Steve, Last year my husband and I bought a property which we intend to live in as our retirement house soon-within 3 years. We refinananced our present home, sold some land and we have an enormous loan (=$400K+) at interest only. We rented it out at the moment, and we are still out of pocket per month. I only recently read your book and realised that the negative gearing bit is going backwards not forwards.[confused]When we move into our new house, we were going to rent out our present 30yr old house which is okay needs a bit of updating, but it won’t earn us as much rent, maybe $400 month less, so we’ll be even more out of pocket, and retirement looming in 3 years.[worried]Should we sell our present house to reduce the loan, and then have a loan of ‘only’ $100K or so?-My husband’s idea, or should we get yet another property (=stress)with a positive cash flow as your book suggests to help pay off more of the loan-my idea!Help!!
Robyn
Wow an interesting dilema!
I always think it’s good to hold onto property, but you have to balance that with how much you can afford in repayments and what capital growth they can achieve.
First look at the growth rates of where you houses are located and see if it has a high growth rate, if it dosen’t I would be tempted to sell the non performing one and use the excess funds to invest in +CF property. In fact you might be able to find a really good commercial property which usually have much higher cashflow than residential (loans however are based on a max of 70% of value, hence the need for large deposits). Of course I don’t know your full details so this is only general advice, but I’m sure you’ll get lots of responses!
“Retirement looming in 3 years”
Geez, doesn’t sound like you’re looking forward to it that much ?? Have you left your run too late, or are the numbers just scarying you ??
It sounds as if you really need to have an extremely detailed chat with someone. I don’t think the scant details you have provided will allow people to comment too effectively. I presume that is what you after regarding your post ??
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Robyn,
As other said, it’s hard to comment without details. However, just put in some ideas.
Since you’re planning to move into the new purchased property in 3 years, if you don’t mind for the time being to live in a rented property, then may be you can sell the current house and rent a place to live. Then the capital gain may be put into the new purchased property to reduce the loan, which may turn it to positive cashflow before you move into it?
Just ideas from novice.
From FUNWhy on earth would anyone buy a second home in such a situation? You have 3 years of income left in which to pay off Four Hundred Thousand Dollars of DEBT!!!… or perhaps you have a massive lump sum owing?.. in which case would you really be better paying for a house than earning income in the form of interest? Which one is going to give the greatest yield?
Talk to a professional.
Cheers, F.[cowboy2]Foundation, so, who do you mean when you say to talk to a professional?
Robyn
Sorry Robyn, I was suggesting that a licensed financial advisor might be just the ticket. You need a financial plan, (as we all do), but this is particularly important if you intend to retire with $400k of debt outstanding… or $100k for that matter.
Cheers,F.[cowboy2]
I’m not sure that you should be scared of debt as such, remember that property traditionally doubles (as proven over 100 years) every 10 years so you can either live from equity increases as the property increases in value or sell it to live off. I’m fairly adverse to selling real estate only because the sale of a property depletes my assets by at the least the cost of the agent’s commissions and sales expenses every time.
Your problem seems to be a cashflow one and there a few ways to skin this cat.
In relation to some advice, I agree that you should sit down with a professional although a “licensed financial planner” in my experience is simply a commissioned agent for a number (or worse one) managed funds provider.
My suggestion would be to sit down with a very good accountant – one who knows about property and has EXPERIENCE in this area. Don’t take advise from anyone who hasn’t done what you want to do.
I have an exceptional accountant who is a property investor and developer himself and who lays is all out in relation to my personal situation every time I make an investment decision. We look at how exactly this is going to impact me and how it fits into my future plan. What a find! (Happy to give you his name if you are in Sydney).
Don’t make any hasty decisions. Get good advice, put in place a plan and stick to it!
Hope this helps.
Cheers
Megan
[email protected]
http://www.propertyhub.netThanks gafama, I feel reassured by your common sense. It’s my husband who will be taking early retirement (we’re only in our 50’s), and we intend to still be working at least part time for a while so paying off a loan isn’t necessarily a worry.i also would hate to sell if we don’t need to. Our accountant just retired and put us in the hands of one who has just bought a new property so he sounds like he may know a thing or two, so I’ll be contacting him, thanks all for your help.
Robyn
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