disadvantages of this strategy. Some potential benefits include increased tax deductions, accelerated wealth creation, and improved investment diversification. However, there are also risks involved, such as potential fluctuations in property prices, interest rate changes, and financial market instability.

## Leveraging AI Legalese Decoder for Informed Decision-Making

To navigate the intricacies of debt recycling and make informed decisions, consider leveraging the AI Legalese Decoder. This innovative tool can help decipher complex legal and financial jargon, provide insights into tax implications, and offer personalized recommendations based on your specific circumstances. By utilizing the AI Legalese Decoder, you can gain a deeper understanding of debt recycling and its potential impact on your financial goals.

Thank you in advance for any advice or guidance you can provide on this matter.

Regards,
[Your Name]

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AI Legalese Decoder: Simplifying Legal Jargon

Introduction

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5 Comments

  • JacobAldridge

    Debt recycling is always a good idea, but based on the info you’ve shared **I don’t think you’re describing debt recycling** (and your broker may not understand what the term means).

    Debt Recycling occurs when you have cash available that you want to invest. This might be savings, an inheritance, or in our case was the proceeds from selling an IP.

    Rather than invest that cash directly, you first pay down your non-deductible home loan. Then you reborrow out that cash (usually via a new, split loan). Then you invest. No new debt is created, but some of your home loan debt is now tax deductible (since it was borrowed to invest).

    Do you have a whack of available cash you want to invest? If so, debt recycling!

    But since you don’t mention it, I have to assume that either:

    1. Your broker is suggesting you “borrow to invest”. This is NOT debt recycling, as it involves the creation of new debt. It’s a very diferent risk profile (borrowing at 6.5% and hoping for 10% returns).

    2. Your broker is suggesting you sell your current IP, and debt recycle the profits when you buy another IP. We did this, for tax it’s worked very well, but selling and buying real estate is costly so it needs to be a good upgrade in investment potental – not just a tax tactic.

    Paying less tax is easy – your goal should always be to get more money in your pocket, even if you pay more tax as a result.

    Good luck!

  • Oh_FFS_1602

    Here’s a link: https://strongmoneyaustralia.com/debt-recycling-ultimate-guide/

    Peter Thornhill loves it and there may be some YouTube videos around. Lots of the ones I watched to get my head around it were taken down/made private when the finfluencer advice came out from ASIC and people were covering their arses.

  • Positive-Price-7571

    Your debt is currently non tax deductible, you get no tax breaks on it. This is “bad debt”. You may even pay income tax on the rent you’re getting now.

    You use the equity you’ve built on your two properties to get into “good debt” like another IP with negatively geared tax breaks. You then use the rental income and tax deductions to pay back the loan you took to buy another IP.

    Also Google.

  • welding-guy

    Here is a comprehensive index of answers

    [https://www.google.com/search?client=firefox-b-d&q=what+is+debt+recycling](https://www.google.com/search?client=firefox-b-d&q=what+is+debt+recycling)

    Whether it is good or bad depends on the individual benefit.

  • According-Flight6070

    Basically you can refinance the investment to increase debt, then use the proceeds in your offset account to reduce interest there.
    Cons: your net interest will increase slightly as the investment loan is likely a slightly higher rate.
    Pro: the interest on the investment is tax deductible, unlike the home. You can reduce your taxes by roughly $6k p.a.