my wife and i both work i have three building trades and good at other trades.we have a property with $200,000 in equity and $230,000 left on our bank loan.i want to buy cheap houses do them up and sell them. our first idea was to sell our house, rent a cheaper house then use our profit to buy a cheap house and do it up and sell it .then after about 2yrs rebuy a house freehold and keep doing the same thing.now we have been told we could take out a loan on our equity to buy another property [eg. $200.000] this would mean we would be paying 2 loans. the profit of the 2nd home goes back into the first loan until the house is freehold.we really dont know which way to go.our first option seems safer only having one loan.if you were in my shoes which way would you go?
Given your building expertise and available equity, I reckon a good strategy would be to –
a) buy houses that need doing up and have enough land for subdivision,
b) do up old house then rent out while applying for subdivision and building permits,
c) subdivide, build and then sell renovated house and keep the new one as a rental with all the great depreciation benefits
d) the profit from the reno sale would make the one you keep cashflow positive.
d) repeat process – buy one, create two, sell one.By following the above, you are increasing your assets, your cashflow and your nett worth will continue to grow. You will become rich.
Simply buying, renovating and selling will give you short term cashflow, but won’t increase your wealth as you are not retaining any assets (other than your PPoR). A lot of builders do this and end up with nothing but a garage full of doodads (boat, jet ski, motor bike, car) and tools.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Hi Colrose
Marc makes a good point.
It may be a good idea to analyse where you want to be in 5 or 10 or 20 years, because that may make a difference to your strategy. It is important to acquire some assets that produce income WITHOUT you having to do anything (like building, reno’s etc…).
If you are going to acquire several properties, I assume that at some point you will need to have several loans, so don’t assume that only having one loan is a safer option.
The level of risk associated with loans is probably more to do with your Loan to Value Ratio (LVR) than it is to do with how many loans you have. EG. Having a loan of 95% of your homes value (when it does not produce income) may be more risky than having 3 loans for IP’s that are 70 or 80% of the value but are income producing.
Some food for thought, anyway…
Kelly
You must be logged in to reply to this topic. If you don't have an account, you can register here.
