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I think it will only have a neg impact on that house Ming.
If you are reasonably happy where you are now, there is no reason why you need to move in straight away; why not turn the house into an I.P for a while until you get yourself financial more secure?
You can rent out your home for up to 6 years without incurring any cap gains tax when or if you ever sell. The requirement is that you would need to move in for a period of time first, then move out and put in tenants.
As an I.P all the holding costs and the loan interest etc are tax deductible.
As a self-employed person your husband would probably be eligible for many of the Lo Doc or No Doc loans going around these days, but you would need to talk to an accountant and/or a good property savvy mortgage broker as well to set up the right loan structure for you.It's a bit of a "six is half a dozen of the other" situation, and the good news is that both directions are good; pay down your personal debt quickly, or invest the money in another asset. Either way you win.
Ideally, you should look to purchase a cashflow positive property that you can use the pos cashflow to also help pay down the debt on the first property along with all the coin you are making right now.
That way you'll have 2 properties, the new one will be costing you zilch, and you are still hacking down the loan on the existing one, while they are both going up in value. Yahoo!This is the big dilemma for everyone; think with the head or the heart?
The head says keep the cashcow block of flats and never sell them, and use the excess cashflow to pay down the debt on the PPoR. Have 2 properties gaining in value instead of one.
The heart says "own your own home", be debt free.Because I am not personally involved and have no emotional attachment I can say this:
The block of flats will continue to make you rich. It is providing $19k of passive income that is softening the blow of paying your mortgage on your PPoR, which is also an investment of sorts.
If you can comfortably handle the repayments as you say, then do not sell the flats; keep pouring every available cent into the PPoR loan, decrease that debt (and increase equity as you do it).
The chances of the entire block of flats being vacant at the same time is effectively zero, and even if they were, it would not be for very long if they are half decent, and on top of that they are very positively geared, so you could afford to let them sit vacant for a little while and it won't hurt you financially too much at all.
Based on those figures you are going to be out of pocket $500 per month on your rent versus mortgage, and that is GROSS rent. You need to factor in around 20% of the rent to be swallowed up in holding costs.
This means you will be out of pocket around $700 per month (approx $162 p/w x 4.3 weeks), and you will have another loan amount on your new PPoR to service as well.
It is hard to work out your financial exposure/position without other figures such as how much income you have; in your case you will be paying a new mortgage on a new PPoR, and there is no tax relief for this new loan amount.Basically, the Banks will take into consideration two main factors (there are others, but two main ones):
a) serviceability
b) LVR.Serviceability is your ability to repay the loans you are considering. Some Banks take into account the rental income, and up to around 80% of it (some will consider 100% I'm told). As a general rule, without factoring in rental income, you should work on no more than about 35% of your gross income to be used for servicing all loan repayments. More than this will probably incur undue financial strain.
Of course, these days there are numerous ways to finance property purchases, and when the rent is considered the equation changes.LVR is the Loan to Value Ratio; how much you owe divided by how much you own, multiplied by 100. This is the percentage of your ownership, and generally most Banks won't allow you to borrow more than 80%.
of course, as above, there are different financing rules and policies for each lender. Some lenders will allow you to borrow 100% LVR. Personally, I think this is a very dangerous level of exposure for most people. Life happens and if things go wrong you could lose your house.A basic calculation to help you work out your own answer to the SERVICEABILITY question would be to see if your total loan repayments for the two properties will be less than 35% of you gross income including the NETT rent income added to it.
Then add the two loans together and use the LVR formula (loan/value x 100 = LVR%) to see if you are under 80%.
If you are over 35% and 80% then this is dangerous exposure levels in my opinion. The problem is there are banks that will say "yes" and give you the money, but they are not putting their house on the line – you are.
"I have a $500,000 equity loan ready and plan to use this to gain further finance to fund the the whole thing, no money down. There should be enough in the Equity loan to repay the mortgage for 2 yrs with about $100,000 left over."
Good financial position to be in Anita;
This sentence is a bit confusing though; it sounds as though you are planning to use the equity to repay the loan on the new dream home?
If this is the case, you are really only using one loan to pay another. Unless you are paying some actual cash off the Principal as you go you are going to end up with your loan increasing – the interest will be "capitalising".
The problem with this is that you will have
a) a loan which is not tax deductible because it is your PPoR.
b) after a few years your loan will be higher than it is at the start.You get no tax relief on your loan, so you need to be able to carry the loan repayments yourself through Personal Income, and in the event that you lose your job, you get sick, your property goes down in value due to a slump etc, and a combination of these forces you to have to sell, then you will owe more than the home is worth.
If you really have your heart set on this house, it may be better to liquidate some of your investments and pay as much cash as you can for the house, Your exposure will be a lot less in the event of some adverse life event.
You can always access the equity to do more investing, and do 'no money down' deals where you can offset your commitment through tax deductions and income in the form of dividends or rent etc.Nothing since Aug 2005; in debt reduction mode until Aug this year when we have to settle on a block of land we bought on a 2 year settlement.
After this the cheque book comes out to buy up a post boom bargain. Time to go shopping.
Looking to buy a post 1987 dwelling in need of a reno, on a subdividable lot, in a high rent demand area, with strong prospects for future cap growth, and close to all amenities.
Ring up every agent in the area and ask them what vacant land they have for sale.
Go look at every block, then you can assess the value pretty accurately yourself,
OR, pay a valuer to value it officially.If you are based in Aus the opportunities are just as good there as anywhere else if you look.
the grass is not always greener.peterhutchy wrote:Marc ( L A Aussie) with the news article you supplied me with more or less proving my problems, what am I to make of it?It is telling you what you keep saying; it's all too hard.
As I said; I guess you were right after all.
As others have already said; if you think you can't, then you can't.
The only problem is, it's just a news story, generalising and being sensational as news stories are to get readers, but if the right (or wrong) people read these stories, then they start to believe them.
You can make of it what you like; are you going to say; 'yeah; I told you so' or are you going to say 'well, I don't agree and I'm going to make it happen for me.'
Get out there and find a way to make it happen.Sorry O.I.A;
I've been away for a few days; what is this relating to?It's probably a development company masquerading as an investment company.
No doubt they will be trying to sell you their over-priced "stock".
They will package it very professionally and make it sound very appealing.
Ask them if they mind you using these INDEPENDANT people to help you with your purchase;
1. Valuer
2. Solicitor
3. Financier.
If they are reluctant then run a mile.Work on around $12-15k per square for a total rebuild.
You can insure for more than it's worth to a degree, but then you have a more expensive premium.
Then again, it's a tax deductible expense, so; over-insure if in doubt.Selling with the tenants in there may actually work in your favour. If an investor wants to buy it they already have one of their problems solved.
In this case; don't worry about doing a reno, unless you are prepared to move the tenants out and pay for them to live somewhere else while you do the reno. Not worth the time and money and effort for a few extra thousand on the sale price, unless you are going to do a serious reno.
In this climate that may also be a futile exercise unless you are in a really booming suburb?We sold an I.P a couple of years ago with tenants in there. We gave them a 10% reduction in the rent for the duration of the sales campaign for putting up with the agent bringing people though etc. The tenants were happy and we got the sale. We spent nothing on the place before the sales campaign, and copped what it was worth at the time.
iI you want to break their lease you need to give them 90 days notice; check with the Tenancy Act in your State.
Good one Blogs!
I thought I was the only bitter and twisted one in here.
Just out of interest' what did you become?I haven't heard that name before.
I would assume a cashflow positive loan refers to a loan that provides you with a positive cashflow somehow.
Creative description; it sounds like a piece of hamburger mince being called a steak, but I don't know.
I've never seen a loan that doesn't cost you money unless it is attached to a cashflow positive investment.
Maybe post some details here and someone can analyse it for you before you do something.Back to my original post for a second;
I read a few days ago that many of the sub-prime lenders (the lenders who service the "marginal" borrowers) over here in the US have either gone bankrupt or have shut up shop. Lending will now become a lot tougher in the next few years, with only those with cash or equity deposits getting finance.
The result is predicted to be very fewer buyers, too much stock to sell = downward pressure on housing generally.It is my guess that this will flow on to Aus as we also have been active in these types of loans in recent months/years.
Unfortunately, Aus tends to follow the Yanks in many things and most of them are not good – daytime tv, reality shows, Aus Idol, celebrity worship, hip hop, rap, Iraq, anything Hollywood, massive consumerism, health care system, self absorption, bad manners, saying "like" every second word, corporate greed, wealth spruikers, that stupid "homey" fashion; what is that with your pants hanging off your upper thighs? (sorry; I digress – don't get me started).
So get cashed up and create a strong financial position and get ready to find some bargains.
Don't you hate that?
Tell the developer you cannot sign the contract as the solicitor has not reviewed it, and you will need to reschedule a date.
He will be miffed, but will no doubt get over it.
Better him not happy than you.The other problem with foreclosures in Aus is quite often the Banks don't want it known that the property is in foreclosure, and even when they are known they invariably sell for around market value anyway.
You could try doing a State by State broad search in your price-range on realestate.com.au and domain.com.au. Select all suburbs.
Australian property Investor Magazine also lists various hot spots and places to watch, the Financial review, BRW sometimes has good info.
There is also Terry Ryder's website; hotspotting.com.au.
There is also info available through Residex and RPData, but this isn't free.
