Forum Replies Created
- Originally posted by michaelv76:
Hi all, have almost finished reading Steve’s first book and i must say it has opened my eyes to alot of little things cant wait for the second.
I would recommend you read a little more widely and spend a great deal more time researching and learning. There are other books out there that espouse a different style of investing that may open your eyes equally or better than Steve’s book has.
As part of your education process it is important that you be ’rounded off’ so that you are wise to all possibilities and not just single dimensional.
For starters I would recommend a read of Jan Somers, Peter Spann’s and Michael Yardney’s books.
Then there are those that relate to tax and trusts written by Dale Gatherum-Goss which will also enable you to continue your education.
Anyway here is my situation, my father owns outright two properties, one which he lives in and one which he rents, both properties combined yield a value of probably close to 1.5million AUD, i have been trying to convince him to use the equity in those properties to invest but he doesnt seem confident in it.
It is possible that your father comes from a generation where debt is a bad thing and that he is very comfortable with what he has achieved and is therefore reluctant to take on more debt, probably at an age where he can see the end of his working life.
This is a huge hurdle for some people to overcome as their general focus is on being debt free rather than ‘wealthy’ – some people I work with took over two years for this to happen. So be prepared for a long journey.
Here is what i want to do, i want to go in to business with him, him being the financier and me being the invester, researching and finding properties (much like the way steve began).
If this is what your father wants to then you are advised to start very small – don’t blow him out of the water with grandiose ideas. He will be scared for the reasons I mentioned in my previous paragraph.
A better place to start may be a small line of credit established by your father and only sufficient for one property. Depending upon where you buy this would only need to be around 25% of the purchasing price.
My question is whats the best thing for him/us to do , would it be better to sell the higher valued property (worth about $1million) which only earns $550 per week rent atm and purchase say 3 or even 4 properties from the cash left OR to borrow against the two properties to purchase more? and therefore keeping the current properties, i can see in the short term we loose the rental income however my train of thought is longer term (not so long say 12-24 months) we can earn more money from say 3 or 4 rental properties than owning one and using the equity from it to buy another.
Under no circumstance sell either of these properties. While you are very cashflow focussed the real wealth is in equity and with equity you can always get aloan (if your father wants one).
A $1m property is quite likely to be in a quality area and will have good long term growth prospects. As it is debt free then it is earning an income, albeit at a low rental yield.
Selling the property will probably incur CGT (assume it was purchased after 1985) and therefore your father will loose some of his profits to REA fees and CGT. This is something that your father needs to consider as this property obviously has a place in his life and his needs should be considered first and foremost.
Damn i hope that all makes sense
I just feel there is too much money sitting in the two properties doing nothing when they could be making money.Don’t forget they are your father’s properties and they are doing something. They will be growing in value (in the main) and even though the market may be slowing (slow?) at the moment there will be a time in the future when your father will say “I cannot believe how much my property is now worth – it seems so expensive”
Anyway any advise you can give would be fantastic, offcourse i will be seeing an accountant and financial adviser but thought i could ask here first.
As said earlier ’round’ your education and consider your fathers feelings in this whole process. Start small, get the runs on the board and both parties seek good, independent legal and accountancy advice.
Derek
derekjones1@bigpond.com
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113
I just feel there is too much money sitting in the two properties doing nothing when they could be making money.
