Hello
I own a house outright with my wife which we purchased 4 years ago. It’s worth about $280,000 today. We decided a couple of years ago to also buy a rental property for investment purposes. Back then we purchased it for $215,000 plus stamp duty, etc. As it stands now we pay back $1565 per month on it (around $1365 interest and $200 principal). Rental income is around $780 per month. We are making up the shortfall of around $785 out of my pay packet per month. The property is now worth about $235,000.
We also had taken out a line of credit of about $60,000. In the last couple of years money we have used around $30,000 of the line of credit for personal use but this will stabilise now.
We are considering selling the property because of the repayments on the house and line of credit. This is mainly to ease the burden of low cash flow as a family. My two kids are growing and becomuing more expensive.
Are there other options with how we have set up the loan? A colleague of mine suggested that I release some of the equity in my home and reduce the amount on loan for the investment property.
I got on the Hocking Stuart loan calculator and based a scenario on a loan amount of $100,000 (on 7.2 per cent interest). The repayments would be only $678 per month which would then make it a positive cash flow investment
I am a slow learner but am I on the right track? I am not sure how all this works. Perhaps someone could give me some ideas?
Thanks for reading!
Jake
If you have personal debt, it would be best to make your investment loan IO and to pay any extra funds into the persona loan (the LOC).
Your friend’s suggestion does not make sense. You would be borrowing to pay back a loan. The net result would be the same amount of debt wouldn’t it. It may also confuse things taxwise.
Terryw
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Parramatta
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? Pay down deductible debt with non deductible debt?
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorThis would be my suggestion:
1. Dont estimate the value of your property. Get a formal valuation from your bank and then look at refinancing options to pay of exisitng personal debts.
2. Talk to an accountant-straight up….He may siggest getting an interest only loan that will reduce your repayments for a while until you get sorted and are in a better position financially…
3. PAYG….get your tax return allocated to you as a weekly or monthly payment instead of once a year… helps with cash flow.. not sure what you call it but you sign paperwork form the tax offcie to set this up…..=more $ in your pocket for repayements each months.
4. Review the rent you are getting from your property i.e with interest rates up and rental yield up you may be able to increase it. Perhaps check out some cheap improvement options ie: carport/air con etc.. that is depreciable and also you can use to increase rent.
5. Reduce your own personal expenses-in the horse term. ie: if you have used the equity to purchase luxuries like cars etc…..sell and buy a smaller/cheaper car… Works out less fuel, payments etc…
6. Hang onto property if you can as prices will eventually increase. Its not a great time to sell unless.. hold on…[inlove]Snowflake
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