Would love to hear about your seminars … Number 8 …. I'm actually interested in education!
I've been in Finance for 10 years and my collegue Allistair Bell has been in Property and Finance for 10 years also, and guess what …. we dont know everything!! But we have a great deal of knowledge we like to share …. for free!
If you have knowledge you'd like to share …. would love to to hear it!!
Or maybe you're not really running free seminars???
Now that you have bought a property and improved it …. it's time to see what it's valued at so you know what your available equity is to put a deposit on your next property. You can start by looking at properties on realestate.com or have a real estate agent appraise it (with evidence of same or similar properties in the same area. It can often be a good idea to get a valuer to value it properly. This may not be necessary if you are clear from your intial research that you have plenty of equity available to purchase again.
Depending on your income serviceability you can usually borrow 80% or even up to 90% (in some cases 95%) of the value of your home. I'm assumung you are living in the current house.
Make sure you set up your loans correctly and separate your personal debt from your investment debt for taxation purposes.
We also run seminars on how to structure your finances correctly and how to make money investing in property and how to buy right! These seminars are totally free. Cheers.
That's a sure way to scare the living bejesus out of someone ….. one way to kill off all possibility for sure!
Jezzaust,
Ultimately as I'm sure you're already aware, you will have to choose what to do. Forums such as this are great ways to ponder ideas from others and then ultimately waigh up the pros and cons and choose.
You should start by looking at what your investment goals are for the the next 5 and 10years. It's also a good idea to follow what you are passionate about. For instance … if you are passionate about property, then making some mistakes will be a learning curve on your journey not something to scare you away from having another go.
Naturally there are considerations to take into account for investing in shares …. market flictuation, what strategies to use, short term, long term etc etc etc.
There are also many things to consider in property. One thing though, is that history has shown, even through down-turns, property has always doubled in value in 7-10 year intervals. This is what makes property very attractive, apart from rental values increasing as well.
Both sector will require you learning, growing, and likely, making some mistakes and learning from that. If you dont have a go, you'll never reep the rewards that are available.
Your thought process sounds very reasonable and you're in a great position to continue to grow your investment property portfolio. I'm quite partial to property as it is a passion of mine, hence we hold regular property seminars free to the public (free public adverisement! Yay! )
I'm not passionate about shares and can't advise you on that area as that's not my expertise.
Many people would give an arm or a leg to be in your shoes and have the possibilities you have in building a portfolio in property (or both). There are a great deal of strategies to profit hansomely in property, including how to learn how to purchase property with virtually nothing down.
Sorry for the late reply …. been flat out working all day and till 8.30pm tonight. I had intended replying to you earlier.
I hope I can shed some light on this matter for you.
There are 2 general ways you can sign a contract to build.
1. Find the land and finance it with a land only mortgage. Land only you will generally only get 80% LVR. Meaning, you will have to put in the 20% Deposit plus settlement costs (say 4% depending in which state, I'm in QLD) and commence monthly payments, preferrably Interest Only. You can access this from your equity by extending or refinancing your current mortgage. Whilst you are doing this you should tend to making sure you set up your mortgage correctly keeping your P&I PPOR debt separate from your investment debt for taxation purposes.
When you are ready to build, sign a builders contract, you can then finance 80% of the building contract or upgrade to 90% of the build and also 90% of the land you financed earlier. This is depending on your serviceability …. what you can afford to borrow for investment purposes based on your combined income and rental income from the new property. It is often a good idea to put as much of the debt for investment purposes against the asset in question itself, so most people will go to 90% if possible and appropriate for your investment goals.
Once you start building the loan is drawn down in progress payments after a valuer inspects every step of the construction and signs off on it on behalf of the financier. It is common to have about 5 or 6 progress draw downs meaning you will have a cost of valuations each time although they are usually cheaper than a standard valuation.
With this method you will be incurring loan repayment all the way thru till completion. They will start low and increase until the loan is fully drawn for the construction. Note: Make sure you dont make any changes or variations to the building plans unless your financier knows about it and approves it … otr else you will have to pay the additional cost out of your own pocket, or make sure you have extra funds available in your initial upgrade or refinance.
2. This is not always possible, but negotiate a deal with the builder to do a house and land package and that you request the purchase contract to be actioned on completion/ final lock-up. Usually you will have a better chance of doing this with a house and land package rather than a standard build for a number of reasons. a. The builder will be building on your land. I wont go into detail but you probably already get the idea this can get really messy and the builder has many risks to consider. b. With a house and land package, the builder usually owns the land and prfits from both land and the build so they may be more inclined to buiold it for you and settle on completion. They also have the option of selling it to someone else at a higher price if values increase whilst they are building. In some instances, you can benefit this way too by signing a fixed price contract, if the value increases by the time it is complete.
Note: You mentioned you thought you have $400K equity. That's true however, you want to be looking at accessible equity. The equity you can actually take out to spend. Commonly you can access 80% of your PPOR value and avoid mortgage insurance costs, or extend to 90%. It could be of benefit to start with 80% then when you need to access the extra 10% you can upgrade again and only pay the mortgage insurance on the 10% rfrom 80% to 90% instead of the whole loan amount if you exceed 80% from the beginning.
In relation to yur CGT, I believe you are correct that it reduces after 12 months, however, I'm not an accountant and can't advise you on that.
I hope this helps …. you also might like to come to one of our next seminars led by Alistair Bell to learn how to buy right and make money investing in property. Alistair is a very accomplished property developer over the past 10yrs… you can google him and see what he's up to at the moment. All of our seminars are totally free, very educational and informative!
Based on your answers to my questions above…. I can hear that you are attached to selling, although are unable to sell. So, if you are committed to sell …. then you need to put your attention on what type of buyers are buying what you have, and where are they. Start teaching the real estate agents how to work with you …. they are hungry for the sale also, so maybe you can appoint a couple or even three agents and take away the exclusivity and make them work for the sale and their commission. In other words… have them committed to selling your property. Make it worth their while. Do your research.
A property is always saleable …. you just have to work out at what price, or who is your target market. You may need to fire-sale it. Many smart builders and developers today are having fire-sale prices in mind ( basing feasibility on worse case ) when taking on their projects. I'm sure you agree… it's a learning curve …. you've gained some valuable experience on what not to do and the homework you need to do next time. Alternatively, you could access a totally diferent buyer market …. eg rent to buy? Investors looking to flip the property by purchasing it at a discounted value and passing it on to another buyer that they find at a margin for themselves. Often extended settlement terms will be very attractive to this type of buyer. Get familiar with, and promote the benefits and selling points of your property… what does it have going for it over other properties? Why shoudl someone buy your and not the one down the road?
Once you work out the above things will be much clearer.
The next thing to consider is … why and how could you hold the property. The first thing you would need to do is restructure you finances. As you pointed out, the current structure of P&I was suitable for personal owner occupied debt, but is simply not suitable nor viable as an investment property for many reasons. eg Little or No tax benefits available from the current structure. I'm not an accountant so I cant advise you on that area. Your repayments are too high, causing strain on your cashflow … hence why it needs to be an interest only loan (also for tax benefit reasons) and taking the term back out to full 30yr term wil also further lower your repayments and inprove your cashflow. This could also be in some ways applied to your other properties and further improve your cashflow to take the imediate pressure off your finances.
The next thing to look at, now that we have touched on your outgoings, is to look at the flip-side and assess whether you can impact your income … eg rent. Can the property gain higher rent? simply as an example … can it be subleased to students, is it suitable for executive housing with multi-national companies looking to provide housing/rental packages to their senior staff, Can you value add to your property to put it into a higher rent range?
I hope this helpsand opens your eyes to what is possible…. that's where your answer lies …
There are always a number of factors to consider when looking to sell an investment property. It is no surprise that you are struggling to gain interest in a $700-800k property in the current market, as there are subsequently less investors in the market and less again of those looking to invest in that price range.
Selling or holding the property will come down to what your intention is, regarding your investment strategies, whether you are chasing capital growth – short or long term growth, cashflow or value adding.
Here are some questions to consider….
1. Can I afford to hold the property to capture growth in the coming years? (from history, property doubles every 7 – 10years) 2. What will I do if I see this property now? What are my next considerations? 3. What other options do I have? 4. How is my overall portfolio sitting? 5. Will selling conflict with my investing goals? 6. Will holding conflict with my investing goals? 7. If I sell, what other opportunities can I take to regain the loss quickly? 8. If I hold, will this rule out other possible opportunities available now?
As you can see …. the question of selling or holding is dependant upon what you want to achieve overall. When you work that out … the answers will come to you and be obvious. Your choices should always be a match for what your goals are for the future.