Hi all,
I am in a bit of a dilema at present. Currently i own my own 3bdrm home which would sell on todays market at around 230k. I currently have 2 flat mates renting out the 2 spare rooms for $80 each a week. I currently owe a little under 90k on the mortgage.
I am currently looking a 2 senarios in order to get me into the PI path.
The first is to sell my place and take the equity and by a place out of town for around 120-130k and the put the 20-30k into a cash positive property. Benifits are having freehold home with potential capital gain being on the outer edge of town. And another only having minium debt.
The second option is to refinance my current home to a level that i would only contribute a little then buy a another property with that cash which would be approx 80k either buy 1 or 2 cash positive properties. Benifits being either a more cash positive property or multiple cash positive properties. Downside higher amount of debt to service.
I would love to here your thoughts.
Hi Paybac,
welcome to this fabulous forum.
If you do a bit of searching around on the different topics you will see the common theme about what most of us think about whether to a)sell or b)refinance and use the equity.
I believe that you should do option B as I have mentioned above. The selling and buying costs of option A will eat up a lot of your equity if you choose that path. It isn’t necessary, plus you will lose the benefit of long-term cap growth on your existing property.
Speaking of which, if you declare the room-mates rent that you receive I am fairly sure you can claim that proportion of the property expenses that is used for income purposes. You will need to check with an accountant on that. In effect, you can turn your existing property into an I.P already.Higher debt and the serviceability of that debt is all relative. When you first begin your investment career you will be a bit scared of the increased debt, but don’t forget you will also have increased income, tax deductions etc. You will become accustomed to the numbers very quickly.
Just make sure you spread your risk a bit by not buying something too expensive and harder to get a good rent return on – two cheaper properties is usually a better/safer bet than one expensive one, and the rent returns are usually better also.
The banks will usually let you access about 80% of your property value, less any existing loans you have. So based on the info you have provided, you can use $184k (80% of $230k) less the $90k that you owe. This leaves you $94k of useable equity (I haven’t included c/cards or car loans, but the bank will).
Cheers,
Marc.
[email protected]Yes I would have to agree with Marc the losses incurred buying and selling usually if you can keep the place you have and use the equity financially you could be better off.
Why dont you contact a local Mortgage Broker and discuss your options with them. Just be sure you choose a reputable one, ensure they belong to a professional body, and have adequate training or credentials.
Good luck with your decision
Wayne Skewes
Mortgage Broker
Email [email protected]
http://www.eaussie.com.au/Mortgages/Aussie_Mortgage_Adviser.asp?ContentID=852280
Refinace, Loan Consolidation, Owner Occupied or Investment Finance. Free Service I come to you!Cheers for the feedback Marc and Wayne. I see now that option b would be the better option. I have also looked back at my current situation and looking at running my own home more affectively to acheive more positive income from it.
I quickly realised that i was charging under market value for rent. I also added a couple of features to justify an even higher rent rise. Originally i was charging the 2 guys $80 a week each. I asked the guys if they would be happy to pay $100 a week rent each and also told them i would give them access to my internet. They were happy with this as the new they were getting a good deal anyway. The standard market value would be $90.
So by offering a feature that i would pay for anyway the 2 guys give me $10 over M.V. rent. Win Win.
I also asked what else they would like that would justify more of a rent increase to them. Both would pay more rent if i got a spa pool. So currently doing my sums to see how much more rent i would need them to pay to justify it.
Cheers Josh
Good work, Josh.
careful on the spa pool. From experience they are expensive to run and a fair bit of work to maintain. It may not be worth the cost.I’d go for the large screen plasma with cable and a Wii if you want to get some more pesos outta the boys.
The flatmates will love it and it’s a depreciable expense.By the way; I just had a thought; have you got public liability insurance? Treat this like a business.
Cheers,
Marc.
[email protected]Thanks Marc
No i haven’t got public liability insurance will definatly be looking into it.
Depreciable expense? Dont no much about it but will be looking into it. I’m sure there will be thread on it.
Cheers
JoshDepreciable Expense means that when you buy an expensive item in a business, you can claim it over several years in your tax return. Eg if you buy a TV for $1,000 and the ATO says that if can be depreciated at 25% you can claim $250 off your income each year.
You can also claim depreciation on your floorcoverings (carpets, vinyl, etc), curtains, light fittings, etc.
Consult the ATO website or your accountant for the correct percentages.
Similar because your flatmates pay $10 extra rent, you can claim at least 2/3 of the internet costs. Same with rates, electricity, water, etc.
Think of every expense that you have in relation of your flat and think if it is related to your income.
The only drawback of this is that you may have to pay CGT on 2/3 of your profit should you sell your house.
If in the end you live in it for some time alone, you may be able to ‘forget’ about the tenants, but legally you have to account a pro rata amount for the time it was an IP.So much to the depreciation issue.
I think you would be well advised to stay in your house. After all you have achieved what we are all looking for, a cashflow positve property. You pay about $7,000 in interest plus perhaps $2000-3000? in rates and expenses.Furthermore you should be able to access about $90,000 in equity from the house. This allows you to look for property around the $350,000. Well done
Thanks BB,
Will definetly be looking into it more.
Interviews with Mortgage Brokers next week is my next stop.
One more thing Josh
You may wish to establish a Trust to use as an Investment Vehicle rather than owning the property in your own name?
Regards
Demkel
Good point demkel.
Some more hints:
Don’t rush into anything. Talk to lots of people (morgage brokers, accountants, real estate agents, friends, etc, etc).Read books about investing.
Research different areas to determine which may be good for investing.
Look at lots of houses in different areas and how you could make them work.
The more research you do before you start, the better off you will be. But once you got a good foundation, just do it. And remember, the deal of the century comes along about once a month!
You must be logged in to reply to this topic. If you don't have an account, you can register here.
