Hi,
I have hit wall with finance so now I either sell some property & Re invest with a new strategy or & sit & wait for more gain?
I dont have enough equity to use as 20% deposit for next purchase .My income is too low to re finance all property to full doc loan. Looks like I need to sell something then re -invest. Im thinking to use the funds for deposit for reno and reno costs. Do afew of them to sell should help build up my "bank" by paying down PPR debt.
Which one to sell though?
Unit in Melb I have owned for 10 years has about 100K equity and costs me 8K per yr. out of pocketOldish Unit in Surfers Paradise with beach views-No growth since purchase 3 yrs ago so no CGT. At least I could get my 60K (original 20% deposit) back out. This property costs me 11K per year out of pocket.
Old unit- potential development site. Not much growth past 4yrs Only get about 10K out of that one. Costs me 3K per year out of pocket.
Some say NEVER sell, others say its OK to sell. I feel stuck and need ideas. Should I sell the first & second ones. The first because its had a full cycle & the second because its highly neg geared? Should I sit & wait for more growth??
Any suggestions greatly welcomed and appreciated.
ThanksYou stated your income was too low so would you consider that you may have a cash flow problem also.
Oldish Unit in Surfers Paradise with beach views-No growth since purchase 3 yrs ago so no CGT. At least I could get my 60K (original 20% deposit) back out. This property costs me 11K per year out of pocket.what would you do with an extra 60k cash put in an offset account or pay off as a one off repayment and the new extra cash flow saving of 11k a year towards increasing the repayments off one of the two properties left if you sold this one.
Some say never sell but if you sell the $300,000 apartment and aim to reduce debt to aim to get to a cash flow positive situation with one of the other two properties you will find it easier to get another loan down the track and as you have just discovered
negative gearing is limited by how much you earn and how much you owe.
You are stuck because you are in a negative gearing perspective while a cash flow neutral or cash flow positive perspective may need to be considered. The $300,000 apartment may get capital growth but you might not get capital growth and it costs you 11k a year. Can you live with missing out on the potential capital growth versus increasing your LVR and reducing debt.
I sold a property myself because of having no Just Over Broke (JOB) income and that property was sold 5 years ago at $170,000 and it is now worth $320,000 but I knew I would run out of cash reserves and be forced to sell later. This however has allowed me to keep my other property and pay it off.
This is not financial advice as I have not told you whether to sell any of the properties or what their potential growth may or may not be in the future. I have merely expanded your investment knowledge of other types of property investing methods to aid in your decision that you can only make
Hi Herb
To get your borrowing capacity "back into shape" I'd be tempted to go with duckster's suggestions above, i.e. sell one of the properties. But, instead of selling it traditionally, sell it with an Instalment Contract (IC). This type of sale would get you an upfront deposit, fixed positive monthly cash flow of at least $500 per month (after all expenses) and fixed capital gain.
With all expenses covered on the place you sell with the IC, you'll still have at least $500 per month to support the other properties. It may even be worthwhile selling the other under-performer as well, i.e. turn the under-performers into cash cows and, with your new found serviceability, research other ideas that appeal to you.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Dukster: Thank you for responding. You make sense. I wasnt sure where to put the proceeds as I have some NTED as you will see below. I like the idea of using the proceeds to pay down debt on another investment property (say Melbourne)That would help a lot with reducing LVR & bringing it close positive geared.
I do have a PPR also, so some would say put the cash there but I intend to make it an IP later anyway so really have no interest in paying it down, although the banks would look more favourably at me if I did I guess. I would only put excess cash into an offset a/c attached to PPR which doesn't count as paying the PPR down from any lenders perspective.
I know its best to have more debt against IP not PPR but paying down Melb would help with cashflow because its is an issue that I dont want.
Good point you made about the Beach unit. It might make gains but like you pointed out, its costing more in yearly shortfalls than the gains will likely be anyway.
I have mostly been a lo doc borrower for investing. Whenever I saved 20%, I bought with no real strategy for the short term, only long term growth but now Im impatient and want to create value myself after reading & researching value add strategies. Cashflow is becoming an issue as I have been paying the outgoings on the 3 investment properties from my PPR LOC. My idea was to re-finance all to 90% using full-doc to get cash out to create a separate LOC to get 5%-10% deposit to invest from as well as interest cap existing investments while directing all income from the properties to my home loan to assist with PPR debt reduction and cash flow. The idea was to buy & renovate a few props along the way & buy or create cash flow positive property to offset shortfalls on my 3 current investment properties. Even though the shortfalls are tax deductions, I only really save 10K in tax yet the cost to me is around 30K per year so Im still out of pocket 20K. I realise now that for the best tax benefits, it needs to be from depreciation not from me forking out for maintenance & body corp etc. So also part of my future plan would be to build to have the depreciation to offset some tax.
For now, I want to get get lump sums of cash to pay down something- I have plenty to chose from- 1-PPR, 2- get rid of some other large non tax effective debts. Embarrassed to say my credit card debts are rather huge (38K) plus I have tax debts to repay(approx30K on payment plan) CRINGE!!Unfortunately, my income isnt showing enough to re -finance to get cash out using full doc or to borrow any more money.
I cant use equity in current properties to go lo-doc as there isnt enough equity.
Thats why selling seemed my only option.
Perhaps selling prop number 2 is the go as I wont have any CGT & can get the 60K deposit back out. That not really enough to buy back in with though unless I look regional mining town with high rents maybe?
All my properties have had rent increases recently and are:
Prop 1- 395K (bank valuation) Melb unit
Paid 225K 10yrs ago
Owe 307K (due to re-fi)
Rent $385 week (shortfall costs me 8K per yr)Prop 2- 300K (if Im lucky)QLD unit beach view
Paid 295K 3yrs ago
Owe 239K
Rent $365 week (shortfall costs me 11K per year) Body corp over $100 week!!Prop 3- 190K Qld Unit on Canal (possible development site)
Paid 180K 4yrs ago
Owe 171K
Rent $230week (Shortfall cost me 3K per year)PPOR 415K
Paid 395K 15mths ago
Owe 317K LOC 323K interest onlyAs you can see, quite Im in quite a pickle. Im actually already at 79% LVR ..
PaulDobson wrote:Hi Herb
To get your borrowing capacity "back into shape" I'd be tempted to go with duckster's suggestions above, i.e. sell one of the properties. But, instead of selling it traditionally, sell it with an Instalment Contract (IC). This type of sale would get you an upfront deposit, fixed positive monthly cash flow of at least $500 per month (after all expenses) and fixed capital gain.
With all expenses covered on the place you sell with the IC, you'll still have at least $500 per month to support the other properties. It may even be worthwhile selling the other under-performer as well, i.e. turn the under-performers into cash cows and, with your new found serviceability, research other ideas that appeal to you.
Cheers, Paul
Herb, Thank you. I have been waiting for something out of left field. I have been losing sleep. Not over the debt but trying to think of ways to make more money..( & keep the properties too). But I am resigned to selling if it helps me motor along.
Im not sure I understand the benefit of what you are suggesting. Why get the payment in installments when I can get it all at once (at settlement)? I will have excess funds but still have high LVR so banks wont look at me and it sounds like it would be along process. Although if the client cant settle, I get to keep ther deposit & funds I have accumulated along the way. Also how to I get fixed capital gain.Do you mean sell it for a higher price but to someone (like myself) that cant get finance traditionally?
Im excited to learn more about this . I had a quick look at your vendor finance website. Seems like there is alot of comlpliance issues to do it? Does that men it needs to be done for me by a professional who is licensed?
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