Hi everyone
We are presently selling our business and will have approx $150,000 cash. Keep in mind our age being 46 & 48 years old. Our goal is to earn income of $80,000 per annum from investments (about 50 houses with +ve CF of $30 per week each) by the time we are 65 – this only give us about 18 years – or about 2 property cycles. Belive this is possible despit all the doomsdayers.
We have 4 options
1. Paying the $150,000 off our mortgage ($195,000) and then using the equity for investment properties
2. Using the $150,000 for the deposits of IP’s an keeping mortgage as is.
3. We currently live on 9.8 acres with a very very old and delapidated house (paid nothing for the house)- have lived in it for 4 years and have slowly been going insane – value $480,000 as is. The house is in need of major repairs and is structurally not worth the huge costs involved in fixing it doing this – quoted at about $100,000.
We can use the $150,000 cash to build a new house
Heres the emotion – this way I finally get a new house and we can do the IP at the same time – but not to the extent we could if I remain living in the old house as is.May also be able to move the old house to a vacant block in a country area where a few upgrades such as bathroom and kitchen paint etc will enable it to be rented – total cost being about $70,000 + land (not sure whether it is worth it – have to do more research into this). And then use the equity in the property with new house for IP.
4. Sell our existing property and use all the cash (approx $600,000) for IP – and rent a house orselves. Due to our age feel reticent about entering the rental market (on acreage necessary as my husband breeds horses) as rent will be far in excess of what our mortgage payments currently are.
Please give feedback on your recommendations.
Hey Lady24
Option 2 would be a safe bet. That is keep your home and use 150000 for IPs. 150000 is enough to start off with and your home can be use as equity. Remember you only need 10% deposits to secure deals. And if all goes wrong sell your house and start from stratch.
Cheers Leo
Hi Lady24,
A few things –
1)if
‘The house is in need of major repairs and is structurally not worth the huge costs involved in fixing it doing this – quoted at about $100,000.’
then I doubt that with moving costs, connections, purchase of new land, permits etc,
‘move the old house to a vacant block in a country area where a few upgrades such as bathroom and kitchen paint etc will enable it to be rented – total cost being about $70,000’
is a reasonable scenario!2) $150k (business) + $480k (home) – $195k (mortgage) leaves you with $435k minus selling costs. You appear to have factored $600k into your options – probably best to go with the lower figure.
3) You are not going to see 2 ‘property cycles’ in the next 18 years if by that you mean two periods similar to the last ten years.
If you have your heart set on property investments as the only way of reaching your financial goals, I would suggest buying one for starters and gradually adding to your portfolio over the years. This will ‘dollar cost average’ your investments, and avoid the dangers of maximising your debt levels at the peak of a booming market.
Cheers, F.[cowboy2]Lady24,
From my perspective I’d avoid buying 50 houses like the plague. Too many hassles and costs for you and your husband. If your end goal, as stated, is to receive $ 80K p.a. (I’m assuming in todays dollars). I’d be heading for only one property – not 50. Try this;
Commercial property;
Purchase price $ 900 K
Deposit $ 270 K (in res equity – which you have)
Loan (100% + SD) $ 990 K
Nett yield 9% (not unreasonable, there is better)
Tenant pays all outgoings
Nett rent after all property costs $ 81 K p.a.Cost of loan at 7.2% = $ 71 K p.a. (Fix for 10 yrs)
You have $ 10 K p.a. free cashflow out of the place in year 1, escalating every year, without arguing with tenants).
Get a reputable white collar tenant signed up for 10 years or so and sit back. You then have 18 years to pay back the loan (prop would contribute from free cashflow about 262 of this).***
*** With a 4% escalation clause in the lease the 81 K p.a. nett rent would escalate to 115 K p.a. in the tenth year.
This way, you and your husband can enjoy the horses without going mad looking after 50 houses – couldn’t think of anything worse.
Cheers,
Dazzling
“Go hard or go home”
Nice one dazzling, dazzling performance even.
Tend to agree, keep it simple. 50 properties! it is not the quantity, it is the quality(ie:time and money).
Keeping a mortgage open is always good. I like option two, and also the above “dazzling idea”.
REnting…..eeek. That is what people are supposed to do for you! You don’t need to do that.
Go get ’em.J.
Option 2 is not tax effective. You would be way better off paying the $150,000 into your home loan and redrawing it, converting it in to deductible debt while reducing the non-d debt.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[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
Lady24
I agree with foundation and dazzling , keep it simple .
Ther will not be 2 cycles in the next 18 years ,maybe 1 or 1 and a bit , I could be wrong but the figures do not add up for 2 cycles.
50 propertys , I have 7 and it can be a lot of work at times not to mention a head ake. You are a lot better of haveing a couple of high yeild propertys that make you the income you require and less stress.
Dont want to sound necative go for , just learn to crawl before you get up and sprintGood luck Rick [drummer]
Thanks everyone for the resonses – food for thought. I have to say “Dazzling”your reply was just that – dazzling – I hadn’t thought about commercial property as being the big winner – outside of my very small comfort zone. It has really got my mind working. Am i right in understanding everyone – best recommendations are saying to pay off the mortgage (not tax deductibe) and boorow for th IP (is tax deductibel)?
What a great place this forum is.Originally posted by foundation:Hi Lady24,
A few things –
1)if
‘The house is in need of major repairs and is structurally not worth the huge costs involved in fixing it doing this – quoted at about $100,000.’
then I doubt that with moving costs, connections, purchase of new land, permits etc,
‘move the old house to a vacant block in a country area where a few upgrades such as bathroom and kitchen paint etc will enable it to be rented – total cost being about $70,000’
is a reasonable scenario!2) $150k (business) + $480k (home) – $195k (mortgage) leaves you with $435k minus selling costs. You appear to have factored $600k into your options – probably best to go with the lower figure.
3) You are not going to see 2 ‘property cycles’ in the next 18 years if by that you mean two periods similar to the last ten years.
If you have your heart set on property investments as the only way of reaching your financial goals, I would suggest buying one for starters and gradually adding to your portfolio over the years. This will ‘dollar cost average’ your investments, and avoid the dangers of maximising your debt levels at the peak of a booming market.
Cheers, F.[cowboy2]Again… Fantastic post Foundation
Perhaps the two “property cycles” refers to the crash and then stagnate prices? Can’t see another market like this one for a while. The current one was baby boomer driven.
Good luck for the future.
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