If you had the choice of:
A)Purchasing a really cheap (country)positive cashflow property, or
B)Sitting on the funds (say,leaving in ppor loc accnt to reduce interest) ,or
C) “Other”
What would you do?
I am looking for ideas to suit my current situation.Hi Misty1,
That’s a toughie!!!
It really is a matter of personal choice. But certainly one major fact which requires consideration before making a decision either way, is exactly HOW MUCH money and/or HOW CHEAP a price are you referring to????Jo
About $50k.[confused2]
Hi Misty1,
Sorry I am not being real helpful with this question for you, but the answer is really a matter of what YOU want to do.
If you would prefer to reduce your interest on PPOR LOC (and on 50K that may save you an approx. $300 per month) it is certainly a sensible option…….HOWEVER, so would purchasing a cheap property with good (say 10%) rental yield. BUT….it depends on whether you really want to spend the money on a cheaper +CF property (bearing in mind, the additional costs associated with IPs, thereby reducing your net return). Also bear in mind, the type of “cheap” property you are looking at; does it have good CG potential, the town’s population (size), amenities, condition of property (does it need alot of work), vacancy rates and so on.
What would I do….ME PERSONALLY, I would reduce the interest on my LOC; $300 per month saving is damn good.
But hey, as I said, it is really a matter of what suits YOU.
Cheers,
Jo
Misty,
It IS a hard call. I know people say ot pay off your PPOR asap because it is non-tax dedictible (in investing terms, a liability, not an asset) however, I would be putting that money into IP’s. I don’t have a PPOR myself, and I am not sure I’ll ever have one (maybe when I’m much older), so all my money is cash generating, or “working for me” as they say.
It probably all comes down to a comfort thing- if you want your PPOR to be safe, then pay it off. Or gamble a bit on investments. Probably your accountant could do a bit of a projection thing for you and tell you where you’d be in 5 years time financially if you bought the IP. 50k for an IP these days is cheap (if it’s a good one). I’d go the IP.
kay henry
Hi Misty, find myself in similar siutation. Buy a cheapie (+ve geared) regional IP, or other.
My concern is the CG issue, what if it just does not appreciate and the rent gets eaten away by repairs, as property is old….. and then you cant sell the IP as no one wants to live there.Sorry, I’m not providing much help…
Marisa,
Sometimes, there is a reason property is pozz geared. As depreciator said elsewhere on this site, some people are still paying above market prices to buy a place that might not be worth the sale price, but to still achieve the yield.
I reckon, if a place is old, might need rewiring, restumping, new roof, etc etc, then you might be paying for land value only. Many rural places have land value of only about $1000. So if you’re paying 50k for a place, but it is gonna cost you another 50k to fix up.. will it still be pozz geared? Or would you have been better off buying a place that is 100k, has no problems with it, has more potential for CG, has a larger population for tenancy etc.
You would still want to “buy well” even for a pozz geared place. While I know the theory is that CG is a bonus for pozz geared places, and income is the most important factor, if your income is less than expenses (and some of these places may have a pozz cash flow of $25-40 a week- meaning that rewiring etc might eat away all your profit) then you might want to give that deal a miss.
Cheapies are great! But you’d want a cheapy that is not gonna make it an exxy! Whilst repairs will all be tax deductible, your gold mine might close down just after you’ve purchased it.
kay henry
If, as Monopoly points out, you’re improving your cash flow by 300 per month, I’d pay it off the PPOR LOC, and keep looking around… that way you’re in a position to pounce on a great deal if one bobs up..
cheers
rWhy not do both?
Reduce the amount of your LOC by $50000 then borrow to buy an ip (or two or three depending on how cheap & country you want to go…) using your newly generated equity
thats what I’d do…
cheers David
I wish,David! Can u elaborate on what u r suggesting? B/c i cant see how i could do both. Not without re-val’s showing an increase in equity from 2 months ago[glum]! The $50k IS from loc, so how do u think i could use it to reduce loc AND purchase new i.p’s??? I’m certainly willing to listen[headphone]!
& thanx for other comments,too.Hello Misty
If I understand correctly, you have a LOC of $50K-which is the limit you can use.In this case, *I* would use about 70% of that 50K (so about 35K) as a 20% deposit on a good quality IP, with no work to be done.
The rest I would leave in the LOC as a back-up.I would borrow the 80% or about $140K, giving me the chance to buy an IP worth around $175K.
This is what *I* would do, if I were in the situation you’re describing.
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