hi guys,
if any of you have time i would greatly appreciate it.
here goes…i’m currently in a spot of trouble.my brother and i are partners in residential property in brisbane,we have 5 IP all within 8km of the brissy cbd,he lives at home with mum and dad and i own my house on the outter southern suburbs.the total value of all the properties inluding the ppor’s is 3 million and the total debt that we have is 1.55 mllion.now if you take 20% from the 3 million that leaves 2.4 million that we should be able to borrow up to,therfore 2.4 million – 1.55 million[the total debt]=850k in available equity..is that right?
the problem is that 550k of that debt is losses on the stock market which is attributed to one of the loans,so its a debt of 550k with no income to service it and its comming out of my business[for the fact it was me who lost the money trading]..which makes day to day living very difficult.
what i’m saying to my family is that we should use that 850k in equity to buy positive cashflow investments weather they are houses commercial or businesses in order to use the extra cashflow to help pay down the debt.in theory the investments that we buy will rise in value over time and the debt will drop.
his idea is that he doesn’t want to get into any further debt and we should try and get rid of that 550k bad debt first…or at least get it to a managable level…which i feel is going to be virtually impposible to do in the currant situation that we are in.
as i say to him,i know that i made a mistake in loosing that money by not taking calculated risks,but what i’m saying to him is that this time we do our research and stick to property[cos we know it a lot better than shares] and try and invest our way out of this mess.
any opinions would be greatly welcome…cheersThe first question I have is! Are the losses capital losses ie. you held the shares for over 12 months. If so – Why dont you sell a property or two that has the most capital gain and offset it against the losses. Therefore effectively paying no capital gains tax.
Anyway – just a thought.
hi yak,
yes the losses are capital losses,and that has been suggested..its that i feel y sell high growth properties,which they all been..luckily..when we could use the remaining equity to do the work for us,as in get other peoples money to work for us and pay the debt down.
thanx for your replyhi stelep7,
I would be selling and offsetting the capital gains against the losses, as Yack suggests.
Why do things the hard way?
Good luck,
Del
by my way of thinking,i would like to use the equity to buy say a cashflow business with a portion of it and then with the cashflow from the business buy more realestate…and leave the bad debt there…using the interest payment as deductions..then down the track pay the 550k off bit by bit without having to seel property…cheers
Stelep7,
A $550k debt will take a substantial amount of investing in cashflow positive investments ie more debt, to generate the cashflow to start making a dent into the $550k. It sounds like your brother is at the point where his threshold (at least psychologically) totake on more debt has been reached. If you were both comfortable with taking on more debt, and undertake that strategy then you have at least passed that hurdle.
Cashflow positive investment (esp in property) are becoming more and more rare. Maybe NZ is an option (Westan & Muppet on this forum have had experience in this area and could provide some pointers). I am not well-versed in shares, so I couldn’t comment with any conviction there.
Irrespective, to take the approach, you need more debt to pay off the existing capital losses. I agree in principle with the other comments about selling to pay down debt now. You can then start at looking at cashflow positive investments and start building from there.
James
Stelep, are you calling your debt ‘bad debt’ in that you lost a whole shedload of money, with nothing to show for it, or ‘bad debt’ in that it’s not deductible debt.
I would argue that it is deductible debt, so in that sense it is ‘good debt’, however the investing ‘went bad’ so in that sense it’s more ‘dumb ass’ debt!!
To convince your brother, maybe you should see if you can take on a smaller portion of your available equity as debt in your own name, to invest in a cashflow business/house/commercial etc. I guess you’d need to show him a deal, and how it’s going to increase the cashflow, rather than be riskier – which I guess is his ‘issue’.
I could certainly understand him being wary – a $550K hit is a rather large one!! Luckily you obviously have got yourselves into an excellent equity position, or you would be in deep sh*t.
Cheers
Melstelep,
I’ll take the non-accounting approach, as others have covered (more capably than I could) the writing off debt bit.
If your bro is worried, and I wouldn’t blame him (I am a conservative, quite debt averse type)… then I think you need to take into account his concerns. Whilst 550k might be a capital loss… it is still a loss, and any tax gains you can get on it, will still be on a loss. It’s basically a neg gearing approach- you make gain on a loss- but you still have a loss.
It sounds like you have a more high risk approach than your brother. Remember, financial stresses can be a significant health risk to some people. It’s one of the big stress factors in life, and that needs to be acknowledged- how he;s dealing with the debt of 550k (significant in anyone’s books, I reckon).
If it was me, I’d sell off an IP (or two). Remove that debt, cut your losses, and you’re still in a good financial position.
For me, that would be one of the problems with partnerships… mistakes are made, losses occur, people panic.. one wants to get into more ventures to cover the debt, the other wants to sell and start again… and it can be hard to come out with a solution which suits both. If you have one high risk partner and one conservative partner, each hopefully can care enough about the other to not lose either (a) the shirt off their backs or (b) their relationship. (a) is obviously super important- no less than (b)
kay henry
hi all,
thanks for your responses…yes teh debt is deductable,so in a sense it will be written off,which we have done on one IP already.i suppose in my mind i know what i want and will do it..i.e get more cashflow..and yes melbear it is a good chunk of dosh to drop on the warrant market in a few mnths…and i’m a dick for doing it…worried..yes a bit,but defintely not panicing.just as there was a way into this problem..ther’s a way out.its never really bothered me that the money has been lost[may sound stupid]…by my way of thinking..it’s gone and it wont come back.we have the resourses to make 10 times that amoumt and more,lets get down to it and start doing some figures on the next deal..but this time nothing high risk..and let me tell u guys trading warrants with out a plan is the stupidest thing i have ever done..thanx again every one..cheersstelep…down for the momment..but defintely not out:)
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