My wife bought me Steves first book for christmas, which has inspired us to become cashflow positive as soon as possible. My question is:-
We have a 1st M/-on our residential property for $500k (business loan $200k, Inv Property Tasmania $200k and another Sydney Inv property $100k)Business funds $200k business debt no probs. $300k debt for Sydney and Hobart property $2k per month P&I funded by rent ($445per week before agents costs and expenses) with shortfall from personal income/wages. Principal residence approx value $1.2M. Tasmania property valued $300k, other Sydney property valued $600k min and capital gains free. We hold Certificate of Title for both Inv properties. Should I sell Sydney Investment property ($500k nett in hand) to fund multiple cash positive Investment properties.
Hi gazzasliquor,What a huge question. I think you need to find a really good accountant and legal advisor, get heaps of information, with lots of finacial scenarios and work out what will best suit you for this time and into the future. You may find that selling the Sydney house, although giving you the most available $’s, is not the best idea as it is giving you your best return on your money. Or that your best gains are made by selling two of the other IP’s. The numbers have to be worked to get a better picture.
I know this sounds wishy washy and not a great deal of concrete advice, but I believe you really need to work out just where you want to be in say five years time and work back from that.
Do you want to retire then or keep working? If you own a business, do you want to be able to hand it over to someone else to manage and maybe start another business? You have to answer all these questions first and then work back to your current situation with your future goals in mind. Set goals and time frames and keep a copy of it where you can see it.
Before you make any major decisions see if you can get along to one of Steve’s MasterClasses. They are coming up very soon. From there see if you have the mindset to do what is required to be a property investor. You may decide that your wife is the property investor and you would rather keep doing what you are now. Or maybe you want to be one half of a working relationship with another investor. The combinations are endless and going to one of Steve’s classess will get you in touch with like minded individuals so as to help you formulate a plan for your future.
A word of advice though. We all know the property market is cyclical. There is already rumblings that these current high prices will not last too much longer. Plus I believe that we will see a rise in interest rates in the second quarter of this year and by March next year maybe a full percentage point increase. (DO NOT TAKE THIS AS GOSPEL – THIS IS MY OPINION ONLY) Over the next 5 – 7 years money will get tighter. That in itself will be a good reason to lighten the liability load.
Anyway, it sounds like you already have a strong financial base to work with. I hope it grants you and those you love many years of happiness and joy.
Keep us in touch.
Cheers
[gorgeous]I am not sure why you would want to sell a Sydney property to buy possibly inferior cashflow poisitve property. You will probably end up making more money on the Sydney property on the gains. I sold a Sydney property to go cashflow, and regret it now.
You will also have to factor in the CGT you would have to pay, which could be huge.
What about looking at keeping the Sydney property and buying more property using this as equity (not cross securistising, but using a LOC eg.).
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Dear Terryw,
the property we thought of selling is Sydney Inv property, valued min $600k with $100k debt, but it only returns $245pw before expenses. We thought of selling it to fund purchase of say 3 or 4 new properties which would return min $200 each, that is turning $500 equity currently only paying $245pw to turning $600 to $800pw.This property is also Capital Gains Free. Cheers Gaz.Originally posted by gazzasliquor:This property is also Capital Gains Free.
Hi Gaz,
Why is this property CGT free?
If it was bought before 1985 then hang onto it forever and use any equity as ‘deposits’ for subsequent purchases.
If on the other hand it was a PPOR it will only be partially CGT free as you also have another PPOR – if I read correctly.
But back to teh key question ‘should I sell’ definately not. If you do want to invest elsewhere I would hang onto Sydney IP – it is paying for itself, set up an appropriate account structure and use the equity elsewhere. Sell it now and you’ll kick yourself big time in 10 years time.
Derek
[email protected]Property Investment Support Available.
It is a personal decision, but I agree with Derek. If it is actually CGT free, then hang on to it and get more tax free gains.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
Gazza,
I’m with Terry on this one. But as always it comes down to how long you want to hold them for and what your plan is.
If you’re in it for the long term then you can ride out any short-term price fluctuations in the Sydney market. If you’re retiring in 5 years time then now might be the time to sell that fat asset CGT free and put it into income generating assets.
If its a long term play, then you really need to calculate the Internal Rate of Return (IRR) for both options factoring cash flow as well as likely capital gain.
Servicibility doesn’t sound like a problem, so maybe the IRR with the Sydney property held is better than the IRR on CF +ve properties after you pay tax.
e.g. $500K earning 3%pa CG is $15K pa tax free. 4 new properties returning $200 each is still only $800pw = $41,600pa. Take out tax at the top rate and your back to $22K odd, and then there’s 4 times the rates etc. not to mention purchasing costs and discharge costs and management cost… And 3% is very conservative when you’re thinking long term CG in Sydney. Of course the CF +ve might need to factor some CG in as well. But I reckon the Sydney property is likely to be 2-3% pa better than your CF +ve ones for CG.
Of course this is all just my opinion, but I’d hold it if I were you.
Cheers,
Michael.Firstly, Terry, It is ‘Cross Collateralising’, not “cross securistising”. Also, I would advise against a LOC.
Anyway Gazza, you have a property with lots of equity and minimal debt. You say you want to use the equity to buy positive cashflow properties by selling it. Why don’t you just use the equity, go to maximum and buy the cashflow positive properties?
You will still have the cashflow positive properties AND the high CG growth Sydney property. What you are doing is getting the deposits and fees from your Sydney equity and borrowing 80% on each new purchase.
This avoids mortgage insurance etc and you will have a large chunk of money for purchase other property.
This all assumes you will meet servicing criteria of course. Talk to a broker with an idea and you will be amazed what you can do if you keep the Sydney property.
When I grow up, I want to be a storm trooper!
“Cross Collateralising”, is another term for “cross securistising”.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
Dear All,
thank you very much for all responses to date. Yes, property in question bought prior to 1985. Will take all sugestions on board…now to find the properties….cheers.Cross-Collateralisation
When collateral for one loan is also serving as collateral for other loans.Collateral
Securities or other property pledged by a borrower to secure payment of a loan.Securitisation
The packaging of an income stream from selected assets and issuing of securities to investors backed by those assets. Securitisation enables relatively illiquid instruments, for example mortgages, to be converted into marketable securities with active secondary markets.Can’t find any definition for “Cross-Securitisation” anywhere, but hey, I must be wrong. The above definitions look the same to me. You know my biggest aspiration is to become a Storm Trooper! What would I know?
When I grow up, I want to be a storm trooper!
Originally posted by gazzasliquor:Yes, property in question bought prior to 1985. Will take all sugestions on board…now to find the properties….cheers.
Hi Gazza,
This is critical – this particular property is CGT free while it remains in your hands. To sell it now is, in my opinion, shortsighted.
By far and away you are considerably better off hanging onto it and using the equity for something else.
Derek
[email protected]Property Investment Support Available.
Rob
Your lack of commonsense amazes me (again). Secuity = Collateral, you even wrote it yourself!
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
Thanks Terry,
I did not say Securitise = Collateralise though!
Your lack of knowledge in this industry amazes me. We are discussing “Securitising”, not ‘Security’. They are totally different things! I provided definitions so you might work it out but that is obviously not going to happen.
There is no such thing as “CROSS-SECURITISING”.
Securitising is a process as outlined in the above definition. Collateralising is a method of releasing funds.
As long as you feel the need to continue to show me no professional courtesy and make attempts at belittling me in the public forums, I will happily return the favour, It is too easy with you Terry!
_____________________________________________
The poster formally known as The Mortgage Adviser
When I grow up, I want to be a Storm Trooper!
Dear Belitted Rob
Maybe due to your lack of experience you have not heard the phrase used by lenders before? It is a common term, and has nothing to do with securitisation.
I will not belitte you anymore, you do that well yourself.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
Just because it is common does not make it a correct term. It is only a common term because the industry shows you a professional courtesy by not correcting your error and embarrassing you. Of course people in the industry know what you mean when you say it. It just shows your poor attention to detail and I thought I would try and help you out so people don’t laugh behind your back when next you say it.
I would gladly apologise for my comments and take back all I have said should you be bothered to find a real definition for cross-securitising. Pulling out and saying you will say nothing more on the topic only demonstrates to me that you had no success in trying to support your comments.
Anyway Terry, I think it is pretty obvious what my experience is.
Remember, I would like nothing more than to be PROVEN wrong here so you and the other knockers here can call me an idiot and my credibility goes out the window. I will even post in the largest, boldest, brightest red letters I can that “I am an idiot!”
_____________________________________________
The poster formally known as The Mortgage Adviser
When I grow up, I want to be a Storm Trooper!
Whatever.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
Gazza
Sorry for going off on a tangent there!
It would be CGT, then I would seriously consider holding onto that property as all future CGs will be tax free. Just hold on and let it grow. What else can you buy these days where there is no tax?
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | 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
Originally posted by terryw:Whatever.
Why were my comments about this deleted?
It shows good experience by Terry. I think Terry’s earlier comments are much worse than this!
_____________________________________________
The poster formally known as The Mortgage Adviser
When I grow up, I want to be a Storm Trooper!
I am just wondering if anyone has found that definition for cross-securitisation yet????
ANYONE????
TERRY?????????
_____________________________________________
The poster formally known as The Mortgage Adviser
When I grow up, I want to be a Storm Trooper!
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