Hello
I am about to recieve $100k and i would like to know peoples thoughts on what i should do with it.I already have the following IP's
– Property 1 in Perth Recieve $380PW rent and owe $350k on an IO loan. Negativley geared.
– Property 2 in Perth Recieving $420PW rent and owe $450k on an IO loan. This is negativley geared
– Property 3 in Karratha Recieve $1100 PW rent and owe $560k on an IO loan. This is positivley gearedShould I pay $50k to property 1 and 2 to bring them up to positive gearing (or close to), OR should I use the money to buy another IP?
Mat
I can tell you a lot of ppl will tell you to buy the property 3 as it’;s +Ve( given the location ….) i won’t tell you which one to choose; but more consider the following, when deciding;
1. Your goal
2. Overall investment strategy( each buy should hold a purpose in terms of your overall strategy…not jsut based on the numbers…ie will you sell it? and when etc…)
3. Do you have any safety buffer ie unemployed for 6 month?
4. Age, dependents? married? want to get married?
5. Location of your buy?- good sign of CG?
6. CG-Tax?
7. Managment? do you lvie close by?
8. Any repairs/ renovations that needs to be done? Strata?
9. Vacancy- how stable are these rental income and what is the average rental vacancy period?
10…+ a lot more…Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
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I would always go with positive gearing. Remember to invest means to gain something, there is no point in investing if you do not make money.
Hi Mat
I don't know your goals or strategy but I'd use it as a deposit and closing costs for my next CF+ property to balance portfolio, making it easier to hold the negative ones (assuming they've got good capital upside)
Cheers, TraceyHans Bond wrote:I would always go with positive gearing. Remember to invest means to gain something, there is no point in investing if you do not make money.I disagree. Say you have three options:
1. Invest in a CF+v property, and put a $100k deposit on a $300k regional property to return $80 per week in +ve cash flow with a healthy capital growth rate of 5% per annum
2. Invest in a -ve geared property, and put a $100k deposit down on a more expensive (say $600k) high growth property in a capital city which is negatively geared by $1k per month (after tax benefits and all expenses) but has delivers 7% capital growth per annum
3. Put your $100k into a high interest savings account delivering 5% per yearWhich delivers the best return? If you were after cash flow only, you would go for the savings account wouldn't you? And if you were after the highest gross return, you would go for the negatively geared property. Even though you have negative cashflow, you still make a profit (admittedly on paper) of $30k with the -ve geared property and a net profit (including growth) of $19k with the +ve geared property.
Cheers,
LukeAgree with Luke.
YEs +VE sounds good…but every property has it’s downside and upside- but each one has a part to play depending on your financial and overall strategy. Never buy JUST because you can afford to.
Without knowing much about the exact location, property type, rental type ( is it a commercial 5 x 5 lease?) , condition of the place, history of the area ,strata cost if any?– it’s hard to comment just based on “numbers”.
Example- you wouldn’t buy a car just because it’s cheap and the numbers works out would ya?
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
For me, I prefer +VE CF properties, as I like making money from my investments.
But yes, like Luke said, sometimes we need to understand the full contexxt of things, and understand your overall outcome with the IPs.
I guess my goal is to keep properties and watch them grow in capital… At the same time I i'd like to see them as close to neaturally geared as possible so they can take care of themselves. Any cashflow will go back into the property itself or into investing more property.
Hence my original question, what to do with the $100k? Bring the negative geared ones up to neatural or buy another IP?
I earn $240k with my work so servicability is not a problem
Thanks to those who have replied. Im not really after advice but more along the lines of, what would you do?
Mat
Matt stick the funds in a 100% offset account whilst you think about it and that will reduce the effect of the negative gearing.
Weight up whether you want to look at fixing the interest rates especially if the lender does not pass on the full Reserve Bank interest rate cut as this will aid your serviceability going forward.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
With your level of income, perhaps you are using the negative geared properties at this time to reduce the tax payable and looking for long term capital growth for when you are no longer earning big $?
maybe ask yourself some questions to figure out the path best for you:
1) can you comfortably support the two current -ve geared properties?
2) could you afford paying the gap of another -ve geared property?
3) could you lose your job suddenly or find yourself out of work?
4) why are you buying property? do you want to hold them for many years, even for retirement? are they to make a quick $ now?
5) have u spoken to a quality accountant about the appropriate structures in which to hold property? if you were to buy another one, would it be in your name only, or with a spouse, or in a trust or company name?
6) are you two current -ve geared properties in high growth areas?
7) want to sell the lot, be cashed up and move into development? heheJust have a think where you’re at right now with your income and finances, and where you see yourself being in the next 3-5 years. Maybe on that high salary you are needing to negative gear and reduce your tax somewhat. Maybe you could pay a little extra on repayments while the salary is high and then you should be able to bring them positive cashflow over time. Maybe diversify your portfolio…
As others have said, there’s a lot to consider and its not just looking at 3 properties and the numbers. Richard’s advice is good (as always) about sticking the money in a offset account for now – either against your own property of residence if you have one, or alternatively one with the higher interest rate.
Good luck!
p.s. there’s a property group which meets in perth monthly, can be a good way to educate yourself somewhat and network, you never know you may even choose to be a money partner with someone else and let them take your $100k and invest it in a larger project for bigger returns?
another quick thought, do any of your -ve geared properties need any renovations/maintenance? could sink a bit of that $100k into doing up the houses and get them revalued and raise the rent? just another possibility to consider…
The decsiion to expand your portfolio is a personal one that depends on your end goal. If you can afford to expand your portfolio and have done your research then go ahead and purchase another IP. However, if your are still unsure then I would put the $100k into an offset account attached to one or both negative geared properties in the meantime to reduce the interest you are paying ( possibly 7% ). This will have a short term benefit of saving you interest, however, once you find another property you will be able to withdraw the money straight away and be in a good position to secure the next IP.
Good luck,
BrettMy gut feeling is .. if you are really earning well .. i'd now level the 100k up as a pretty positively geared backstop. Since you are bearing a reasonable tax burden due to your income level anyway .. it really doesnt make sense to have it directly in your name. This is one of those situations where setting it up in a company makes a load of sense. It gives you a property in a company .. but separate from your own name. And you can use it to keep as a seperate running entity from your existing property ventures. Hence .. increasing your indirect wealth and a backstop .. regardless of how your job performance turns out.
After a certain level .. you may find (like I did) that a holding company is a very good way to offset your existing enterprises. It exists at a higher taxation level, however .. if you are already there .. then that shouldnt be an issue for you.Best advice is HOLD OFF and do NOTHING. The market will drop in the next 3 months as China assets dropped 28% last month and the sentiment will come here on the back of Asian investors. Traditionally Dec-Jan are the most expesive months to buy seasonally so I’d wait till Feb at least. That’s sound advice, not a sales pitch that you are used to hear. Here is a FREE book that I’ve written on what you can do: (big PDF, slow download)
http://inkom.com.au/sites/default/files/howtobuyadreamhome-110315234441-phpapp02.pdf
After you decide on the timing you then decide on the ownership structure, best being a JV between your Family Trust (corporate Trustee) and a SMSF (corporate Trustee #2) and a bare Trust with an SMSF for gearing. MUST have a company as a layer as in the last QLD Supreme court they fined a land-owner for tennant’s accident, and without a corp trustee your overall assets are at risk…..in QLD case they were sued for $8m. Then you can structure a very effective NIL tax environment. Good luck
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