hello all
I just had a big argument with my wife regarding our future and neither of us could persuade the other. so i need your wisdom and help.
My wife and i are small business owners and are trading long hours for money. The cashflow is not too bad but we don’t like the idea of working long hours and having no passive income. Also we’re planning to have a child in the near future, which means cashflow nightmare and less income for us (we have to hire someone to replace my wife).
My wife thinks we should buy a house for PPOP, work hard for another 2-3 years, sell the current business and buy a bigger one so that we can hire people to work for us and we would be able to have time and income from the bigger business to invest in properties. We’ve saved 60-70k so we can afford a house in Sydney’s western areas around the price of 400K-450K.
I don’t quite agree because of the following reasons:
1) we wouldn’t have too much equity in our house in 2-3 years time since during the first a few years most of our loan repayments would be the interest part. (am i right or wrong?)2) even if our house appreciate in value in 2-3 years, by using our house to take a loan for the “bigger business”, we would be risking losing our house if “something” happened. so it’s not a good idea to get a commercial loan against our house to buy a “bigger business”. (am i right or wrong?)
3) with 60k-70k at hand, we already can start investing in properties, especially those positively-geared ones. But the problem is: we don’t have too much time left after working long hours. The only possible time is weekends. so i’m trying to convince my wife that “we’ve got some money in hand, and we should start looking for +cashflow properties rather than using it as deposit for our own house.” (am i right or wrong?)
any comments, help would be greatly appreciated as we’re determining our life’s future.
thanks again
kenKen, a lot of what you two are discussing is personal preference.
From a pure $$ point of view, I think you can probably rent a house for less than it would cost to buy that same house in Sydney.
If you did go down this path, then the money you have could definitely start your positively geared portfolio, which hopefully would go some way towards the cashflow ‘crisis’ when a bub comes along.
As for having no time to find the deals yourself, there are at least three people on these boards who provide a ‘spotters’ service which you could use to find the properties for you.
Best find out if your wife wants a PPOR emotionally, or if it is the financial reasons she has stated. If it’s the emotional thing, it’s going to be tougher to convince her that it’s not necessarily the best financial way.
Cheers
MelThank you so much melbear, for taking the time to read and comment on my personal situation. very much appreciated.
anyway, although quite a few issues are “personal preferences”, my 1st and 2nd questions were not:
1) is it true that if we buy a house and make repayments, the first 2 or 3 years’ repayments will be the interest part and thus we won’t have too much equity in the house?2) is it a “bad” idea if we try to get a commercial loan to buy a business by borrowing against out PPOR house?
Thanks again
kenHi Ken,
1) is it true that if we buy a house and make repayments, the first 2 or 3 years’ repayments will be the interest part and thus we won’t have too much equity in the house?
Yes – pretty much so – provided you are only making minium payments. I recommend you find a loan calculator and play around with the various options to see what each option does for you bottom line.
http://www.realestate.com.au/cgi-bin/rsearch?a=loan&t=res
2) is it a “bad” idea if we try to get a commercial loan to buy a business by borrowing against out PPOR house?
Without knowing the ins and outs of your situation I would suggest the more distant you can keep the two loans the better off you will be.
Definitely one for legal advice to ensure you and your home and business are as protected as much as possible. Given the implications of a wrong decision at this time – this is one that should be ‘checked out’.
Derek
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