hi,i need advice on this matter as my husband and i can never agree.we owe 100k on the house we live in.its worth 350k if we sold.my husband bought a ip just in his name for tax reasons as he earns 100k+/year and i am a stay at home mum.we pay 200/wk repayments on our home and have tennants in ip and they pay 280/wk.he bought ip for 259k but loan is for 270k because of all the fees and charges added on.we put in 200/wk ontop of the rent to make repayments.we have 50k saved but i wouldnt let him touch that for deposit when he bought house.if we sold ip we would get 310k because we have only had it a year.we cant seem to buy negitive geared houses as we dont have enough up front cash.do we sell our house we live in or ip?it is a interest only loan for the investment.my hubby likes to just plod along the way we are going but i want to buy more properties but we cant with this burden.
Sorry when reading your letter I became a little confused, it seems you want to purchase more investment properties however struggling with the one you have.
If this is correct then you are looking for cash flow positive properties?? I am not too sure there are many around.
Then you make mention of selling the I.P. or your own home, is this due to not being able to afford making up the difference on the investment property? I do not see why you would sell your own home unless you did not want to live there anymore. I am not sure if I have just miss understood everything or not
Wayne Skewes
Mortgage Broker
Email [email protected]
http://www.eaussie.com.au/Mortgages/Aussie_Mortgage_Adviser.asp?ContentID=852280
Refinace, Loan Consolidation, Owner Occupied or Investment Finance. Free Service I come to you!sorry to confuse you.i am not sure which way to go with making investing work.we can afford ip but i feel we r putting to much into it and the reason why i said do we sell our own home is to get some money behind us to be able to positive gear and buy more ip.how does anyone afford to keep buying houses unless they have alot of cash behind them.because all the fees involved on top of purchase price is a killer.
Originally posted by jaydee:sorry to confuse you.i am not sure which way to go with making investing work.we can afford ip but i feel we r putting to much into it and the reason why i said do we sell our own home is to get some money behind us to be able to positive gear and buy more ip.how does anyone afford to keep buying houses unless they have alot of cash behind them.because all the fees involved on top of purchase price is a killer.
I would strongly suggest you don’t sell your PPoR to turn your neg geared property into a pos geared one. Even though you have a cashflow drain (which you can handle so no problem right?), having two properties is putting you way in front of most people in the world!
Selling costs, plus purchase costs on another I.P will eat up a lot of equity you have gained in your own house. Besides, there are other ways to improve your position.It sounds as though you are wanting to buy another property asap, but you can’t as the negatively geared I.P you currently own is draining cash which stops you from building up enough equity or cash for a deposit on another one?
If that’s the case here are a couple of suggestions you can do to free up more cash:-
1. Make sure you have a Depreciation Schedule done on your I.P to assist with the tax deductions you can claim on your I.P property.
Once you have done this and given it to your accountant, and he/she has assessed your tax position, he/she can arrange for a ‘tax variation’ on your tax return. This means that you get your tax return back every week in your husband’s pay, instead of at the end of the year. It will free up more cashflow each payday which you MUST re-invest back into your loans (PPoR loan is best as this is a non-deductible loan at the moment).
2. You can move out of your PPoR and turn it into an I.P. All of your outgoings on your PPoR (including the loan interest) become tax deductible, which also become part of your ‘tax variation’, freeing up even more cashflow.
3. If you do this, then you get another Depreciation schedule done on your PPoR to add to the tax position, which will free up more cashflow.
4. You then move into another property and pay rent. Your expenses are less as you are not responsible for normal outgoings other than the usual utilities such as gas, elec, phone, water and contents insurance. Also, you can rent a cheaper place than the rent you get from your PPoR and make even more cashflow. Many people won’t do this as they are emotionally attached to their PPoR, but if you can get past that aspect, you can accelerate your investing a great deal.
All of these strategies combined could free up considerable cashflow each week, and of course it all goes towards your two loans which are now both tax deductible. Your time-frame to when you can purchase another I.P will be shortened considerably.On the question:-
how does anyone afford to keep buying houses unless they have alot of cash behind them.because all the fees involved on top of purchase price is a killer.This is one of the skills you will develop. You don’t need a lot of cash – just equity you can access. You will learn to maximise your returns and buy properties that cost you virtually nothing or make a profit each week. It’s hard to be patient.
Cheers,
Marc.
[email protected]thanks marc,
i can see light at the end of the tunnel now.my brain is ticking over with some new ideas.my hubby hates it when i get new ideas because anything is possible.i like taking chances they are a new challenge for me.we have had a depreciation scedule done on ip but i didnt relise we could get it back in my hubbys pay packet. thank u so much for your help in this matter.you explain it all very clearly. thanks againHi Jay Dee
Seems to me that you both need to agree on what it is you are trying to achieve by your property investing strategies.
ie are you looking for “growth” or “income”?.By growth I don’t mean capital growth I mean by adding value to properties and moving onto the next deal by selling.
Have a look at Steve’s comments on Negative Gearing on this site. Also buy yourselves the first and third books he has published as a Christmas present 0-130 properties in 3.5 years and 0-260+ properties in 7 years, sit down and read both and I’m sure the fog will clear. If you are looking to find out how others do it wilth limited cash then also buy his second book “$1m in property in a year”.
I personally would never touch a -ve geared property again unless it was in a particularly high growth area (difficult in this market) and only then if it was supported by one or more +ve cashlflow properties.
My strategies are to buy houses with problems, find a solution and unlock the profit, ie cosmetic renos and developments /sub-divisions.
The problem with negative gearing is that you can quickly run out of cash trying to service the ongoing debt and once you have say 3-4 if you can afford to service that many, you then end up maxed out in terms of serviceability, then havve to wait for Cap growth till you can go again. So ask yourself this are you trying to create wealth or save tax?. The answers are mutually exclusive
Whereas if you are buying, renovating and selling there is more opportunity to not only make a quicker gain and move onto the next one but you are then building equity (cash) that is more readily available for other deals.
Another strategy is to buy a run down house cut of a block at the back, reno the front one and sell it and keep the newer one nearly debt free. Martin Ayles has done this VERY successfully, he buys one and builds two or three on the back then sells all but one which he rents out debt free.
If all this is too confusing then sign up for next year’s Propertyinvesting.com R.E.S.U.L.T.S mentoring program, I think sign up to this will be available soon and commences in March. I have spent the last year on the Program as a Premium Member and it has changed my life and my mindset around all this and given me numerous other strategies to employ aside from negative gearing.
As for selling your PPOR, then my belief now is that the PPOR is NOT and investing decision rather a “LIFESTYLE” choice.
Personally i choose to rent as it is cheaper and frees up my cash for investing.
Hope this helps
Warm Regards
SueMIT | Owen Real Estate
Email MeHi Jaydee. Best advice I was ever given is “Dont Panic!” and never make any decisions, nor ‘go with your ideas’ while you are in fear, panic or confusion mode. You will more often that not make the wrong call, and kick yourself later. See accountant to make sure you’re getting max benefits .Ask bank to give you a cut on interest rate etc, unless yo’ure locked in.
You didnt say how old you & hubby are, and where property fits into your wealth creation plan? You are a stay at home mum, so I assume that you have a longer time frame to make your plans work for you. Thats a good place to be.I’m also assuming that youve drawn up a household budget, and have the $s tied down tightly.ie, there are no “leaks” draining your cashflow.
Just to give you another perspective…. I chose to go with new IP properties, in really good locations for growth/demand… so there s not too many of THEM that are cash +, especially when I had no deposit, and no $ for costs when I was buying my 1 st one!
But I DID have equity in my own home.(I think {for me anyway{), equity is king… because I sure didnt have cashflow… being on $37,000 gross income a year!
I was afraid of taking the leap, because of the heavy -ve cashflow, and I tell you that there were times when I felt like chucking it all in, & panic set in. But your next biggest asset s (after having done your cashflow analyses, buying the right property etc) is grit determination and lots of patience. Ask…How bad do I want this?
Both my IPs are -vely geared, and thats ok, just a different pathway…….I know that many people prefer the buying a reno & adding value.. but Jaydee, I literally cant hammer in a nail, cant unblock a drain, and power tools scare the crap out of me.. so thats not for me. I buy nice shiny new, and have a prop manager look after the lot. I KNOW that my way is the s l o w e r way of getting there, but it fits me, and I dont have to be involved with them as much
In 1999, I stared off with $120,000 in my own home equity, but no debt. I now have a debt of $405,000, but equity of $980,000 (ish), and the rents are rising fast. A few years ago, I lost a whack of equity in one IP, and admit I was tempted to sell & cut my losses…. but decided against it, and so glad that I hung in there, as now the equity has caught back up soon after the rental vacancy rate tightened, and the rents started to rise.Slow but sure and I am learning to be content to plod. I havent had a s many o/seas hols as I would like to, and have an old car, and cat-scratched furniture, but I reckon thats my trade off, and I am happy with that, as I know that if I can give it another 6 yrs, I feel will be in a better position again…. and I can make more choices.
There are good people giving helpful advice on this site, and if you all reading are one of them…t hanks! I’m learning lots too.
[This is NOT financial advice.. but just by way of encouragement.][smiling]thanks sue for your advice.my hubby wanted to save tax but now wants to create wealth.he is also more hesitant than i am about making decisions wher as i say give it a go.he is concerned that we could buy a renovator and go to sell it and not make our money back because of the market.he says people are starting to worry about interest rates and house prices will go down.i would be happy if we made 10grand on it where he would want more.but 10 grand is ok for a few months work.and anything extra is a bonus.i have just bought steves book 0-260+properrties in 7 years but havnt had a chance to read it all yet.
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