Cash Flow Problem!

We have about 450K of equity in our home at the moment, which we are renting out because we have moved interstate. We want to buy a property and develop-which we can except that we have a cash flow problem.

Given you have moved interestate I am assuming your existing property is your former home and as such it is highly likely that the loan is still on P & I basis.

First step convert your loan to interest only. You may be surprised at how much cashflow this frees up.

If your dream development is going to create a potential cashflow problem have you considered borrowing a little extra to cover your payements during construction? See Terry’s comment.

Have you had previous experience developing?

Developing can be very lucrative. Equally it can be very draining (financially and emotionally) and you need to determine whether you are both up for it.

At the end of the boom (when that is/was, or will be is open to conjecture) is often a time when mum and dad developers get themselves burnt. You will need to ensure your feasibility is comprehensive and spot on.

Cashflow is often a ’emotinal’ thing. Often we get used to living on what we earn that we find it difficult to imagine scaling back on some of our excesses. I can think back to times in our life (new bub X2, new house, new car loan) etc that we have wondered how it will all work out.

So, is it fear off cashflow, or fear of debt. I suspect that you may well be looking at a ‘smallish’ home debt and are in the process of taking out a ‘bigger’ loan. Maybe it is this that you are finding daunting.

If this is close to the mark then the key point to remember is that this borrowing is for a growth asset.

We can borrow some money but not enough for what we want to do.We have three small kids under five and I want to stay home with them. I do some work but my husband is the primary income earner and he is a teacher.

Has a broker/bank told you what you can borrow? If it is a bank I would suggest that you consult a broker. They have access to greater number of loan products and as such may come up with a different number.

If the amount stated is your ‘real limit’ then you will need to modify your development plans. Maybe something smaller, something in stages and so on.

So we have all this equity but can’t unlock it!! Our home in Perth is paying for itself so we don’t need to sell , I feel.

Unlocking equity is easy – I suspect you need to see a broker and not your bank. Sure you may need to go to another lending institution but one step backwards to make many forwards is sometimes a good strategic move.

I know if I went back to work this would solve the problem but there must be another way-?

Any suggestions on creative ways to get finance or equity partners?