I was told when just out of University, rent where you want to live and then put my money into income producing assets until I can or need to buy my principal place of residence with minimal debt owing on it. At the time, an extreme out of the box thought for me but the best piece of advice I could have received.
Why?
Being able to roll through my 20’s and 30’s with no bad debt in my life and being able to enhance my lifestyle and build assets along the way.
The home you live in is GOOD Debt, right? Wrong. Does it produce any regular income for you? Probably not.
Anything that is considered income producing by the ATO, is considered good debt. This is because the running expenses can be claimed against the income on the property or the asset.
Bad Debt is considered anything that is NOT income producing.
For example, your own home that you live in according to the ATO is not income producing, therefore you cannot claim the running expenses.
Investment properties, different story.
As an investor, if you have ALL investment properties and rent yourself, effectively you have no bad debt in your life PROVIDED you have no credit card, personal loans or car loan debt as these are also considered bad debt.
So, to simplify;
GOOD DEBT
- Income Producing Assets
BAD DEBT
- Principal Place of Residence
- Credit Cards
- Business or Car Loans
Need getting your head around your good and bad debt? Lock in a Clarity Call with John Pidgeon or email him direct