Greetings all,
I am looking for advice on the best option for our situation.
We have a vacant block of land to build upon and $100,000 cash to pay for a house.
We have thus far considered our options as being;
1. Borrow the amount retaining our savings and have tenants pay the loan off. Purchase a home for ourselves and pay off as normal.
2. Use all the cash to build a house and then borrow against it to buy our own house whilst renting the paid off house to tenants.
3. Use the cash to buy a large commitment business that has on site residential facilities like motel or caravan park or similar.
I would greatly appreciate any suggestions on readers advice on what to do in this situation that would allow us to accumulate properties producing passive income preferably.
We are currently living overseas and would be need to purchase our own dwelling upon moving back to Australia.
Many thanks for your help.
Scott.
Do you have a loan for the land? If you build a house and borrow more to do it, will the cost of the loan be too much to positively gear?
I would put in enough cash into your IP/land to make it pay for itself (I mean, so that the tenants pay for it all), and then put the rest of the cash into something else that will work for you, another investment maybe.
As to where you PPoR fits into that… You could put the extra cash into that… Remember that the costs associated with investment debt is tax deductible, whilst your home debt costs/interest/etc… isn't. That may influence where you want to put that extra money, as you would want to have the least debt on your home.
As far as a business, I wouldn't want to buy a business that required my presence or much of my time (by "much" I mean 12 hour days, and no holidays etc…). And I'm sure businesses are more complicated, in terms of accounting, staff, etc… But some businesses give a great return, so I think it will come back to your goals and where you want to be down the track.
Kelly
Hi Kelly,
Many thanks for your help.
We will have no debt on the land as it is a gift, so it should be easy to build a new house on the land and let it pay for itself with tenants.
What to do after that is the confusing part?
As we still will need a place to live, should we spend a larger portion of our savings to buy a house, or buy an investment property with a small deposit and have it pay itself off and then try to fund our own home but buy a more modest home or unit that we can pay off quickly.
The difficulty is how much of our savings and own money should we be using for these two or three different properties.
For the investments, I would imagine as little as possible, for our own home wouldnt it be a good idea to pay a large deposit and pay it off quickly since we cannot claim the tax benefit also?Many thanks again,
Scott
Think of the tax issues. If you borrow to buy a main residence, the interest is not deductible. But if you were to borrow to build an investment, it should be. So keeping your cash for the main residence may be more tax effective.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I would:-
1. Use the cash to fund a building on the land.
2. Then rent out the completed property to tenants.
3. Depreciation and other "on paper" deductions will be high for tax returns.
4. Rent a house for yourself.
5. Use equity in the I.P to fund other investments – business or another I.P.
6. Repeat.Marc, how do you find renting properties instead of PPoR? Do you often have to move? Positives/Negatives?
We had to do it when we moved over here to L.A. It has been a successful financial move. I wished I'd done it a few years earlier.
Now we have seen the light, and will be moving back to Aus next year and continuing to rent our PPoR. We will find a nice house to rent for ourselves in the neighborhood.
Our plan is to rent a house for ourselves for less than what we are getting for our PPoR, thus creating even more cashflow, and rent for the foreseeable future.
Getting your head around renting when you could live in your own, beautiful PPoR is the hardest part. But my wife and I are on the same page, and we know the benefits of taking this unusual (for most people) step.
Our goal is to be totally retired in 4 more years, and work when and where we choose for fun – not because we have to. By taking this course of action, we have accelerated those plans.
I have no doubt that all our friends will be thinking "what are they thinking?" but we don't care. I'm tipping that once a few of them see the benefits they might be tempted to try it.
G'day Marc,
With your investment property that you are renting out, are you paying interest only or principal and interest.
As it is becoming difficult to find positive cashflow properties how do you accumulate more than one or two with the cashflow needed to support the difference of interest payments on?
In todays market it might be better to buy an affordable house in an area you are very certain of future capital growth, buy 2-4 of these properties, pay interest only loan and then in ten years or however it takes to roughly double, sell off most of them if you have enough and earn 6% in the bank term deposit, which would allow the flexibility of not having to work.
The earnings would not be huge but you could live comfortably without having to work for someone else, you would be financially independent of the need for work and then make your work property investing.
Or sell off one house after ten years and with the profit made invest in more investment properties to sell as above but later down the track gradually buyer bigger house and then blocks of units.
Will you look for positive cashflow properties or expect capital gain?
Seems much harder now to find positive cashflow investment?
Would like to hear your thoughts.
Kind Regards,
Scott.
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