team,
we are looking for some advice on our situation:
we currently own an IP valued at 185K with about 176K remaining on the loan. we used good old mum as guarantor for this loan for 20% of the value. we are about to come into a small inheritance that will add up to about 20K with current saving also.
what would you do:
1) pay down the 1st IP loan to release mum as the guarantor (or at least make it a little closer to happening), OR
2) buy a 2nd IP with the $ and not pay any off the 1st IP loan, OR
3) use some of the money to complete a small cosmetic reno to the 1st IP to increase the value and use the remaining $ (if any) to hopefully purchase a 2nd IP?
thanks for the tips [biggrin]
It is only your thoughts that create your future – Be careful what you think!
Well normally I’d go for the next IP, but if I had a guarantor I’d try and release then ASAP, so as to reduce their risk (plus if you do the right thing and you need her help again then you would most likely get it again).
However, this is all based on emotion and nothing else, would be interesting to see what others say.
Regards
PKmy initial thought was to drop the money on the loan and release your mum .. BUT quick calc means your still 8k short of that magic 80% lvr, and if your not in the position to pay that off soon then you have done no one any favours
Sooo i would have a good look at value adding with the 20k to get to the 80% .. obviously without knowing the details of the property its hard to ascertain how much could be done, but it may be possible .. Then save save save for number 2.. then 3….and 4…[biggrin]scottee
Bite off as much as you can and CHEW LIKE HELL!!!
HI Nathan,
My suggestion would be to use the funds to release mum as quickly as possible from ‘guarantor’ status.
How you do this is a little difficult given we are not familiar with the property’s specifics.
Derek
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Property investment advice and researched property in quality locations available.Thanks for your feedback.
The IP is south of Adelaide and we purchased it in January 2004 for 172K, and has been valued in August 2004 at around 185K. We have since had tenants move out who were paying $165/week rent and a new tenant move in paying $180/week rent.
The house is tired but structurally sound, and could use a good paint job and some cosmetic love on the inside and out. As for the gardens, well they are pretty much non existant and this could be addressed also. Overall, a general tidy up would refresh the place and may add value – but to what degree i am not sure.
I personally would feel much more confident in relessing mum as guarantor, but also know that putting the ‘cash’ on the loan wont make it to the 20% LVR and would welcome the possibility of value adding to increase this likelihood of reaching 80% LVR. [cap]
It is only your thoughts that create your future – Be careful what you think!
i too would be looking at releasing your mum as guarantor. although if shes happy to support your property investment goals and aspirations then your option 3 is probably not a bad strategy. i know that everyone is different, but your mum has obviously been kind enough to help you in the start. maybe now she wants her equity back to do other things herself. i would be paying her off, and with whatever money i have start improving the property to increase value. with the increase in val comes equity to then buy a 2nd property perhaps.
Eric
So by my quick calculations, you have roughly 95% LVR and are subsidising your tenant’s rent to the value of approximately $70p/w (if IO) or $115p/w (PI). I think you owe it to your mother to release her guarantee ASAP rather than take on a higher level of debt thereby exposing her to increased risk.
Cheers, F.[cowboy2]yep, subsidising we are [crying], but this is something we have realised before purchasing the property.
i too feel obligitory to increasing the LVR to 80% in order for mum [party] to be ‘free’ and so that we can also feel free to choose what we do with this and susequent properties (as there will be more, but maybe not in the form of subsidising someone else’s rent).
we now have a few decisions to make, but thanks again for the insights.[medieval]
It is only your thoughts that create your future – Be careful what you think!
Ok, just htinking outside the box a bit here. Could you not refinance the loan to 95%LVR, with the $20,000 pay the mortgage insurance that comes with having less than 80%LVR.
That means mum is released as guarantor.
Then, you’d still have the remaining funds left that you could use as a deposit on something else.
Higher risk, but then it’s your risk and not your mum’s.
I wouldn’t normally suggest 95%LVR’s but it’s just another option that you could consider, depending upon your own risk levels etc.
Good luck.
PKI think you should do some research into value adding, what do other properties in the area that are not tired sell for?
Will you do the reno’s yourself or get in tradesmen? What would be the cost of doing the reno’s?
If you can add more in value than it costs then that is definitely the way to go, you will end with lower LVR and even if not as low as 80% you will be on the way and nearer to setting your mother free.
That should be your first priority, you just have to work out the best way to get there.
With a 95%LVR: is it possible to do this (95%LVR)on an IO loan and also pay for MI as we do not have 20% as a deposit?
Then we could use the remaining $ from the $20K (after MI and refinance costs are taken out) to purchase another property?
It is only your thoughts that create your future – Be careful what you think!
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