Hello everyone. I am seeking advice and/or suggestions for our current investment situation. We have 2 IP, both older style apartments in inner Melbourne, bought 6 years ago through a buyers agent, so believe we have good properties. The only problem is as our income situation has changed dramataically and we are finding extremely to service both loans now. I will attempt to outline our situation below.
IP 1
1 br flat.
rent – $215 p/w.
Purchase price – $217,000
initial loan – $235,000 (now owe $229,000).
recently valued at $300,000.
Same tenant for 4 years with no rent rises. Other agents have said we could get $240 p/w. More if we spent some money and refurbished. It’s a little jaded at the momentIP 2
2 br flat.
rent – $290 p/w.
Purchase price – $232,000
initial loan – $250,000 (now owe $$237,000).
Recently valued at $350,000.Back then, we took out loans for the lot, including all costs, ie stamp duty, etc. We also recently changed the loans, through a bank, to interest only to help, but still hard to manage. Haven’t got the info at hand, but it’s around 6.8%. We own outright our PPOR, valued at $350,000.
We are seriously considering selling the 1br flat to ease the burden, especially as we have 2 little ones now, and keep the 2br flat. I am loathe to do this, but feel like it’s the only thing to do.
I guess we’re looking to see what may be available to enable us to keep both IPs and lessen the burden. Our accountant suggested we look at Investors Direct Cash Flow Loan and I’ll be contacting them to see what they’re about. If anyone has been in similar situations or any professionals can offer some advice and/or suggestrions, it would be greatly appreciated.
As a footnote, I want to say we have a fair amount of cash, which we eventually want to use to fund our next PPOR in the next year or so. We prefer to do this without having to take a further loan.
Cheers
Chris
Selling one would be one option, but if you don’t want to, then,,
You could set up a LOC on your home, use this to pay for the shortfall each month. This is basically what the investors direct loan does anyway.Your LVRs are fairly low so your position is not too bad.
Terryw
Discover Home Loans
Parramatta
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Originally posted by chris67:Same tenant for 4 years with no rent rises.
Increase the rent – you’re $1800 ‘down’ here.
We own outright our PPOR, valued at $350,000.
Our accountant suggested we look at Investors Direct Cash Flow Loan and I’ll be contacting them to see what they’re about.
I must admit I do not now the full details of Investor Direct Package but it will certainly help you address your cashflow issues.
I want to say we have a fair amount of cash.
Put the cash into an offset account linked to one of the investment loans. This way you will reduce your monthyl interest bill by an amount with the interest charged on the amount held in the offset account. For example every $10K in the offset account will reduce your monthly interest bill by ~$60/month.
I will also suggest you look at using the equity you have available and look into investing the funds into Navra’s http://www.navra.com.au managed fund. Has returned around 18% for the last two years.
Derek
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Skype – derekjones2113Originally posted by chris67:As a footnote, I want to say we have a fair amount of cash, which we eventually want to use to fund our next PPOR in the next year or so. We prefer to do this without having to take a further loan.
Whatever you decide to do – DO NOT put any of this cash into an IP loan. Use an offset as Derek suggested but don’t use it to reduce an IP loan directly!
Simon Macks
Residential and Commercial Finance Broker
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0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Whatever you decide to do – DO NOT put any of this cash into an IP loan. Use an offset as Derek suggested but don’t use it to reduce an IP loan directly!Can I ask why?
I missed the comment about the cash!
(if you put the cash into the loan, you may lose deductibility of the interest if it is removed).
Chris
If you have cash, then you can service the loan. Maybe you are concerned that the properties are negative geared?? It seems like they have grown in value over the years, so they may not be such a bad investment.Terryw
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Originally posted by Derek:
I will also suggest you look at using the equity you have available and look into investing the funds into XXX’s http://www.XXX.com.au managed fund. Has returned around 18% for the last two years.Careful there Derek, giving advice on ‘financial products’ is a whole lot more regulated and potentially dangerous than giving advice on houses, which are apparently not considered ‘financial products’.
Besides,
- 18% is piddling for shares over the last 2 years
- we have yet to see how the fund performs in a protracted bear market
- If the mechanics of the system are, as they appear, using primarily ‘averaging down’ methods of blue-chip investing…
F.[cowboy2]
Hi Terryw, and thanks for your suggestions, and to everyone else too. We’ve drawing down from our PPOR loan to service the IP loan the past few months. I don’t like this as we worked so hard to pay off our PPOR. Our cash is in an ING account, providing us with an extra $700 a month in income. My part time job income is only $2200 p/m, so it’s quite obvious we have not managed our affairs as best as we could. Some of the strategies make sense, especially the offset and quite possibly changing agents who will work harder for us to get more rent.
I don’t mind that the properties are neg geared, it’s just the extent to which they are, especially one of them. When you factor in all the other costs too, ie rates, body corp, water, reapirs, etc, there are some months when we get bugger all from the rent. I know if we can lessen the impact to a degree and ride out this difficult period, it would be worth it in the long term.
Selling the IP will mean CG tax, but as my wife is not working and my income is not what it used to be, it wouldn’t be so bad. We have some shares that have made a loss that we could sell to offset the gain in the property
Looks like I’ll be making a few appointments, ie bank, agent, etc! My financial adviser wants us to sell and place the money into super and managed funds. I’m not so keen on that, especially super. Managed funds I’ll look at.
Thanks everyone.
Chris
I agree Foundation it will be interesting to see how Navra Funds perform in a decling market and a bear market..if its decling and voliatile then it should perform “very” well..if its flat lining then I cant see it doing very well AT ALL, however the chance of all the stocks held flatlining would be slim wouldn’t it?
“Money is a currency, like electricity and it requires momentum to make it Effective”
Online Positive Cashflow and Renovating CalculatorsOriginally posted by redwing:if its decling and voliatile then it should perform “very” well..
This depends on the system (and I don’t know it well), very few are able to truly & consistently trade profitably on volatility alone during a sustained decline. Does the fund publish regular stats on cash-ratio?
Just went looking, to no avail. Did find that despite considerable volatility over the past 3-months (Chart Here), the fund is down around 2.5%. I certainly wouldn’t be borrowing against the IPs considering the global outlook is still slowing growth…
F.[cowboy2]
Hi Chris,
You have had some great thoughts from others on the mortgage offset side of things……helpful guys I might add. Just wanted to add that there is nothing to be ‘ashamed off’ selling a property at a PROFIT if it eases your situation, and relieves some stress. If you genuinely cannot service the loan on the 1br one for example, if you sold it now, even after CGT you will walk away with some money, and be more comfortable, and still have another quality investment property, a wad of cash, and your PPOR! Mate, that is better than 98% of the poplace, and while ‘delayed gratification’ is all good and well, your family is only young once, and if you all eat baked beans on toast (black ‘n gold’ brand bread) and eat 2 minute noodles for more than a couple of months, might be time to take a bit of action. Just have a think about it. You’ve done well, and are at a bit of a crossroads. There is worse things than losing one IP (of which you will obviously get more later on with your attitude) and walking away with 20k or so…All the best.[thumbsupanim]Hi v8ghia,
Thanks for your thoughts and reassurances. The suggestions and advice I’ve received has been tremendous. I wish I had come on here sooner than I did, rather than leaving it when things started getting a little out of hand. It appears we have enough cash to offset the interest somewhere to the tune of around $10000 per year, which will make an enormous difference. We’re going to our lender this week to work out real figures and see if it’s worth doing, as we eventually want to upgrade our PPOR and will need these funds to do it. I think at best, it will buy us some time, which may work in our favour if our flat rises in value.
We’ve never thought that we haven’t done well out of our IPs. Whatever we do, I know we’re far off better than not having done it. Our main objective of paying off our PPOR was achieved in 5 years. Mind you we only bought it for $110,000 10 years ago, so it didn’t take much, especially when both workng and no kids. As you say, we’re doing much better than most. When I think about young couples today with their $300k loans and 30 year loans and having to work overtime or play the ‘corporate game’ to get more money to pay off their loans, I’m so glad of our position. I may not earn as much as others, but we eat, stay warm in winter and still treat ourselves to the occassional restaurant meal and holiday. I also get to stay home with my kids more than most, which is what I’m going to remember mostly when I’m old and decrepit, not the material stuff.
Not sure the baked beans are a good idea. I may a ‘problem’ with that, if you know what I mean!
Thanks again.
Chris
Hi Chris,
Thanks for sharing your predicament with us.Have you thought about renting out your PPOR at a higher rent & living in the 2 bedroom unit for a time until you feel your circumstances are changing?
Also I would consider putting your rentals up…Have a property manager help you there. If you have plenty of cash in the bank, why not do a small reno before putting in new tenants at a higher rent. The extra rent will ease the burden.
Good luck with your options. You will choose what is best for you & your family. Cheers. Di Burns[inlove]
HHmmm, a toughy…
I noticed you say you have a wad of cash for your “next” IP aquisition. Out of curiousity, wouldn’t this cash best be utilised to service current debt?
Anyway, it seems to me that there is more to consider here than just repaying loans somehow. A piece of information that may help you is knowing your projected IP area growth….i.e. is it really worth keeping the properties? Especially if its impacting on your financial life in a negative way….
I know nothing!
Heres a Managed Funds Link..just remember when researching them and looking for income funds that “Past performance is not an indicator of Future performance etc “
An Offset A/c Sounds the best option if you want to have your cake(savings) and still eat it later, I wouldn’t service debt with debt at this stage
“Money is a currency, like electricity and it requires momentum to make it Effective”
Online Positive Cashflow and Renovating CalculatorsThanks kindly to the latest posts and suggestions. We saw our lending manager and have taken our cash out of ING and placed it into an offset account. Based on our calculations, this will pretty much make both IPs neutrally geared, a big relief to say the least. The next step we’ve taken is to contact our property manager and discuss rent increase.
I think we have a handle on the situation now and can only thank everyone on this forum who has replied and made some great suggestions for helping us.
Cheers and best of luck to everyone.
Cheers
Chris
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