Hi everyone,
Have not posted for a while but now need your brains to help me figure out where i am!!!
Here is our situation.
IP bought 2005 for $250,000. Did small reno, now worth estimated $320,000.
The loan on the IP is $194K (also have adebt on it of $50K that we borrowed as a deposit from my parents to avoid LMI-which now that I know better I would have paid it….) Rented out at $295 week with good tenants.Also have a $360K mortgage on PPOR worth about $390K.
Husband and I both work. I am only earning $55K and he has just changed industries and taken a large pay cut to get his dream job (he has been studying in this industry for 5 years and finally broke through but the strting salry is #%$#house `$40K).We currently run on a pretty tight budget and it will get tighter if interest rates go up. The IP is in a good location in the VIC East link area so we were hoping for a bit of a price increase over the next 12 months. Ongoing maintenance problems are also an issue if held onto long term.
We would like to start a family in the next few years and this adds to my worry as I am the main wage earner and this will fall off for about 12 months if I go on maternity leave. We have $25000 in savings.
My concern is that i want to hold onto the IP to wait until the eastern-link freeway comes through and cash in on the added value but at the same time the extra loan on interest rates rising and cash flow etc….
Should/how do i:
1. Keep it (but how do I increase cash flow and structure to do this?)
2. Sell it and use profit to pay down PPOR for when family comes along (as originally planned). Not sure if the amout of capital gain in the next fews years is going to be worth the amoutn of interest and the fact that I could be using this money to pay down PPOR. What about CGT… should I wait until on maternity leave if I can?
3. Get another job( on top of my 5 days 50 hour week already)Help, please , I am a bit stuck and the more I thnk about it the more I thnk about it and the more I think about it …..and I get more confused and concerned eveytime in my head…..
Hi Snowflake,
Well it looks as though you are running a very tight budget and will be even tighter as the interest rates are expected to rise in Feb 08. East link will most definitely increase value once it opens up and I would suggest to hold on to it by all means. Are you able to refinance the IP loan to reduce repayments (positively geared?), is it P&I or interest only loan? Before thinking of selling IP, decide which property will perform better in terms of growth.
Action plan:
Create a budget and see how you would cope with another rate rise. (If you'll be overly stretched, would you consider renting out both places? and rent somewhere smaller to increase cashflow for 12 months). Are your parents needing the money back ASAP? If so, include fortnightly payments into the budget.
Depending on how eager you are to have a family, can you delay the plans?
As you husband has been studying 5 years in his profession, i'm sure that his salary will pick up considerably with experience, however in the meantime, get part time jobs to hold both properties.
1 or 2 vehicles? can you downgrade?. V8 – 6cyl – 4cyl? Mountain bike even : )
If you only have 194k left on the IP returning $295 per week, ask your bank if you can change that to a line of credit (costs invovled SEEK PROFESSIONAL ADVICE), put the 25k in your savings which will reduce the interest (paying interest on 169k)
Hopefully you may get something out of this, but I know that success comes with hard work and sacrifice, most importantly work as a team with your husband and challenges dont seem so gloomy. Overall, I think you are in a great position with what you have and where you would like to go. Good luck & believe in yourselves.
Cheers
CIS
Selling the IP and using the profit to pay down the PPoR loan is not a failure.
If the cashflow is tight and the lifestyle sucks, there is no shame in bailing out for a while until the situation gets better.
The profit on the IP will give you automatic equity in the PPoR which can be used again later for another investment.
If you can hold off until maternity leave, your tax rate would be lower? and this is a good time to sell to minimise the cap gains tax.
Get in touch with a good accountant if you don't have one already, and work out a plan of action, and look into using the $25k in an offset account against your PPoR loan to minimise the interest. You'll still have access to the $25k in an emergency, but it's saving money. You'll need a Mortgage broker for this part of it.
Another option may be to move out of the PPoR and use it as an IP. All the expenses become tax deductible and if you move into a cheapy yourselves for a time, you may be able to create more cashflow your way. Then you could keep both properties.
You would need to see what sort of rent you could get for your place and work out with the accountant if the numbers would work.
Hi, the loan on the PPOR is the part I don't get. At 8% [easy to calculate], you'll be paying $35000 a year to live in that house that's worth only $390000. All non-deductible.
Say you pay rent of $700 pw. At 6%, your house should be worth > $500000 to an investor.
Can you find an investor willing to pay for you to live in the house like it was your own?
FYI, I just did that. My house settled on 21 Dec before Xmas. I still own lots of IPs. I offered 5.4% yield, new house, full deductions.
It's a variation of renting. Your costs will be much much lower because you won't have to pay rates, insurance will be minimised, & you still live in the same house anyway.
Too much advice is very difficult. At the end of the day, you can only look at the options & take what's best for you & remember things can change.
Good luck,
KY
You must be logged in to reply to this topic. If you don't have an account, you can register here.
