Gday forum members
Ive reassessed my portfolio today, with the impending settlement of my 6th property on Jul 2, however its a bit bleak:
Jul 2 holiday house $840K, holiday rental at best $12k a year – bought as lifestyle option for me not because it was an investment success story, though cap growth will be good, on water in Mt Martha.
IPs:
1: PP$225K rent $845pcm
2: PP$265K rent $1040pcm
3: PP$250K rent $954pcm
4: PP$237K rent suppposed to be $1750pcm but not all rooms rented, curr at $1229pcm5: PPOR PP $480k Loan at $210k – equity being used to purch holiday home which I dropped $30k only on as deposit, rest is equity.
Whilst IP 1 – 4 cover loan repayments (even at reduced rent on one), its is a negative portfolio. Properties bought to hold with excellent cap growth potential, and solves my tax problem which ranges at company paying $250K in tax a year and my being on top personal tax bracket.
I thought I was doing the right thing. My accountant is happy as this has helped with the tax problem we had, but…
My goal: to own all properties within 10 year period from settlement date and to own a minimum of 20 properties, hopefully more like 40 by time Im 45 (approx 3.3 per year). I do want an income from these, which will occur as they get paid out, and retire at 45 (now 33). Now that Ive slam dunked my portfolio with the holiday home (this wasnt really an investment, it was just an “i want”), I need to take on board cash flow properties only to breathe life back into the mix.
But I feel like Ive messed up, becausee if the business isnt there tomorrow, I cant afford to keep going.
I really could use some feedback.
Does this sound right?
Cheers
Jars
Me thinks this is in wrong section, apols, should be under Help needed, cant move it now….
I do still need feedback though!
Hi Jars,
It seems to me that you have drifted off course.
Your other properties seem to be ‘solid investments’ in your situation and have all been purchased with a clearly defined criteria and purpose in mind.
And then came the ‘holiday rental.’
I must admit I am anti-holiday rentals as a rule of thumb and as such I tend to put them almost in the same category as ‘doodads’ and trinkets. Compounding this is the fact that this property has consumed so much of your serviceability and equity for very little return. Any growth will need to be truly significant to offset the negative cashflow you have.
For mine – I think I would be cutting my ‘losses’ and selling the holdiay rental and using the borrowing capacity to get myself back on track. Sure you’ll take a buying and selling loss but it also means you will be back on track.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Derek
My thanks for your reply. This is true, and I know it. I bought it because I wanted something for me, a place to de-stress close enough to Melbourne that I would use it, as often as possible. It never made investment sense and my accountant didnt want me to buy it. I felt that I was working so hard, that I wanted something for me, and when I was there, I felt such peace, and I dont get that a lot. But I guess, in another sense it keeps me working so hard. I feel to keep it and enjoy if for a while, while I have the business, but without the business, it would have to be sold. Hmmm. Is it not possible to resurrect the portfolio with other +ve cashflows to even it out, of course, have to find them. I keep going round in circles…..
Hi Jars,
Of course the possibility of looking for cashflow positive properties is an option, however I would be concerned the holiday home will become a large millstone and detract your from your journey for an extended period of time.
Given the desire to periodically ‘put your feet up’ from time to time you may be better ‘paying yourself’ to go on a regular weekend away to recharge the batteries.
According to my calculations the ‘annual loss’ on this property is extremely high and as such you could earmark 10-20% of the otherwise loss money towards funding your regular little ‘breaks’ and at different localities.
But then I am not in your shoes so ………….
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Jars I can’t really see the problem – if the co (which I assume you own) is netting $750k and you are on at least $100k personally, surely you can afford the holiday home that will yield above ave cap gains and give some pleasure as well? And with that income why waste time buying poorly located CF+ properties – just stock up on the quality low rent ones as you can service them no probs. I wouldn’t say you have drifted off course – just keep on buying IP’s and the balance of your asset allocation ie. hol home vs IP’s will look more reasonable as time goes by anyway. And as time goes by your rents on your initial IPs will rise and should balance thinngs up beter as well.
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
Hi AusProp
Thanks for the balanced feedback and the alterntaive viewpoint. I will deeply consider both views, as I am a tad uncomfortable with it, but really, I dont think Ive ever felt a “confort zone” anyway, Ive always put myself under pressure.
We shall see, I will do some more numbers and chat with the bank re my serviceablity. They havent taken into account any rental income yet, so I may be able to “fix” the portfilio with better choices going forward. We shall see…..
Thank you very much [biggrin]
Jars
Hi Jars,
Another thought – the holiday property almost doubles your debt level but yet only contributes around 25% of your total rental income.
Seems to me it will be a long term drain – having said that maybe some well located in good growth areas that add proportionately more to your total rental income may be a better option than pure cashflow buys.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
I agree with Derek! Go rent out first class hotel rooms (I’ve herd the preidential suite is the best and quite nice too).
You will lose $24,000 each yr. if you hang on to your holiday home. For every 1% interest rate rise you will be paying an additional $3,600. So if loans goto 8.5% by 205/6 (predicted by some analysts) you will pay $32,000, along with all the other property expenses.
If you stayed at a 5 star hotel (deluxe suite of coure) you could go up to 48 times (staying two days aweek) before you out of pocket to the money you are losing on your holiday home. Hell, stay in a 6 star hotel on the preidentail suite and you could go at least 24 times. Or go on a real fanncy holiday every year ($20K for that and relax in a hotel once every six weeks!).
Also I don’t understand why you are paying thye top marginal tax rate if you own the company?
If you own the company you shouldn’t be paying any more than 30%, at all. Saying that though it really is not too difficult to get it much lower than this…Of course if you are an employee then I can understand why, as the Gov. gives hardly any tax breaks to employees.
Rgds.
Lucifer_auJars
I’ve got no problems with the level of your portfolio, especially as you have the income to service it. I also believe in rewarding yourself or else what’s the point…
Anyway, if I had such a large income (and obviously you have the possibility of increasing your wages as your deductions increase, thus keeping your tax payable down….) I would look at purchasing post 1985 properties (preferably newish ones) that will rent reasonably, but will give bucketloads of depreciation.
Also, instead of aiming to pay them all off in 10 years, I would look at increasing the portfolio steadily using IO loans (and paying all extra off your holiday house[biggrin]) even though it can be deducted too…..
That way, by the time the next boom comes around, you’ll have a bigger portfolio to go into it with, thus having bigger growth. then you could choose to sell off one or more of your properties, to pay down the debt on the others.
Then of course, you’ll have a tax problem[biggrin], so buy some more new houses for the depreciation…….
Cheers
Mel
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