by Paul McBeth
Mortgage broker Kieran Trass is surprised how many people start investing in property by default, rather than making a conscious decision.
He's just written a book, Mortgage Concepts to Enhance Wealth Creation, to give those people and others with a bent for property something to think about.
"In my years of informing people of mortgage concepts, I have found that many people failed to seek sound advice, especially when arranging their second largest purchase (the first is the property and the second is, typically, the mortgage)," Trass says.
One of the most common questions he's asked is whether debt should be structured interest-only or as principal and interest.
"The simple answer is that it depends!" Trass says. "It mainly depends on whether the interest paid on all of your debt is tax deductible or not."
"A common anomaly I have found is when a bank has insisted on tax deductible debt (ie a mortgage to purchase a residential property) being repaid on a principal and interest basis over a fixed term such as 25 years, when we still have non-deductible debt (a mortgage to finance the purchase of the family home)."
If that's the case, he says it obviously makes sense to reduce the principal debt that isn't tax deductible but pay interest-only on investment debt to maximise potential tax rebates.
In Mortgage Concepts, Trass looks at different options for property ownership, such as using a separate company or trust to avoid such situations as renting out your existing home and borrowing for another, only to find those borrowings aren't deductible.
He also explains his concept of interest rate averaging for mortgages (see earlier article), talks about revolving credit facilities and provides ideas for loan reduction.
As well as holding the position of General Manager, Apex Mortgages, Trass is also Vice-President of the Auckland Property Investors Association and Secretary of the NZ Property Investors Federation. He is careful to advise anyone considering any of the concepts in his book to first seek professional accounting and legal advice.