Forum Replies Created
Thanks Paul,
I'll take a look.
I am keen to understand this technique. I like your approach of setting up a VF deal to service a quality B&H.
I am keen to gain control a B&H property that has development potential (R30 upwards) giving me options down the track. However, although I have ample equity in my PPOR to set up a LOC for deposits my 9 to 5 is not able to service the negative gearing on the residual. I am hoping VF deals will come in and make up the difference.
My current LOC and my current 9to5 income servicability could allow me to gain control of maybe three properties of around
350K .I may be simplifying it a little but, at a minimum, how many VF properties do you usually set up to service a quality B&H?
PJ
Paul / Karen,
On average, how many vendor financed properties do your aquire to service one buy and hold?
PJ
Paul,
The vendor finance technique is very attractive for the reason you are using it. As a method to develop your servicability.
How time consuming is vendor financing? Are we realistically looking at running a full time business?
PJ
Hi Terry,
The company over the years has dabbled in many different ventures. Some successful, some have tanked. Currently it is a pty ltd company and I am the sole director/share holder. Its only form of income was the failed venture that was sold at a loss and has left this bad debt. The interest repayments are still rolling in and I am paying them using my personal salary. Just to keep the wolves from circling my PPOR.
I am not concerned about being able to use interest repayments to deal with tax. Tax is tax. In fact I want a tax problem because it means I am making too much money. The challenge I am trying to solve is the inefficient use of my cashflow. No problem paying interest, just not for a loan that is dead in the water.
You have confirmed what others have told me. I was hoping there was a creative way to solve the challenge.
It looks like the only way I can stop the flow of cash into the abis is to start another venture within the company and hope it generates enough income to at least off-set the debt (and that might be from a trust as mentioned) OR do a couple quick turn around IPs and pay out the loan to stop the cashflow hemorrhage OR win lotto.
Cheers
PJTerry,
At the moment my personal salary is being sucked into paying interest on a loan that is for nothing. The original loan was for a business that has been sold and unfortunately the sale has not paid out the original loan.Leaving me with bad debt. I have had to go and find a job to support the family and the bad debt. Thank god I have no mortgage.
I have no problems paying interest. I am happy to pay more interest if it was for a loan that is for an appreciating asset.
My thoughts (and they are obviously inexperienced thoughts) were to somehow change the purpose of the business debt to an investment loan by borrowing for an IP plus the amount of bad debt (using my family trust). Payout the bad debt and get it off the books. Close down that company and forget about. Move on.
I will be left with an IP that has cost me more than the asking price but at least my hard earned cash that is being used to pay its interest is going towards an IP and not just a hand out to the bank. This IP will be a -ve geared buy and hold and that's OK.
I may be way off the mark. Just trying to be pro-active about dealing with this bad debt. Some-how turning it from bad debt to good debt. "changing it's colour".
Maybe the only way to deal with the bad debt is to some how generate an income within the company that has the debt purely to offset it as you say.
Where I find the time to do that I don't know. I don't know about you but my 24 hours in a day seems to fly past.
I always appreciate your comments.
I am open to suggestions I can test with my accountant.
PJ
Guys,
These are issues I can technically sort out. But how do they stack-up when you do the numbers?
Do these type of projects ultimately always end up blowing out?
PJ
Hi Terry,
So, are we saying the only way i can pay this bad debt out is cold hard cash?
PJ
John,
I am in Perth. Any details would be appreciated. send them here : [email protected]
Terry,
I have enough equity to borrow an amount for an IP that includes the amount of bad debt. This loan would pay out the bed debt and purchase the IP. I would have paid more for the IP but I now have no bad debt loan draining my cashflow for nothing. This cashflow is now directed to the IP which at least has the chance to appreciate in value.
Thinking out aloud.
PJ
Hi John,
Thanks for the insight.
Sounds like you were in a similar boat I am in right now.
My objective is to, what I call, change the colour of the loan. From debt that is doing nothing but draw on my cashflow into debt which is for something appreciating my wealth. The obvious thing is to sell my PPOR and start agan however, that is an emotional step for my family and a definate last resort that may have far more damaging results.
John, is your original business loan now a 'different colour'? Is it now a mortgage or investment loan?
I have not heard of a mortgage originator. How do I find one to talk to?
PJ
Hi Guys,
How much cash should I have at hand? 40 – 50K?
How should I use this cash?
PJ
Hi guys,
Thanks for the feedback.
I have no debts. No credit card, no personal loans nothing. Other than a small mortgage of under 50K on my primary residence which, based on the sale price of houses around me, should be worth about 500K maybe more.
My income is 65K/year gross (total combined income). I don't know about you but the cost of living is sky rocketing and is quickly eating any residual income I can skrimp and save for and I am a very frugal person.
I am not sure I can manage working a second job. My hours now leave me exhausted. The further study is an option (which will cost thousands) to help increase my income.
How much residual are we talking about to start investing in a sustainable growing portfolio?
Knowing how much I need to generate will give me a target.
PJ
Hi guys,
Let me clarify, I am employed, I just do not have residual income.
After bills, family and health there is only enough left to put aside for those little emergencies we all seem to get. Just a few thousand a year tucked away.
It seems a pure positively geared property is an intermittent rarity rather than the norm. Which leaves negative gearing.
With no residual income that is going to be pointless.
I keep hearing these stories about people building million dollar portfolios with only an average salary. All within a 10 year time frame and on a single person income with little or no equity to start with!!
How is that done??
PJ