All Topics / General Property / Which is best…equity or cash???

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  • Profile photo of FishFish
    Member
    @fish
    Join Date: 2004
    Post Count: 14

    Hi all,

    Just seeking some advice as to whether to sell my land and use the cash in my bank to buy an IP, or to keep the land and use the equity?

    The land has had it’s boom and gives me around $50,000 in equity to show the bank. If I sell, I’ll have around $35,000 after CGT and sales costs.

    Am I better to leave the land as is and borrow against the $50K equity, or to sell and have a lesser sum of $35K in my bank, against which to borrow???

    Thanks all!

    Fish

    Profile photo of redwingredwing
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    @redwing
    Join Date: 2003
    Post Count: 2,733

    Where is the land..Rural ? City ? why not develop the land and put an income producing IP on it, you then have the savings of your land component plus replacement cost of your new Property..or 2 depending on land size, heck if big enough, subdivide and sell a portion..

    Possibilities………………………….>

    REDWING

    “Money is a currency, like electricity and it requires momentum to make it Effective”
    Count The Currency With This Online Positive Cashflow Calculator

    Profile photo of SuperTedSuperTed
    Member
    @superted
    Join Date: 2003
    Post Count: 205
    Originally posted by Fish:

    Hi all,

    Just seeking some advice as to whether to sell my land and use the cash in my bank to buy an IP, or to keep the land and use the equity?

    The land has had it’s boom and gives me around $50,000 in equity to show the bank. If I sell, I’ll have around $35,000 after CGT and sales costs.

    Am I better to leave the land as is and borrow against the $50K equity, or to sell and have a lesser sum of $35K in my bank, against which to borrow???

    Thanks all!

    Fish

    If the bank uses the 50k (after their valuation) then u will get more leverage, ie can spend more.

    But having land that brings no income and has the possibility of declining in value, then CASH is king.

    Me i would sell and sit back with the cash (which is what i am doing now ;-) afterall my area has started to come back down the other side of the peak.

    Profile photo of geogeo
    Member
    @geo
    Join Date: 2003
    Post Count: 1,194

    my advice is never to sell – keep it – it’s an asset. I would advise selling it when it hits its boom, thus delivering to you more cash you can play with. Use the equity for the time being. If you ever get stuck, you can sell the land for cash. But if you sell it now and use the cash, you’ll having nothing left to play with.

    good advice from redwing – you can build on it and lease that property out.

    “If You never never ask, you’ll never never know”

    Profile photo of RussHRussH
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    @russh
    Join Date: 2004
    Post Count: 342

    Land is not an asset but a liability.If something costs you money and has no return then it isa liability.
    Sell the land and invest the nmoney on a +cf property.
    An asset is something that makes you money.i.e a cash flow + property.
    Russ

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Do you have a mortgage on your home? If so, maybe you should consider selling and paying profit into your home mortgage and then borrowing against that to invest.

    Terryw
    Discover Home Loans
    North Sydney
    [email protected]

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of SiboSibo
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    @sibo
    Join Date: 2003
    Post Count: 126

    I agree with russh – if its not making money its a burden. however if selling would lose more money than mortgaging, mortgage but be sure to buy a positive IP that will fully pay the costs of ownership.

    Regards,
    Si

    Profile photo of MiniMogulMiniMogul
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    @minimogul
    Join Date: 2002
    Post Count: 1,414

    A house + land is still gives you the benefit that it has a ‘land’ component, but stick a house on it, and there’s an income stream likely to be higher than hiring it out the bare land for the local sheep to graze on.

    So…you could take the 50K you could access, and use it (theoretically) to buy another property. In NZ that’d get you 30 percent LVR on say 150k worth of properties, which could be say a high yielding block of flats in a regional town of over 10000 people with half of it, and also maybe a 3 bedroom house in a regional city, and you’d still have money left over for closing costs.

    Or perhaps you could relocate an existing house on to the site- might cost you 30K to relocate it and fix it up or whatever, but you might be able to actually get the house for free, or 5-10K if you are lucky enough to find a reasonable house for removal nearby. make a rental property that way. depends on the area I guess.

    cheers-
    Mini

    Profile photo of sizzling_ducksizzling_duck
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    @sizzling_duck
    Join Date: 2004
    Post Count: 129
    Originally posted by RussH:

    Land is not an asset but a liability.If something costs you money and has no return then it isa liability.
    Sell the land and invest the nmoney on a +cf property.
    An asset is something that makes you money.i.e a cash flow + property.
    Russ

    An asset is anything you own, regardless of whether it makes you money or not. Your blinkers have shown to far this time RussH.

    An example is cars are classed as an asset, they cost you money the run AND depreciates (in general), but they are still useful.

    No information had been given on the area the land is in, the size of the block, whether in fact it could be sub-divided or an active rental market in place. Even the purchase price may have been helpful to know when looking at what is possible.

    Several options would exist:

    – sell the land if he has a mortgage to pay off. Put the cash to work on reducing the interest while preparing to use the equity to find a cf+ place (probably what RussH is talking about)

    – use the equity in the land to get you loans on cf+ places. This is an option if you want to turn this to a investment property as well, some suggestions like a relocated house and turn it into an IP is a good option.

    – if not rental but a buying and living area perhaps use the equity to build a house on it and sell it off. Look for comparable blocks with a house size you are prepared to build and find out its value. Even in this case you could rent it out, but probably not as beneficial as the cheap relocated house and other IPs option.

    – if the block is large and you can sub-divide then perhaps this is the best option. You could possibly even relocate a few houses on a couple of the sub-divided blocks to get you a decent rental income, most probably end up quite cf+ in the end too.

    – lets say it is a large block but no plans of sub-division currently and you don’t want to build or relocate a house at this point in case of a sub-division plan later on. Then at this point it is an Asset with an associated Liability (usually in the form of rates). If you believe the value will increase (capital gains +ve) and you could ‘rent’ the land out to local farmers, (for horses this is called agistment I think) for roughly the value of the rates each year. You can still draw down on the equity to get yourself some IPs and since you have more equity to invest in IPs than cash if you do sell it then obviously keeping it would help. Still rent from a cheap house outweighs by far rent from a farmer for livestock or horses to graze on….

    Just a few non-blinkered ideas [rolleyesanim]

    A bit more info would probably help btw [biggrin]

    Profile photo of Michael RMichael R
    Member
    @michael-r
    Join Date: 2003
    Post Count: 302

    As a general rule – and based on the information you have provided, retain the land and borrow against the equity.

    This recommendation assumes the land is not a financial burden and is in a suitable location from a lenders perspective.

    — Michael

    Profile photo of SuperTedSuperTed
    Member
    @superted
    Join Date: 2003
    Post Count: 205
    Originally posted by sizzling_duck:

    Originally posted by RussH:

    Land is not an asset but a liability.If something costs you money and has no return then it isa liability.
    Sell the land and invest the nmoney on a +cf property.
    An asset is something that makes you money.i.e a cash flow + property.
    Russ

    An asset is anything you own, regardless of whether it makes you money or not. Your blinkers have shown to far this time RussH.

    An example is cars are classed as an asset, they cost you money the run AND depreciates (in general), but they are still useful.

    No information had been given on the area the land is in, the size of the block, whether in fact it could be sub-divided or an active rental market in place. Even the purchase price may have been helpful to know when looking at what is possible.

    Several options would exist:

    – sell the land if he has a mortgage to pay off. Put the cash to work on reducing the interest while preparing to use the equity to find a cf+ place (probably what RussH is talking about)

    – use the equity in the land to get you loans on cf+ places. This is an option if you want to turn this to a investment property as well, some suggestions like a relocated house and turn it into an IP is a good option.

    – if not rental but a buying and living area perhaps use the equity to build a house on it and sell it off. Look for comparable blocks with a house size you are prepared to build and find out its value. Even in this case you could rent it out, but probably not as beneficial as the cheap relocated house and other IPs option.

    – if the block is large and you can sub-divide then perhaps this is the best option. You could possibly even relocate a few houses on a couple of the sub-divided blocks to get you a decent rental income, most probably end up quite cf+ in the end too.

    – lets say it is a large block but no plans of sub-division currently and you don’t want to build or relocate a house at this point in case of a sub-division plan later on. Then at this point it is an Asset with an associated Liability (usually in the form of rates). If you believe the value will increase (capital gains +ve) and you could ‘rent’ the land out to local farmers, (for horses this is called agistment I think) for roughly the value of the rates each year. You can still draw down on the equity to get yourself some IPs and since you have more equity to invest in IPs than cash if you do sell it then obviously keeping it would help. Still rent from a cheap house outweighs by far rent from a farmer for livestock or horses to graze on….

    Just a few non-blinkered ideas [rolleyesanim]

    A bit more info would probably help btw [biggrin]

    LOL….. yr non blinkered ideas have basically been covered by the people with blinkers on.

    I would agree with Russ (which is Rich Dads definition) of what an asset and a liability are.

    Profile photo of sizzling_ducksizzling_duck
    Member
    @sizzling_duck
    Join Date: 2004
    Post Count: 129
    LOL….. yr non blinkered ideas have basically been covered by the people with blinkers on.

    I would agree with Russ (which is Rich Dads definition) of what an asset and a liability are.

    So someone suggested building a new building and then selling? Sorry, I didn’t read that anywhere. Or in fact subdividing and creating multiple rentals using the relocated house idea? Really? where did someone post that?

    As for the definition of an asset or a liability it is basic bookkeeping. Not some book, even if relevant to some people, who has some differing version.

    Asset (meaning): Accounting. The entries on a balance sheet showing all properties, both tangible and intangible, and claims against others that may be applied to cover the liabilities of a person or business. Assets can include cash, stock, inventories, property rights, and goodwill.

    Liability (meaning): The financial obligations entered in the balance sheet of a business enterprise.

    In the above case of a land with no income it is an Asset (Land) with an associated Liability (rates). This still has potential for growth (CG +ve), but not a very efficient method of making money.

    Profile photo of SuperTedSuperTed
    Member
    @superted
    Join Date: 2003
    Post Count: 205
    Originally posted by sizzling_duck:

    LOL….. yr non blinkered ideas have basically been covered by the people with blinkers on.

    I would agree with Russ (which is Rich Dads definition) of what an asset and a liability are.

    So someone suggested building a new building and then selling? Sorry, I didn’t read that anywhere. Or in fact subdividing and creating multiple rentals using the relocated house idea? Really? where did someone post that?

    As for the definition of an asset or a liability it is basic bookkeeping. Not some book, even if relevant to some people, who has some differing version.

    Asset (meaning): Accounting. The entries on a balance sheet showing all properties, both tangible and intangible, and claims against others that may be applied to cover the liabilities of a person or business. Assets can include cash, stock, inventories, property rights, and goodwill.

    Liability (meaning): The financial obligations entered in the balance sheet of a business enterprise.

    In the above case of a land with no income it is an Asset (Land) with an associated Liability (rates). This still has potential for growth (CG +ve), but not a very efficient method of making money.

    Mmmm…thinking how much time to waste on this.

    Definitions of Asset and Liability you are “technically” correct.

    Unblinkered view is an asset makes money, liability loses money.

    And yes your ideas have “basically” been covered by others.

    Yawwwns

    Profile photo of wilandelwilandel
    Member
    @wilandel
    Join Date: 2003
    Post Count: 761

    Hi Fish,

    Do you have a loan on this land or is it fully paid off?

    If you do have a loan, and you’ve already had a large gain in value then I’d definately SELL, and move on to a deal that is not using equity to fund it.

    A 20% deposit is the only way I’d go in this RE climate…

    Just my opinion,[exhappy]

    Del

    I’m off to NZ again, to search for more GREAT +ve cashflow deals.
    If you’re interested in hearing about any quality deals then PM me for details!! This is a genuine offer.

    Profile photo of SiboSibo
    Participant
    @sibo
    Join Date: 2003
    Post Count: 126
    Originally posted by sizzling_duck:

    Originally posted by RussH:

    Land is not an asset but a liability.If something costs you money and has no return then it isa liability.
    Sell the land and invest the nmoney on a +cf property.
    An asset is something that makes you money.i.e a cash flow + property.
    Russ

    An asset is anything you own, regardless of whether it makes you money or not. Your blinkers have shown to far this time RussH.

    An example is cars are classed as an asset, they cost you money the run AND depreciates (in general), but they are still useful.

    No information had been given on the area the land is in, the size of the block, whether in fact it could be sub-divided or an active rental market in place. Even the purchase price may have been helpful to know when looking at what is possible.

    Several options would exist:

    – sell the land if he has a mortgage to pay off. Put the cash to work on reducing the interest while preparing to use the equity to find a cf+ place (probably what RussH is talking about)

    – use the equity in the land to get you loans on cf+ places. This is an option if you want to turn this to a investment property as well, some suggestions like a relocated house and turn it into an IP is a good option.

    – if not rental but a buying and living area perhaps use the equity to build a house on it and sell it off. Look for comparable blocks with a house size you are prepared to build and find out its value. Even in this case you could rent it out, but probably not as beneficial as the cheap relocated house and other IPs option.

    – if the block is large and you can sub-divide then perhaps this is the best option. You could possibly even relocate a few houses on a couple of the sub-divided blocks to get you a decent rental income, most probably end up quite cf+ in the end too.

    – lets say it is a large block but no plans of sub-division currently and you don’t want to build or relocate a house at this point in case of a sub-division plan later on. Then at this point it is an Asset with an associated Liability (usually in the form of rates). If you believe the value will increase (capital gains +ve) and you could ‘rent’ the land out to local farmers, (for horses this is called agistment I think) for roughly the value of the rates each year. You can still draw down on the equity to get yourself some IPs and since you have more equity to invest in IPs than cash if you do sell it then obviously keeping it would help. Still rent from a cheap house outweighs by far rent from a farmer for livestock or horses to graze on….

    Just a few non-blinkered ideas [rolleyesanim]

    A bit more info would probably help btw [biggrin]

    Regards,
    Si

    Profile photo of SiboSibo
    Participant
    @sibo
    Join Date: 2003
    Post Count: 126

    Sorry for that previous botched quote. I agree with RussH regards asset definition. If it costs you money its a liability. That way, accruing assets means becoming more financially secure. A person with a moderate income and running ten cars may not be secure due to enourmous maintenance costs. this definition makes assets a desirable thing to acquire.

    Regards,
    Si

    Profile photo of sizzling_ducksizzling_duck
    Member
    @sizzling_duck
    Join Date: 2004
    Post Count: 129
    Originally posted by Sibo:

    Sorry for that previous botched quote. I agree with RussH regards asset definition. If it costs you money its a liability. That way, accruing assets means becoming more financially secure. A person with a moderate income and running ten cars may not be secure due to enourmous maintenance costs. this definition makes assets a desirable thing to acquire.

    Regards,
    Si

    So under this warped definition only cf+ properties are assets and cf- properties are liabilities?

    I guess you guys are the glass half empty types?

    Profile photo of SuperTedSuperTed
    Member
    @superted
    Join Date: 2003
    Post Count: 205

    [/quote]

    I guess you guys are the glass half empty types?
    [/quote]

    Quite the opposite actually (cant speek for the rest).

    You seem transfixed on the “technical” definition for which you are CORRECT, are you an accountant?

    The other method that most of us are on agreement is the most practical way to look at assets and liabilities for long term wealth.

    But if you are happy your way so be it, dont let me change it in yr quest to accumulate unlimited -ve geared assets ;-)

    Profile photo of Michael RMichael R
    Member
    @michael-r
    Join Date: 2003
    Post Count: 302

    Any prominant real estate investor will tell you land or any other real estate holding is defined as an “asset” – not a liability, even if the debt to income ratio is weighted toward debt.

    Forget how the Rich Dad book defines assets and liabilities – such statements do not do much for ones credibility as an investor.

    The following statement sums up the true definition of assets and liabilities in a round about way.

    “..land with no income is an Asset (Land) with an associated Liability (rates). This still has potential for growth (CG +ve), but not a very efficient method of making money.”

    This statement is the most contradictory.

    “The other method that most of us are on agreement is the most practical way to look at assets and liabilities for long term wealth.”

    Based on the majority of comments, it would appear most people on this post understand how to generate “income” from real estate – which is admirable, but not long term “wealth”.

    I find the following [back handed] statement interesting – which seems to follow the general tone on this topic.

    “But if you are happy your way so be it, dont let me change it in yr quest to accumulate unlimited -ve geared assets”

    This depicts the Rich Dad mentality – FYI the authors generate their wealth through the sale of books and seminars, not real estate.

    A good number of very prominant real estate investors I know have never acquired a positive geared property – on a different scale to SFH’s, but the fundamentals are the same. These people are a true definition of “wealth”.

    Risk = Reward.

    An investor seeking wealth should never be consumed by an ongoing search for positive geared properties. This is a sure way to overlook some of the most lucrative investment opportunities.

    — Michael

    Profile photo of sizzling_ducksizzling_duck
    Member
    @sizzling_duck
    Join Date: 2004
    Post Count: 129
    You seem transfixed on the “technical” definition for which you are CORRECT, are you an accountant?

    No, I don’t mind dealing with numbers and did bookkeeping as a subject in my junior highschool component for two years but hardly ‘an accountant’. The terminology when talking to newbies or when newbies are involved in a forum is important. They may not understand the basics of ‘Assets’ and ‘Liabilities’ and even if they have touched on them calling a block of land you own a liability would not really help inform them of anything.

    If for example the definition had been given:

    ‘that even though land is classed as an asset I would still class it as a liability as it is losing you money in the short-term and it isn’t really working for you in my opinion’, then there is nothing wrong with that. Its your opinion and is valued on this board as such.

    The fact is that the land is an ‘asset’ technical or otherwise. The real answer in this thread is that yourself and Russh, I believe classify the $35,000 in cash leftover from selling the land is worth more than the $50,000 in equity in the block as it has an associated liability.

    But if you are happy your way so be it, dont let me change it in yr quest to accumulate unlimited -ve geared assets ;-)

    At no stage did I say I was leaning towards -ve geared assets and nearly all my comments were in fact ways to turn the property +ve.

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