The eternal dilema. We could sell our home and net around 750k in cash. Releasing us from a 35k per year mortgage. But what to do with the cash? We both currently work and bringing in 240k gross, but we have our 3 kids in private school which costs us aroun 50k a year in after tax dollars!!!! Thankfully one only has 3.5 years to go, but the other 2 have another 6 each. So we are currently spending 85k a year.
So what could we do?
We could buy a place for 750k and have no mortgage and put the 35k a year into a mixture of property and shares? Though the wife would probably move to part time if we did that – don’t blame her.
Or we could rent somewhere and invest the family fortune?
We currently have 2 investment properties, one cash negative, and one neutral, but I will be b%%##ered if i can find one that is CF positive.
Confused…? Happy to take any advise from others.
Hi fishman,
It is difficult to suggest because I am not clear on what you want to ultimately achieve. The strategy you choose to employ will depend on what your end goal is eg; Do you want to want to retire in 2 years? keep working and create a passive income ? keep accumulating wealth ? or do you simply want to have enough money to cover school fees?
The exciting thing is you have soooooo many options. You just need to find one that gets you to where you want to be with the least amount of hassle and lowest risk.
The main thing that stands out to me is that you probably need to have a high level of tax deductions to bring down your tax rate. Have you got depreciation schedules done on your two IPs?
I will have a think about your situation and come up with a few ideas and I am sure other forumites will too.
I will be watching this post with interest.
Best wishes.
Todd Burns
http://www.freepropertyhelp.com.auThe trouble is if you sell, then you are losing your only CGT free asset, and you will have to rent somewhere else anyway – or downgrade as you suggest.
What about just borrowing against your current home and investing more?
Terryw
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I think Todd has hit the nail on the head, and it typifies our situation. We are unsure what we want ! Doing this has forced me to actually view it more dispassionately.
I suppose we really want to have a little non deductable debt as possible, which is why selling the home is good. It also relieves the burden of cashflow out while school fees are so high. I would like to grow our wealth that’s for sure. If we buy another cheaper place for 850 – 950 then we will have a smaller more managable mortgage leaving us more cash for paying it off quicker. We can also use it as collateral to buy more properties, then all that debt is tax deductable – no bad thing.
Hi Fishman,
My partner and I were in a similar situation as you and your partner though we were not going to realise as much capital, but selling our PPOR would release us from mortgage commitments of $30,000/year and unlock $250,000 equity.
We decided to sell as we could rent a similar place for half the amount of mortgage repayments, we did not want to have to service a larger loan if we just borrowed on the equity and we weren’t comfortable with having so much debt on our family home if we did unlock equity. Also we feel the market is soft at the moment and we weren’t expecting any more significant capital gains on our PPOR.
Our PPOR settled end of Feb, we have since bought 3 (soon to settle) positive cashflow properties, are renting a great house with great facilities and have so much more disposable income thet we can actually add $500/week to our invest account and not scrimp on lifestyle.
Just thought I’d share our experience.
Cheers [biggrin]Hi Fishman,
You have taken the time to detail quite a bit about your particular circumstances. Any good FA would want a truckload more details before they ventured any comment whatsoever…..but fortunately out in cyberspace we are not bound by those ridiculous legal restrictions….so I am free to comment at will, knowing that you can’t come back and sue me later on.
*** Disclaimer Note : Your question is an all encompassing financial and lifestyle change and strangers like me have no real place to comment. The massive changes required to turn your ship around will impact your immediate family members ALOT…..they are the ones that will need to be convinced if you are to have the slightest chance of succeeding.
You are receiving the “comments” for free and they will probably be worth as much…..I spent considerable time thinking about my response before writing anything. I hope you take it in the spirit to which it was proferred.
Your ‘situation’ is one that we purposefully avoided, despite the lifestyle gurus slagging us off, and went through 3 years of hard grind so we wouldn’t end up where you are now. However, this is of no consequence to you at all, you are only interested in getting out of the hole…..and of course, as one of the forum people’s signature says “First – stop digging.”
Hopefully, by now, you have all sat down and had a frank and full discussion with all of the relevant family members attending. Any measures taken is going to affect them greatly. If any of them are not included, there will be enormous “pushback”, as they will have grown accustomed to the lifestyle standard by now. This goes triple for your partner. You are obviously feeling the pinch now, hence the question, so something has to give……your only real question is what ?? The most common answer to that question is usually – nothing – we are not prepared to give up anything…..what will my family and especially my close friends think ??
If I was dirt poor, I’d suggest selling your 2 IP’s and carry on living to the same standard you enjoy now…..entrenching those high NTDD (non-tax deductable debt) habits. All family finance issues would be sacrificed at the “lifestyle and image” alter.
If I was your average smo, I’d probably suggest selling the house and downgrading, or rent in the area…..but essentially entrench the lifestyle habits that you currently enjoy. Keep the 2 IP’s ‘cos they might go up in value one day. Most of the family finance issues would be sacrificed at the “lifestyle and image” alter.
If I was wealthy, I’d grit my teeth and brace myself for some very painful, personal and family economic vs lifestyle choices. I’d also get my pen and paper and calculator out and start doing alot of sums, fully prepared to sacrifice whatever it takes….short term….(read 5 years)…to get back on a decent track.
At 35K p.a., you’ve probably got a 0.5 MM mortgage, and therefore the house is worth about 1.25 MM. As Terryw suggested, this is growing in a CGT free environment…..which is a good thing. If you keep it, which would be my suggestion, the family can stay in one spot and your family life isn’t uprooted completely…..this is obviously good for stability purposes. Once this is committed to, you are really only then tinkering around the edges. This tinkering will still cause many fights and arguments with the resistance from all and sundry who want to carry on the way they are. There are many shades of the reaction you will receive, from a concerted knuckling down and tightening of the belts (the best), right the way through to the ugliest scenario of all…..the big D.
So, if you are going to stay in your place…..nothing has actually been sacrificed as yet…..and at 240K p.a. gross combined salary, many people in Oz would probably be shaking their collective heads thinking….”You’ve got to be kidding me, they can’t make ends meet on that ?? We can just barely survive on one wage of 30K p.a. with 5 kids and a mortgage…..no luxuries at all but we get by….”
Best thing for you to do is draw up a budget and then put everything – and I mean everything – on the table to sacrifice…..and then strip off everything that is a “No Go” area……naturally everyone will take the lot and you’ll be back to square one.
If it was me personally, I’d whip the kids out of private school in about 10 seconds flat, and let them enjoy our semi-fee-free education system. Many people would disagree with me….but then they may have more money than you do.
The flash cars would go, the electronic gadgetry would go, the dinners and functions would go, and most important of all….I’d go straight up face to face and address the female friends and family members who inevitably will be on your case to continue living the life you are currently doing.
I don’t envy you my friend…..some tough decisions are on your immediate horizon, having been put off for many years…..but take comfort from the fact that there are probably many many thousands of families in the exact same predicament, with no-one willing to budge on their lifestyle expenditure and quite happy to go down with the financially sinking ship, desparetly clinging to the mast as it sinks under the waterline before being prepared to sacrifice what it takes.
In the family – collectively – are you all willing to do whatever it takes ??
P.S. Jan Somers had an almost exact carbon copy of your situation in her 101 stories book…..Jan, after giving one of her seminars was approached and tried to give advice to a woman who almost described your situation to a tee…..the end result was that the woman was not prepared to sacrifice anything – not a single jot, despite having a 200K p.a. salary and found herself without enough money to put food on the table. Jan walked away staggered that the family was unwilling to curtail their extravagant lifestyle in any way so they could eat properly.
what you see as a problem i see as an opportunity.in your case to secure a financial future of miilions.on 240k pa you are both paying heaps of taxand getting no thanks for it .true?
i cant see why you cant get a line of credit or at worst x coll go lo od cif the banks give you a hard time or find a good broker and make your equity work for you because all you are doing now is working for yor equity.
set your self a goal where you want to be in 5 10 20 years whateverand stick to it.
i earn a heap less than you and believe that capital growth is where the money is cf plus is great but you need consistent growth .i tip in my tax break plus about 120 p w post tax dollars a week to keep my portfolio going.what i tip in is about.0.68% pa of the total value of my portfoliowhich i see as a sound investment.if i was in your predicament i would be sipping pina coladas in north queensland in 5 years not working another 8 years as i plan to.good luck try and be positive.rome wasnt built in a day
glenn
never never never sell
As I was reading Dazzlings post all I could think was…wow, what we have here is a major case of sour grapes. Good on you Fishman, it’s clear you have many options at your disposal. Despite Dazzlings jealous, jaded view that you are extravagant and headed for disaster because you have a high income and children at expensive private schools, I think you’ll do very well.
Also Dazzling, you talk about ways to create wealth in your posts, so I wouldn’t be recommending removing children from private school education. Statistically the majority of university places are won by private school students, and statistically, tertiary education means a higher income – with which to put towards property investment.
There’s also no nobility in living like a monk, and with a good income you can have a decent, reasonable living standard and still invest. And what’s with the obsession about female friends and family constantly sitting in judgement, people trying to look wealthy, and the assumption of flashy cars and gadgetry in fishmans situation…talk about an obvious complex.
I would hang in there until the kids finish school, tighten the purse strings pay down the PPOR, maybe another IP, then see how things look. Then again i am not you. All said and done i would do what is right for my immediate family. The rest of my family and friends can all take a running jump. As far as Private schools go i was not keen when my wife wanted to put our 1 kid and 1nearly ready into a private school as i just passed year 10 and have had the opinion that unless you know what you want to do ie doctor, or something that you might as well leave at year 10 go and earn the big dollars. I have have had to change my thinking, these days year 12 seem to be standard for education, i am already having trouble with year 3 homework. Our school is only 3k per year but the thing i am wraped with is 1. No bullys or violence, 2. No drugs, 3. No problems with kids friends 4. The teachers are great and love their Jobs. ( It is a Christian Community School with only 250 kids).
I don’t want to turn this into a private v public debate this is just our experience.
RoboLots of helpful advice coming through here.
I would just add, that if you haven’t read Steve McKnight’s two books, then may I suggest you do so. They are goldmines in terms of setting goals, and realising that you can do whatever you want to do, (health and sound mind permitting).
The books are a cheap investment, but worth their weight in gold for the insights they offer in terms of our lifes’ journeys, including yours, I’m sure.
Start with 0 to 130 Properties, then $1,000,000 in Property in One Year.
HTH,
JBOriginally posted by petelangton:As I was reading Dazzlings post all I could think was…wow, what we have here is a major case of sour grapes. Good on you Fishman, it’s clear you have many options at your disposal. Despite Dazzlings jealous, jaded view that you are extravagant and headed for disaster because you have a high income and children at expensive private schools, I think you’ll do very well.
Also Dazzling, you talk about ways to create wealth in your posts, so I wouldn’t be recommending removing children from private school education. Statistically the majority of university places are won by private school students, and statistically, tertiary education means a higher income – with which to put towards property investment.
There’s also no nobility in living like a monk, and with a good income you can have a decent, reasonable living standard and still invest. And what’s with the obsession about female friends and family constantly sitting in judgement, people trying to look wealthy, and the assumption of flashy cars and gadgetry in fishmans situation…talk about an obvious complex.
Excellent work petelangton, [blink]
Fishman was in a bit of a quandry and asking for opinions on his situation….in fact he asked at least 4 or 5 direct questions. If you have a read back over what you wrote – you addressed none of his questions.
I’m thick skinned enough that anything written is water off a duck’s back. My view and opinions are very warped indeed…compared with the average investor, and probably don’t sit well with the majority of investors…..but then I don’t want to be like the majority of investors.
My post is there to freely tear to shreds and smash to pieces if you so wish, but I fail to see how that helps answer Fishman’s direct questions.
Instead of concentrating on my post, which was quite directly pointed to Fishman….howzabout help Fishman out and directly answer some of Fishman’s questions with your weight of knowledge and experience….I’m sure he’ll thank you….
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