Hi folks this is my first post,( I know its a bit long but everyone appears to really know what they are talking about so thought I would run this past you.)
About 10 years ago i bought my first property, as soon as I had about $12K equity I bought another property split level place up in the hills here in Adelaide. After about 1 year I utilised the increase capital gains on both properties and bought a unit close to the city. Then decided to move to the city and bought a townhouse off the plan. Whilst this was all going on I demolished my first property divided the land into two seperate titles and a few weeks ago both houses had the foundations laid and the first instlament from the bank was paid, so, what’s the problem you might say.
The problem is that I have put very little of my own money into this so I owe approximately 80% of the combined worth of the properties. Each time I have purchased I have utilised the increased capital appreciation. I now have a cash flow problem in that all my salary goes to pay all the mortgages whilst we live off my partners salary and rent. (actual saving is out of the question) I just have a feeling that while we have accumulated property we just may well be living on borrowed time.
Would it make sense therefore to sell both houses that are currently being built and thereby make a profit or hang in there ( they are in an up and coming area)and somehow work out a deal with the bank to get us over our current cash flow problem? Have I actually made all the stupid mistakes that novice investors make or what?
Hi dosser,
Sounds like you’r negatively geared and are having difficulty meeting your repayment obligations.You’ll probably get a lot of people recommending you go out and buy something cashflow +ive to balance the equation – nothing wrong with this strategy but it doesn’t sound like an ideal time to be doing it now.
Ae your loans I.O or P&I?
If they are P&I, i’d think about refinancing to I.O to help your cashflow, and also perhaps locking in a 3 year fixed rate while you’re at it to give you some certainty for future budgeting.You have to think about your future goals and what is the best decision to make to help you move closer to those goals. Will selling or holding these properties bring you closer or further away to these goals?
If you intend to continue with property investment, i would hang in there if i could – if you’re able to manage on one salary. Perhaps think about selling one of the new properties to help reduce debt, and/or to reinvest in something cashflow +ive. Rent out the other property and ensure you get a depreciation report done to maximise your deductions.
Maybe you could also review your rent on all propertiesd and see if a small increase will make much difference and bring some relief.
Some may be able to provide more specific and better advice if you supplied us with some figures on your rental, loan repayments and values.
All the best with it,
Quentin
Hi dosser,
Sounds like you’r negatively geared and are having difficulty meeting your repayment obligations.You’ll probably get a lot of people recommending you go out and buy something cashflow +ive to balance the equation – nothing wrong with this strategy but it doesn’t sound like an ideal time to be doing it now.
Ae your loans I.O or P&I?
If they are P&I, i’d think about refinancing to I.O to help your cashflow, and also perhaps locking in a 3 year fixed rate while you’re at it to give you some certainty for future budgeting.You have to think about your future goals and what is the best decision to make to help you move closer to those goals. Will selling or holding these properties bring you closer or further away to these goals?
If you intend to continue with property investment, i would hang in there if i could – if you’re able to manage on one salary. Perhaps think about selling one of the new properties to help reduce debt, and/or to reinvest in something cashflow +ive. Rent out the other property and ensure you get a depreciation report done to maximise your deductions.
Maybe you could also review your rent on all propertiesd and see if a small increase will make much difference and bring some relief.
Some may be able to provide more specific and better advice if you supplied us with some figures on your rental, loan repayments and values.
All the best with it,
QuentinQuentin
Thanks for the info, you have given me something to think about, I have recently refinanced to build the two houses, I have actually thought of selling one of them to ease the cash flow problem but that was my dilemma, hang in there and get abetter price in a few months or sell at current market prices. I’ll keep the forum informed how it all pans out.
cheers.
Just sharing my experience from about 3 years ago, when we didn’t know better.
We brought a townhouse and 2 apartments of the plan, and didn’t fully realise that this builder would be charging us progress payments.
The upshot was, a lot of financial stress, meeting progress payments on our income with no rental income for quite a few months.
We ended up selling the townhouse, minimal profit and many months later, having had them rented first, the apartments at a good profit.
If you are now building two units, and struggling with the mortgage payments, you should consider selling at least one off the plan.
I certainly slept better, having reduced the financial burden.
We do wish to build another townhouse on our own dual occ. block but are getting some rent from the existing house and plan to sell another subdivided block of land outright, before building to improve cash flow.
I don’t think a cash flow positive property will necessarily make it any easier.
I don’t want to be in such a tight situation again. Ultimately, you want to be able to sleep at night.Hi dosser
Are the payments that you are making currently the same payments ones building has finished?
If the payments are the same then renting out the two completed houses should ease your financial posiiton.
I would suggest you do a full financial analysis projecting your cash flow to ensure that there is enough.
If after doing this you find that there is an absolute negative then one option is to sell another option could be something called a cash bond (as per Steve Navra) which could tie you over. The cash bond can only work if the finished houses have some substantial equity upon completion ($100k)
Cheers
Just sharing my experience from about 3 years ago, when we didn’t know better.
We brought a townhouse and 2 apartments of the plan, and didn’t fully realise that this builder would be charging us progress payments.
The upshot was, a lot of financial stress, meeting progress payments on our income with no rental income for quite a few months.
We ended up selling the townhouse, minimal profit and many months later, having had them rented first, the apartments at a good profit.
If you are now building two units, and struggling with the mortgage payments, you should consider selling at least one off the plan.
I certainly slept better, having reduced the financial burden.
We do wish to build another townhouse on our own dual occ. block but are getting some rent from the existing house and plan to sell another subdivided block of land outright, before building to improve cash flow.
I don’t think a cash flow positive property will necessarily make it any easier.
I don’t want to be in such a tight situation again. Ultimately, you want to be able to sleep at night.Cheers Regina
Hope that this posting comes out Ok.
We bought the townhouse we now live on off the plan and financing it worked out well (although we did lose out on stamp duty). I guess my main concern is that we will be able to finance the two town houses we are building, but we continue to utilise the increased equity in our other properties to finance these deals. In short we have a number of properties but with dwindling equity in them.
I would love to be able to hang on to the houses because of the rising of value of property in the area,however ensuring that I have enough funds to manage it all is a bit risky in light of the current world crisis with Iraq etc. I appreciate your response Regina and will keep the forum posted as I act on advice received.
cheers
David
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