Hi All,
I just want to lay my situation down on the table for people to comment on and where to go from here [
]36 yo, Married, 3 children, we own our house ($450,000 approx) We have a IP worth $260,000 which we owe about $85k on. Rent from that is $800 a month so we are positived geared.
My wife an i have very low income at the moment because we are studying….but we have enough to live on. And we have no real debts.
My question is, how do i get another IP without putting my first IP into negitive gearing? And we do not want to touch the family home, that will always stay “safe”
HELP !!
Thank you in advance[
]“Greed is good”
Gordon Gekko (Wall Street)Gordon,
The debt on your first IP will still be $85,000 when you buy your second IP. Interest on this one should be around $450 pm (assuming you are on a discounted variable rate)You cuurently get $800 pm rent so you are $350 up. You will of course have costs say 150pm so you should be $200 up still.
If you buy another property and use the equit in the 1st IP to help you purchase it then the debt on the 2nd IP will be about 5-6% greater than the Cost. So for this property to be cashflow positive you will need a rental yield of 8%+.
What you might find is that the 2nd prop may be slightly cashflow neg. but overall you are still in a cashflow positive situation.
It is a bit complicated but you should treat the debt on each IP independently but maybe look at your whole situation holisticly.
You should also seek the advice of your accountant to do the numbers for you as tax benefits may help put you further in the black.
Petters
Hi,
Have you set up a family trust, or just bought the IP under you and/or your wife’s names?
I agree with Petters, use equity from IP to fund another IP. If the house is worth 260K and you owe 85K, then technically you have 185K, equity (correct me if I’m wrong). There are ways to buy IP with no money down, or little money down. Considering you both have low income due to studying, it would be wiser to go for positve geared, just in case a real big expense comes along (g-d bless children [])
Petters, have you included costs involved in purchasing the new IP, to come to the $200 up a week figure? I’m just trying to work out your figures [].
Have you got a good accountant?Cheers
Sooshie []There are no problems, only solutions
You could use a LOC secured on your 1st IP (and another on home too). Use this as deposits for more IPs.
If you use a low doc loan, you could tel hte bank your income without providing any proof. You could buy many properties with your current equity and this could generate a large income!
Terryw
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Sooshie,
I did’nt think too hard about the figures but I did throw in $150pm for costs, to come up with my $200 pm guestimate.
I hoped to show that Gordon’s situation overall could still remain positive even if he bought a property that was negative on it’s own.
I really think that the key for Gordon is to get advice. The one thing that I beleive in, is that you should never be afraid to pay for good advice and support. Even when you have multiple properties there is always someone out there that can show you something to save you time and money.
Petters
Hi Gordon,
You mentioned – not using the family home (PPOR)and being “safe”. When planning on investing you must always think with the end in mind. As Sooshie mentioned do you have a family trust? did you buy your current PI under a trust? I’m assuming you are a very conservative sort of person from your comments, therefore a family trust with a company acting as a trustee has been suggested to maximise security. However there are other types of trusts and structures. For this you need to see an Accountant who is fluent in the property language and also is an investor himself/herself. He/She can give you the right advice for your situation.
Regarding your property portfolio –
You have a home that you do not wish to use to leverage and you are both yourself and wife on a lower income with 3 kids. You also mention that you have enough to live on and are also studying.
This tells me simply that you need to go for more cashflow. A negatively geared property would not be the go here unless you were going to leverage your home.
If you want to continue enjoying your current lifestyle or improving it, you need to look at cashflow positive properties. You can definately afford some as these properties are generally on the cheaper end of the market. Also do not count on much Capital Gains here, you may get some but the point of the exercise is to get some extra money into your pocket.Regards,
Mannie.“It’s too late to go back and make a brand new start, but from today you make a brand new end”.
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