Any suggestions on how to improve my “lossesâ€
Here is the story:
I have 3 IP’s and my PPOR.
2 IP’s are returning $260 a week
1 IP is returning $150 a weekI owe 380000 on the first 2 IP’s and they are worth around $330000 each
I owe $198000 on the third IP and its worth around $240000
My PPOR is worth $300000 and I owe $65000 on it.
I’m doing OK financially and I have enough income to support the payments on all the houses even if they do not rent out…but it seems like I should be working easier for this!! In order to finance this I have to work overseas for about 10 months of the year 14 hours a day 7 days a week…I’m all for making money, but we should live a little as well!
Any suggestions on how to improve the cash flow or better manage the finances. I’m loathed to sell one of the first two IP’s as they are brand new houses in a reasonable good suburb in Perth. I bought and old house demolished and developed the two properties, so there is some attachment to the place also.
The same goes for the other IP, it has good future growth (bought at 205000 six months ago). So my dilemma!… is do I continue to lose cash as all the properties are negatively geared, or sell a property that I will surely look back in ten years and say I used to own that and I can’t believe what they want for it now!
I have been thinking of rolling the loan from my $240000 property into the other IP’s. This would give me a loan totaling the same that I own right now (198000 + 380000) but I would own the 240000 house outright and it would be a positively geared property…is there any sense in doing that, a mate of mine recommended that method.
I don’t rent out my PPOR as my mum lives there…so no extra cash on that place, just in case you were wondering.
Any comments would be appreciated
Regards
TI like giving simple replies.
If it’s causing you too much stress, sell one and reduce your overall debt.
If you think it’s worth the stress and you can put up with it, don’t sell any.
Only you know the answer really
Ask yourself, is the lure of the future worth so much sacrifice now? As you said, you need a life. Investing is just a means to an end and money ain’t everything (although it’s nice to have!!).
By the way, rolling the loan over will still leave you with the same LVR, so what’s the benefit?
Cheers
rHowm about doing a lease/option (or wraps) on the non performing properties? You can command premium payments without much downside.
Perhaps it would of be better to go after CF+ properties. You don’t have to work as hard since they are putting money into your pocket.
Rgds.
Lucifer_auI agree with Richmonnd. Property is a long term gain. We have just been lucky the last 5 years. Its only been catch up.
Thats true Yack. I had a very small IP That I purchased 9 years ago and I swear only in the last year did it go up in value. If you can just hang on to them it will be so worth it in the long run.
InezThanks for the replies. I guess I will keep doing the hours and reduce the principle as quick as possible. Not familiar enough with wraps at this stage, and I don’t have much time to manage the properties.
Thanks again
MHi Micasa,
It sounds as if you are paying P & I on your investment loans. Based on this assumption I belive you would be better off converting some or all of your investment to interest only, especially while you still have some non-deductible debt.
After your home is paid off then reconsider your options.
In addition you may want to consider a PAYG variation form (if appropriate) and a depreciation report to maximise your cashflow – if you haven’t already done so.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Micasa
My opinion is that you need to look at +ve cash flow properties. I am yet to hear someone such as Steve or Rick promote -ve gearing. The idea of investing is to help reduce your workload, not increase it. Capital gain is marvellous, but not if you have to kill yourself for it for the next 20 years, in my opinion.
Anthony
Thank Derek, I have one property on IO, the rest are PI, when I was thinking of rolling all the loans up into one I was considering IO. This would give one fully owned +ve property. Which I could borrow from for another +ve property. And all spare cash could be used to reduce the -ve properties.
M
Hi
There is no real point in rolling all your loans together as the repayment over would be similar. It would be good to have an unencumbered property tho.
There is one way of selling and keeping at the same time. You can do this by setting up a trust, and selling to your trust. Stamp duty and CGT may apply, but you will be able to increase your loan as high as possible, and use the proceeds to pay down your PPOR loan. This converts deductible debt into non deductible. So hopefully you could wipe out your home loan completely and decrease the amount of tax you pay. However in your situation, this may not be all that much, so you will have to work out if it is worth the hassle and costs.
I would also make sure all IP loans are IO.
Terryw
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Thanks Terry,
I will be looking at trusts in the future, I have been told that you have to pay stamp duty if transfering existing properties, and that would be a big loss given WA stamp duty rates.
M
Micasa,
Why do you have a home debt when you have plenty of equity in your investment properties to transfer this over.
I suggest you look at your financing structure to improve your cashflow.
Phil
Hi Phil,
Do you mean refinance my investment loans and pay off the PPOR?…would that not cause my investment properties to be further in the negative geared side?
HI
Point of transferring outstanding debt from PPOR to investment is that you get tax back on the interest from IP but not from PPOR. Overall this is generally the better strategy and although technically they would be more negative, your personal cash would be slightly better.
Hope this helps
Just bear in mind that you cannot simply increase your IP loans and move the money into your home loan, as the interest wouldn’t be deductible.
Terryw
Discover Home Loans
Mortgage Broker
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Guys,
LifeX suggested this approach to me in another thread, but it was proved not to work. The understanding is that the ATO looks at the purpose of the loan. So, if she were to further mortgage her IPs to pay down her PPOR then the purpose of the increased mortgage is to pay off the PPOR and is therefore non-deductible.
However, Terry raises a good point of selling to the trust. By separating the trust from the individual there might be away to get around this little hurdle.
Happy to take any recommendations on this one as I have $100K equity in IPs and a mortgage of $180K on my PPOR. I’d love to turn that equity in to a deductible loan and reduce my non-deductibles by the same amount.
Cheers,
Michael.Hi Micasa,
A few back of the envelope calcs, and I think I’m seeing that IP 1 and 2 are not too -ve. So, if you were to change these to IO, you’d save around $150 per week, and push them a lot closer to neutral or +ve geared.
With Int rates as low as they are, the Principle repayment becomes a larger portion of the monthly repayment. Only problem is, you MUST make it, month in, month out if your loans are P&I – but, if they are IO, you choose!!!!
I would suggest looking at:-
1. Revert to IO loans on IP 1 and 2 – this should save you something like $150 per week.
2. If you chose to, this $150 per week could be directed toward paying off your PPOR.
3. I LOVE Offset accounts, so, set up an Offset account against your PPOR into which you chuck every available dollar. This has the advantage of allowing you to “claw back” these extra repayments if the deal of a lifetime were to present itself.I reckon all of those reading your story would have realised you have LOTS of equity. This can provide you with many opportunities moving forward – and, if push comes to shove, can be turned into an Income Stream too. There are many ways.
But, first off, take a look at how you’d be after following the 3 steps above. To my mind, this is the winning FIRST MOVE. But then, I’m just a beginner too – what does YOUR Excel spreadsheet tell YOU ???
And, you haven’t mentioned Depreciations – are you imbibing?? If not, why not? These could turn this old ship right around IMHO.
Benny
Hi Benny,
Thanks for the 3 steps…that sounds like a practicle, non-complicated plan of action. I don’t have an Execel spreadsheet, just… a calculator!…and OK you have me! what do you mean by “imbibing”
Micasa
Hi Micasa,
Sorry – a bad choice of words with “imbibing” -all I meant was “are you using Depreciations” – as I know Steve is not one to utilise them necessarily. I don’t know how many other +ve gearers might follow his lead and NOT claim them.
To me, by using the Tax advantage of claiming Dep’s it allows us to have extra money now – even though some of this “non-cash” expense might become a cash expense later. Give me the money now, I say, and I’ll administer it to help myself in the present.
Might just make a -ve gearer into a +ve cashflow – and that can’t be bad, can it.
Benny
Thanks Benny,
I will be sure to see my accountant on the Depreciation issue..,every dollar helps.
M
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