Hi Swampy30,

You have a good problem to have… A lot of available equity and good income, what to do?

Firstly, what you can borrow depends on what disposable income you have left after all existing financial obligations and living costs. This has nothing to do with the value of properties at all.

The solution is to visit with a lender and ask for a pre-approval. If, for example, you get a pre-approval for $450,000 then you know that you are in the market for a property in the $400K range (you need to leave some cash in the pot to pay for stamp duty and other expense). This will require cross-security against another property as there is no such thing as stand-alone 110% home loan.

A decent family house within 15km of capital cities in Australia for $400K is hard to find — unless you’re in Tasmania or South Australia. So if your priority is to house your young family in a nice family home, you will need to sell at least one of your existing properties to make up the funding shortfall.

One the other hand, if you can find one for $400K, then by all means keep all, especially if you are reasonably comfortable with the repayments.

With respect to being in the cash positive territory, this is not a problem at all. It would be more of a problem if you are in the negative.

Angel

MJ,

In a situation like yours, it is best for the family to go to a Financial Planner. Preferably, someone who works for the bank, who is on a salary, not commission.

I’m not implying that Financial Planners on commission are only after the your money. All I’m saying here is that those who work for the bank have not other motivation than you point you in the right direction.

Rulings on taxes can be tricky, you will need a pro who is up-to-date with all the changes in this very complicated area.

Good luck and take care.

Angel

Dear Quick chick,

In answer to your question, yes! The rent is to be reviewed annually. It has to go with the market.

Yes, there is a risk. What investment has no risk? Think about it, how many people have lost their cash investment. There they were squirrelling away every cent in the bank and before their very eyes the bank goes kaput.

To protect both parties, there is a clause that says the “rent to own” option can be extended. If that does happen, I will have to find a way to pay off the original vendors their 20%. But 5 years is a long, long time to prepare for that.

With property investing, if you pick well, time is your FRIEND.

Angel

Sean,

I appreciate where you are coming from. Indeed, how to start saving is the key to creating wealth.

Here are some ideas:

1. Start with 10% of your NET income. Put it away into a separate account and refuse any offers of your bank to have an access card.

2. I never used to believe in the concept of “a lifestyle I have gotten used to.” But in my old age, I discovered it is true. People get use to a certain lifestyle. And it’s really very hard to wean them off the cafe latte. So, here’s the clincher: there’s no easy way. You will go through withdrawals. From the caffeine, the late nights, the high heels, the hair dresser. But it must be done.

3. Make it fun. My family have a contest going, who got it the cheapest! The recognition is massive. I buy my children’s clothes at St Vinnie’s and the House of Salvos. In the Paddington branch, at Sydney’s Eastern suburb, I bought my son’s office shirt. Hardly used, and it’s the genuine article: Ermenigello Segna. He works in a law office, so he really looks the part.

4. Going to a sale it NOT saving money.

5. Cut costs. Easiest way is to rent a cheaper place. My nephew lives in a boarding house in North Sydney, walking distance from where he works. He has no utilities costs, no bus fares, no need for a car. He only buys food. For entertainment, he’s got Facebook. In one year, he saved $20,000.

6. Dating: geez, make this romantic. Together, plan to surprise each other with the “no cost” dating. Such as bushwalking, picnics. Australia is so beautiful, you don’t have to go too far to explore and be a tourist in your own backyard.

7. Get a second job, just for fun.

Just a few tips.

Angel

Dear Andy,

It sounds like a good plan. Speak to the owner with your good and genuine intention. People respond to that. Start with an offer of say, 7.45% (just an example) fixed over two years on a vendor finance term. Over two years, renovate to your heart’s content, increasing value but not overcapitalising. You certainly are on the right path.

There is a fallacy that you “find” cast flow positive properties. Well, you do, to some extent. But in reality, you “create” it.

Let me share a recent experience. October last year, I bought a property in the Northern Beaches. The property has 6 bedrooms, three bathrooms, walk-in robe in the master bedroom, gorgeous kitchen, backs into bushland and has 180 degree water views of Pittwater. It is high on the hill, so no tsunami in the near future.

Backstory: The couple were divorcing. As much as the property is well and truly gorgeous, they couldn’t shift it Nine months and four property agents later, they dropped the price from $1.25M to $970,000. I was stalking it from the beginning of 2010 with growing interest.

I thought, here is a couple, prepared to bargain off their home just because they can’t stand each other and the global financial crisis is in the way. Ummm… what to do?

I made an audacious move. I told the agent, I am prepared to “pay” $1.20M if they would accept $970K now and vendor finance the rest at NIL interest over five years. What have they got to lose? They will get their $970K now and more in five years. The couple agreed.

I still have the problem of where to find the money for the stamp duty which would be around $60K on a contract price of $1.20M. I certainly DO NOT have that much in cash as I am cash poor but asset rich.

Solution: on-sell the property on “rent to own”. Upon exchange of contract, I advertised it, requiring the successful applicants a non-refundable deposit of $40,000 (to go towards their deposit). I used the $40,000 to pay for the stamp duty and managed to find the rest to complete the purchase. So, in the end I bought a $1.2M property for $22,000 approximately. There is a loan of $970K on it.

The couple who bought it off me are paying the standard lease of $1,500 per week. This is the going rental rate per week for a property of this quality and scale in the Northern Beaches of Sydney. The suburb is Clareville, same postcode as Avalon.

The couple and I agreed on an a “price” of $1.6M, to settle in five years. With the help of an architect, they estimated the property to be worth around $1.8M to $2M in five years time. Giving them plenty of equity to buy it off me in five years, and I can also pay off the original vendors.

I hope this inspire some of you to “create” your CF positive property, too.

It doesn’t matter how much you dislike living in Sydney, keep at least one tangible asset in one of the most expensive places in the world. You can’t go wrong. With the number of migrants trying to squeeze themselves in this gorgeous city, and with the number of international investments pouring in, you’d want to keep a toe-hold, at the very least.

Once you divest yourself of all Sydney properties, you may not be able to buy-back in. You see, Sydney isn’t just the most expensive State in Australia. It is one of the most expensive in the WORLD. Meaning, it is PRIME holding. As in PRIME with a capital P.

Solution: Use a line of credit against the property to buy elsewhere if you can reasonably afford it.

I hope this makes sense.

Hi,

What is “seasoning?”

Angel