My partner and I would like to combine our assets (debts!) into something more workable for us both. Everyone seems to give us different opinions on what to do and we are confused and stuck. Here is some background info:
Both our houses are in a town that is going nowhere, the likelihood of them going up in value at any rate is slim. Both are still only worth what we paid for them 2 years ago. We now live elsewhere and are renting. Between us we don't have a lot of money and are struggling with both our loans. He goes to Uni and works only part time earning maybe $20,000 a year and I earn $47,000 a year.
My house:
Paid $168,000
Loan still owing $175,000 (borrowed to cover personal loan)
After rent is received and bills are paid still are paying around $750 a month to the bank.
His house:
Paid $145,000
Loan still owing $120,000
After rent is received and bills are paid still are paying around $300 a month to the bank.
Options (as far as we can see)
1. Sell his house, put the $25,000 in an offset account against my mortgage and continue paying off mine, as it possibly is the place which will go up in value in the future more than the other one.
2. Sell mine and keep his. I would have to take out a personal loan (I don't want him to have to cover my debts) to cover the difference between what I will get for my place and what I owe the bank and real-estate after selling (possibly $12,000)
3. Sell both, take out a personal loan to cover my place, use his $25,000 as a deposit for another investment together.
Or is there any other options we are missing? I realise it seems silly in the 3rd option to use the cash as a deposit and not pay out the loan on my place but I don't find it fair he should have to. I would like to keep our money somewhat separate still.
Really really appreciate any advice you have.
Hi Kochy,
Are your loans on Interest Only – or can they be converted to such? As an interim measure this will ease the squeeze a fair bit for you.
Hi Derek,
Thank you for your reply. At present they are both P&I, I have heard due to the huge LVR on my loan I am unable to switch to Interest only, I believe it has to be less than 90%. But I would think it would be a possibility for my partners loan.
Kirsty
H Kristy,
Haven't heard that one before – are you speaking with a bank directly or through a broker?
What rents are you getting?
How much are you paying for rates, insurance etc?
Are you likely to return to live in either place in the future or do you have plans for elsewhere?
If you provide this information I'll be able to give you a more detailed comment
If owing 120k, and worth 145k – you need to remember, you wouldn't be able to take 25k away with you as the costs to sell the property would be about 10k.
What town are they in?
Hi Derek
originally when I applied for the loan a year ago I was told by the bank I could only do P&I but probably worth asking again.
Here is a bit more info for you. Really appreciate your input
House 1 (worth $170,000, Owe $175,000 on the loan)
Repayments $1200 per month P&I
Rent $700 per month return
Rates $70 per month
Strata $60 per month
Insurance $80 per month
Water $50 per month
House 2 (worth $145,000, owe about $115,000 on the loan)
Rent $580 per month
Rates $70 per month
Strata $30 per month
Water $50 per month
No insurance
We have no intention of moving back to the town.
cheers
kirsty
Hi Tim,
Yes true, I think we worked out for us to sell with our real estate they would be about $7,000 each.
They are in mount gambier, SA
cheers
kirsty
Hi Kirsty,
could you do any cheap reno's to the properties to increase your rental return/sale price?
Fresh coat of paint, install air con's, etc?
Cheers,
Ross
Hi Kristy,
Apologies for the tardy come back to you – been out doing some more bushfire training with another group of volunteers.
Simply converting both of your loans to interest only will make a significant adjustment to your situation. Now before you run off and get these wheels moving a word of caution – ANZ bank (there may be others) may not let you simply change your loan to interest only without redoing an assessment of your financial situation. If this the case then take this part warily.
On this note one of the resident brokers may be able to tell you whether, or not, your current lender/s will convert to interest only without any form of reassessment.
But back to the numbers after converting both loans to interest only:
House 1.
By my calculations (using 6% interest rate) your net cashflow position would be -$5220/annum (($435/month)
House 2.
By my calculations (using 6% interest rate) your net cashflow situation would be -$1740/annum ($145/month)
In effect your total savings using an interest only option would be in the vicinity of $470/month. Note this assumes you can negotiate an interest rate of 6%. With your reduced borrowings this may be a challenge for you both.
On top of this you can also submit a PAYG tax variation to help ease the cashflow squeeze for you both. In effect you forward estimate your tax position to the ATO and they will reduce your regular pay period tax. A depreciation report would provide extra benefits to you on top of this.
Having said that the PAYG variation option would be more suited to you and your situation than hubby's but hubby could also pursue the same option too.
On top of this you may be able to make some cosmetic improvements to the properties to improve rent returns – the problem you'll have here is that funds are already tight so you will be limited in what you can do. On this note I would also check with your property manager to make sure you are getting market rents for each property. You never know if you don't ask.
have you considered 'vendor finance' – there are plenty of resources around the place that explain this in some detail. This will help to improve your cashflow.
But the key question is "is it all worthwhile?"
If, after looking at the numbers I have crunched for you, they still look unattractive then selling up is not a bad option and starting again when you are in a better financial position. Sure you are not going to walk away with a lot (if anything) but releasing the current pressure valve in your life is not a silly thing either.
Hope this helps.
Hi Derek,
Thanks for all the advice. I will get in contact with my broker and see what they say regarding going interest only on my loan. I believe my interest rate is 6.3% so not far off the 6 you budgeted on.
But like you said, whether or not it is all actually worthwhile is another question. Sometimes I think I would rather just cut my losses and sell and pay back the bank on a personal loan and start fresh in another couple of years. My boyfriend is in a fair bit of a better situation than myself with his place but being a uni student does make it tight also. He seems to be against interest only loans.
I see you are in Perth but you wouldn't know any financial advisors in adelaide would you? Do you think it would help us to see one?
Thanks again for taking the time to help me.
Kirsty
Be very careful when considering personal loans – they (and other unsecured debts) have horrific consequences on credit scoring so if things are tight you need to tread carefuly.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
kochy1983 wrote:My boyfriend is in a fair bit of a better situation than myself with his place but being a uni student does make it tight also. He seems to be against interest only loans.I see you are in Perth but you wouldn't know any financial advisors in adelaide would you? Do you think it would help us to see one?
Hi Kristy,
Oops about hubby V boyfriend.
Re: Interest only loans. You need to slap your boyfriend. Seriously if he converts his loan to interest only it need only be for the duration of his studies.
Having said that interest only is a common strategy employed by many property investors for a great many valid reasons and for as long as they can. They may combine an interest only loan with an offset account to have the same effect as P & I.
Secondly if your boyfriend converts his loan to interest only he can continue to make payments as if the loans was P & I – having the flexibility is to his advantage moving forward from here.
Sorry cannot assist with Adelaide resources.
I just spoke to my loan bank suncorp about interest only and again I hear that the LVR has to be less than 90%. However he then went on to tell me mine was 80%. Not sure how he got that when I owe $175,000 on a $168,000 house!! Anyway I have the forms to fill in to apply to change so we will see how that goes.
I may also do what you suggested in an earlier post and next financial year see if I can get my tax return weekly. I have been told by others this is also a good idea.
I may even still just throw my place on the market and see how it goes, if I get close to what would cover the loan and selling costs it might just be easier to get out and save for a deposit on an investment property in an area of better growth and rent return
Thanks again
Kirsty
Hi Shahin,
thanks for your reply. One option the bank discussed with me was taking out a car loan (I do need a new one) of say $25,000, buying a car worth $10,000 and using the rest to pay out the home loan. They said this would then be a secured loan and at the lower rate of 8%. Have you ever heard of this?
cheers,
kirsty
Hi Ross
yes I think there would be a couple of things, I would like to repaintt (it's a horrible light pink in some rooms and light blue in the others!!) but wanted to wait until the tenant was out. At this stage it looks likely she is staying on. An air con also would be a good idea for the future. Probably new carpet and curtains wouldn't hurt either. Just getting the cash to do these few things is hard unfortunately.
Cheers
kirsty
Yes you can do that and you can even get secured car loans at around the 6.50% mark. However I am a little confused – you are struggling to meet repayments so why are you considering a car loan?
Also based on the numbers with property 1 – it looks like you are cross securitised however you mention that property 2 is owned by your partner?
Can you clarify this?
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
kochy1983 wrote:Hi Shahin,thanks for your reply. One option the bank discussed with me was taking out a car loan (I do need a new one) of say $25,000, buying a car worth $10,000 and using the rest to pay out the home loan. They said this would then be a secured loan and at the lower rate of 8%. Have you ever heard of this?
cheers,
kirsty
So lets go deeper in debt and compound the problem as well as exchange 6.3% debt for 8% debt.
You need an independent broker in the PI game who understands the issues, system and how to structure your setup to minimise your financial load while increasing your flexibility.
Engage Shahin to sort this out for you. He can help you reorganise this mess, disentangle from it and sell if required and help you position for a re-entry down the track.
The way you're tackling things at the moment you're going to end up deeper in debt with a an even more tangled mess than you have now and I predict within a short period of time a substantially impaired credit position.
Hi Shahin,
The reasoning behind the car loan was just that mine probably won't last any longer than another 6 months, I realise that it isn't ideal to add more debt, I just don't know how else I will be able to afford a car once the time comes that mine gives up. I don't have 10 cents to rub together really, even had to borrow $700 from a friend to have my dog put down 2 days ago, that's how tight things really are
I am a little unsure of what you mean by cross securitised but property 1 is solely owned by me and nothing to do with my partner who owns property 2. They are completely separate. We were just thinking of selling one and going in on the other one together, which is what my original post was about.
Thank you
Kirsty
Thank you Freckle. Yeah I realise that I am not making things very easy for myself and probably making more mistakes all the time. Given my time again I certainly would have chosen a different option than buying my house.
I appreciate everyone's help, it's probably a good wake up call for me.
Kirsty
Hi Derek,
1. OK thanks, I will look into that straight away.
2. I bought the property with my father going guarantor, which was why I was able to purchase so much with no deposit. I have no idea why the person on the other end of the phone at Suncorp said my LVR was 80%, he was just looking very quickly though and I just think he has made a mistake when he said this. He wasn't any sort of broker, just someone who answered my call on the other end.
3. I thought I was, but probably looking at some aspects I am not really as much as someone in my financial position should be. I don't spend alot of money on things like clothes, social life etc but just things like buying lunch and going out for tea.
4. Thanks, I will take a look into those options.
Thanks about my dog, is a big wake up call for myself when I know if I could have come up with the money he may have been able to be saved.
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