Help Needed!
I own 2IP. Both have built up equity up to around 200k, both are showing good signs of growth.
I am heavily negative geared, can't commit to re-financing and servicing another loan..
do iA) sell properties to release equity then purchase 3 new properties, using the 200k to fully purchase another IP
or
Keep holding, until rents improve the gearing (maybe another 3-4 years) and re-finance.I feel like im just waiting and waiting when i could be doing something proactive with the equity.
Would love all of your opinions
THANKSAs you are heavily negatively geared, have you considered obtaining your tax return in weekly installments rather than getting the fat cheque at tax time? This could improve your affordability. If this frees up your cash, you could then purchase a cheap property with a good rental yield that would be close to paying itself off.
If you sell, you will need to consider the capital gains costs and whether it is still worth selling if the tax man gets a fair cut of your profit. If the tax lost is not too high, it may be worth selling the properties if you know you can find properties with much higher yields.
Also you have to factor in State gov Stamp Duty on the future purchases of replacement properties and selling real estate commissions if you use a real estate agent to sell properties. Also if you have done any improvements to the properties are you claiming depreciation on the improvements. If the properties are relatively new you may be able to claim building depreciation but it will increase CGT due to reducing the cost base of the property.
Another option may be to sell only one of your properties and pay the capital gains tax hit and with what ever is left over
pay off this property's loan and pay a small part of the other property's loan balance down.
With the freed up loan repayments you could pay more off the remaining loan to bring the other property into a cash flow positive or neutral position (this is the option I took when my wage decreased due to no employment)or you could
use the repayment now freed up to invest in another cash flow positive property.Consider also how you will pay the interest rate if it reaches over 9% p/a if you decide to hold the properties for 3-4 years and if you do decide to do this option you may need to look into with your bank the option of fixing your interest rates and thus knowing what your interest costs will be over the next 3-4 years.
I agree that affordability will improve greatly by varying your PAYG and obtain deductions every payday instaed of once per year.
You can also create a LOC with your equity and capitalise some of you interest. (check with your advisors).
http://www.seizacapital.com/index.htm have a cashflow loan (not described on their website) which u could investigate.
something like
4% yr 1,
5% yr 2,
6% yr 3
7% yr 4The difference between these rates and their rack rate (8 ish%) is capitalised.
These loans are 80% LVR which seems to fit in your circumstance.
Hope this helps
Keep holding, until rents improve the gearing (maybe another 3-4 years) and re-finance.
THANKS
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