Hi,
Is it possible to use the equity in property to increase cash flow? I could buy another property with the equity I have in my properties but is there a way to use the equity in order to turn my negatively geared properties into positvely geared properties?
Any suggestions?
skyeboy
Without using the equity to buy more income producing property (or shares/business etc?) it is not possible to ‘make’ the property cashflow positive. Buying +ve cashflow property could offset the negative though.
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
Terry
Thanks for the reply. What about mezzanine level investment or other ways of investing the equity to offset the negative returns?
Skyeboy
You could always vendor finance the property to increase cashflow.
Enjoy
AD [:0)]
(Andrew)“Character cannot be developed in ease and quiet. Only through experience of trial and suffering can the soul be strengthened, ambition inspired, and success achieved.”
Skyeboy,
There are a number of stratergies you could use to tur your property into a =ve geared property using your equity. How ever this will depend on the proerty the value and the properties attributes. Here is two suggestions.
1. Do an option contract on the property selling for 20% per than its current market value and then prividing vendor finance to the purchaser in the form of a rentl agreement.
2. Use a small amount of your equity ie $5K to furnish the property and rent it out furnished.
At the end of the day you need to work out creatively how and or what you can do to increase your rental return.
regards
JohnAD and JohnD,
Thanks for your thoughts. If I go in the vendor finance direction won’t I loose out on the capital growth of the property?
skyeboy.
Skyeboy
You will lose any further capital growth by selling an option on your house or buy wrapping it.
You could make some money by doing Mezzanine finance. Maybe a better option is to use the equity to buy another property which you could wrap?
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
Well extra rent verses extra cost. So long as incremental revenue exceeds incremental expenses, your cash flow position will obviously improve. I guess the challenge is in finding how to generate extra revenue or rent in excess of cost. You could do the furnishing trick with a net gain after tax and depreciation, but then you may narrow your market appeal, thus with more risk. I mean most properties rented out are not furnished, thus this represents a bigger part of the market and thus arguably less risk from that standpoint.
I expect it to some degree depends on the type of property, the value of the property etc.. There are so many factors to consider. I think at the cheaper end of the market, fully furnished may have broader appeal, but that’s just a hunch based on the notion that cheaper properties may attract lower income tenants, who may be less likely to be able to afford reasonable quality furnishings and may not possess many furnishings of their own. I think this is a more risky end of the market in many ways.
Rather than furnishings, I would look at doing things that may attract tenants, without fully furnishing the place. Such as adding Air Conditioning, new curtains or blinds or carpet, paint job, new fixtures and fittings etc… these could be done even while you have tenants in place. You could negotiate via the estate agent for a rent increase if you add these little extras which you then claim on tax and get better rent for. End of day though you just have to do the numbers and see if it works and speak to an accountant who specialises in property
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