All Topics / General Property / Can anyone offer advice?

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  • Profile photo of russboothrussbooth
    Member
    @russbooth
    Join Date: 2003
    Post Count: 3

    Hi,

    I have read the chapter in the book regarding wraps. It sounds like a great idea but I still haven’t got my head around it all. I don’t quite understand why these people would not just refinance at a lower rate sometime down the track. Leaving me with a problem of paying off loan. I believe you can lock them in for a certain period of time, but this is by no means permanent.

    Anyway, this is my scenario: I own a negatively geared property in a satellite city outside Melbourne, owing approx. $132,000 it is valued at around $200,000 and I have held it for just under 6 yrs. Initial cost was $116,000 + costs. Rental income is $180.00 per week and loan repayments are $215.00 per month at 6.57% P/I. This includes costs for rates, insurance etc.

    I have had the “tenants from heaven” in the property for the past 3.5 yrs. The tenants have completely set up the gardens & put new plants & shrubs in, and more, at their own cost (they would not accept money from me). They have also just recently repainted the exterior of the house at their own cast (I have informed them I will reimburse the costs, and they have reluctantly agreed to accept this). They also always pay their rent on time.

    I feel they may be agreeable to a wrap if I could provide a win / win situation. Could anyone give me an idea as to how I could set this up? Any help would be appreciated!!

    Thanks!!

    Profile photo of wilandelwilandel
    Member
    @wilandel
    Join Date: 2003
    Post Count: 761

    Hi Russ,

    Sounds like you really do have tenants from heaven!! You are very lucky.

    As far as the wrap senario, if I were you I would re-post this thread in the wrap section. You will have more takers….[:)]

    Because the house has appreciated quite a bit in value (to $200K), you generally add around 20% to the asking price, making it around $230-240K. You can make the asking price what ever you want, don’t rip yourself off, but on the other hand don’t make the house too unaffordable, or it defeats the purpose.

    Interest rate is usually set at a margin of around 2% above your interest rate, ie.. approx 8%+.

    I haven’t got my financial calculator here at the moment, but for many tenants this price range would make owning the ppty much higher than what they are paying in rent. For some tenants (depending on their income) this may not be a problem.

    Good luck,

    Del

    Profile photo of dagsthedudedagsthedude
    Member
    @dagsthedude
    Join Date: 2003
    Post Count: 26

    how is this property negatively geared?

    Rental income is $180.00 per week and loan repayments are $215.00 per month at 6.57% P/I. This includes costs for rates, insurance etc.

    $9360 p/a rental return
    $2580 p/a mortgage costs

    $6780 cashflow yes?

    you also have $68000 eqity for leverage into other properties man.
    Not too bad a scenario to be in

    dags nobody
    the hippie investor

    Profile photo of Mortgage HunterMortgage Hunter
    Participant
    @mortgage-hunter
    Join Date: 2003
    Post Count: 3,781

    Can I ask what your motivation is to wrap the property?

    You already have the perfect tenants. By wrapping you will limit your growth potential for a marginally higher cashflow.

    I am not suggesting that it is a bad idea – just genuinely curious as to why you are considering this path.

    Regards,

    Simon Macks
    Mortgage Broker
    [email protected]
    0425 228 985

    Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of russboothrussbooth
    Member
    @russbooth
    Join Date: 2003
    Post Count: 3

    Hi everyone and my apologies for some misinformation in my previous post. Firstly thanks for taking the time to respond to my questions. There are several glitches in my request. The loan repayments I referred to ($215/month) were the top up amounts after deducting the rent. ie Loan repayment/ month= $938.00 – $723.00 (rent minus agents commission)=$215.00.

    The big booboo was the fact that this figure did not include rates,insurance etc, as I previously suggested,this is another $162.00/month. ie total cost per month $377.00 out of my pocket.

    So Loan is $11,256.00 and rent is $8,676.00 plus rates etc are $1,944.00. This property is not positively geared, hence the reason I wondered about wrapping. As I mentioned before I do have the tenants from heaven.

    Once again sorry for the incorrect details last post, I can only blame it on too many nightshifts, I hope someone can point me in the right direction.

    Profile photo of melbearmelbear
    Member
    @melbear
    Join Date: 2003
    Post Count: 2,429

    Russ

    If the cost coming out of your pocket per month is a concern, consider changing to Interest Only loan. By my calcs, that would reduce your payment to $166 per week – less than your rent. You then would work out if that other $14 per week could cover other costs. It would certainly increase your borrowing power.

    Cheers
    Mel

    Profile photo of russboothrussbooth
    Member
    @russbooth
    Join Date: 2003
    Post Count: 3

    Hi and thanks Mel for your response, yes I was considering going back to an interest only loan.
    I was made redundant in Sept 2001 and as a result I was forced to sell one of my properties (I had two then) and converted to P&I as I was out of work for almost 2 years. I will be considering refinancing very soon.
    Thanks again

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