OWNING A RENTAL PROPERTY OUTRIGHT

by Alanna Pinter
(Pennsylvania, USA)

Is it better to own a rental property outright?

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Nov 06, 2015
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Sep 30, 2015
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Jan 10, 2012
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But you will pay tax
by: Property4Wealth

I agree with all of those comments.

However, if you have income in the form of rents with no offsetting tax advantages, if you want enough income to live on, you will end up paying significant tax.

Having at least some negatively geared properties to offset any positive rental income might be appropriate in some cases.

Jan 09, 2012
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It's only better if your circumstances make it so...
by: Elizabeth Elwell-Cook

This is a tricky question, because it's so general. Is owning a rental property outright a better thing than owing money on it?

I am going to start by saying (as usual), that I don't know your circumstances, or your local laws, and that anyone reading this should see a financial adviser before proceeding with plans either way.

In Australia, it is generally better to own your own PPOR (see the glossary!) outright than to own your investment property outright because you can get tax breaks in most places on the investment property, but not on your PPOR.

BUT, if you already own your PPOR, and you don't plan on buying any more properties, it might be better to own your rental property outright. This way you can have all the money from it coming into your pocket as income. This can be good if , say, you're close to retirement.

If you're still young, and you want to build your wealth, using the equity in your investment property to buy more investments (property/shares/etc) may be the better way for you to go. Then perhaps at retirement, selling some properties to claim the capital gain on them, and using that money to pay out the others so you have a permanent income from the ones you own outright (and no debt) is just one of the many options you have.

Do your research. Ask questions of professionals. Decide what you want from this investment (income, tax benefits, capital growth, etc...). Only then can you make a decision.

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