Hi all,
I have never really looked into this method of investing but have recently been approached by someone who was interested in a rent to buy option.
The type of property they are interested in is pretty much what I was looking at buying in a few months anyway.
The questions I have are;
Is this method best suited to people who need the cash flow?
With the progression of my portfolio I don't have a problem with serviceability, it is just equity that is holding me back.
If the property grew in value would I be able to draw on the equity or this can't be done with rent to buy?
Would I be better off just buying to hold so I benefit fully from the cash flow and capital growth?
Thanks for your time,
Cheers,
Nathan
hi Nathan
If you sell an option you are basically giving away capital growth.
You possibly could access the equity if the option holder doesn't lodge a caveat but you have to be careful you don't borrow more than the option holder can buy it from you for.
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
Thanks Terry.
So basically if it is CG that I am after I am better off just buying the property for myself?
Let me illustrate what happend to me when I did a lease option (made up figures but similar to what happened)
Buy for $100,000 and sell someone an option to buy at $120,000 with maybe $50 more per week rent comng in.
In 2 years property doubled in value to $200,000. Tenant exercises their option and buys it from me for $120,000.
I make a profit of $20,000 plus $50 pw x 2 years. But I miss out on $80,000 capital growth!
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
Aah I see! So within those two years where the value of the property was increasing, would you have been able to use that equity to further expand your portfolio or does the bank look at it differently to a normal property owned by you?
You could use equity but what would have happened if I had borrowed $130,000 and then had to sell at $120,000? I would have had to find $10k cash.
Also the option buyers solicitor would recommend they lodge a caveat to protect their interest so it would be impossible to borrow in most cases.
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
Thanks for the info Terry. I think I will just stick to the buy and hold strategy, at this stage of my portfolio anyway.
Cheers,
Nathan
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