Hi,
O.K. This is our story.
We have 3 properties.
1. Our PPOR. Value $130K; Owe $69K
2 Unit in Cairns. Value $115K; Owe $104K
3. House in Ipswich. Value $177K; Owe $177K2 IP’s are -ve geared. All 3 loans are linked together (cross coll. i think it’s called).
We want to invest in +ve cashflow properties. We have learnt from our mistakes and want to start fresh. Do we sell all 3 properties, just one or refinance the lot into seperate loans?
Very new at this and would like guidance to get out of the negative gearing slump and start buying our first cf +ve investment.
Thanks in advance,
K&R
You can dream, so dream out loud. – Bono (Acrobat)
Just wondering, why do you think you have made a mistake?
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
Hi K&R,
I assume your lending institution has included the PPR as security over finance on the 2 investments,
In hindsight it may have been better to access the equity in the PPR for deposits on separate 80/20 finance on the 2 investments and thus avoiding X/Coll,You may be able to refinance the 2 IPS at 95% LVR (Mortgage insurance will apply) this will enable you to access the remaining equity in the PPR for deposits on future investments.
However, this would depend heavily on the valuations of the 2 IP’s, based on your figures it seems you may be a couple of Thousand Dollars short in equity on the 2 IP’s for a 95% refinance, I hope this helps. Cheers.Steven Crane
Interest Free Home Loan Agent
[email protected]
Phone: 0402 483 216PLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
hi Terryw,
We made a mistake buying the 2 IPs cause they are both negative gearing and were bought out of emotion. We really want to try to focus on postive cashflow properties.
K&R
You can dream, so dream out loud. – Bono (Acrobat)
Karl and Rita,
To buy -ve geared isn’t necessarily a mistake, buying out of emotion can create mistakes.
However, here’s a few thoughts:
a) Is there any way of adding value to the properties which will increase the rent so they are getting closer to covering themselves?
b) To sell now would incurr selling costs etc, will this benefit your long term goal?
c) While holding these two are you in a position to save for another deposit, for a positive geared one? If so, this help with extra income to hlep cover the shortfall on the others.
d) Can you assess the properties yourself unemotionally now? If os, is there a good chance of captial gains or not? If not, then why do you have them? If so, then perhaps it’s worthwhile to keep them.You can still focus on +ve cashflow for future purchases, or you can sell the lot and start over, remembering that you will have selling costs to come out of the sale of the properties.
One of our IP’s is still -ve geared, even though we now look for +ve geared properties. We have chosen to keep the property at present as our researchs shows that the area should have capital gains. Like you we have a mortgage on our PPOR. Our plan down the track is to sell the -ve geared one to pay off the PPOR, this may be another 5 years down the track, but we feel in this case it’s worth our while to keep.
SO perhpas you need to start by doing some “due diligence” on the properties that you have to see if it’s likely you’ll achieve your goals by holding them or selling them.
Good luck.
PKPurpleKiss,
Wow, some very good points there – thanks. Our unit in cairns in rented at under market value till July/August plus some minor additions should also help bring that closer to being covered (I think at the moment we are approx $80 – $100 short per week there). As far as the other goes, we had a lot of issues (some not necessarily to do with the property itself but with managers) which caused emotional and financial strain and I think our desire to get rid of it is based on that with a desire to get +ve geared. In saying that I believe that it’s in an area of near future capital growth.
What if instead we refinance the 3 loans seperately, keeping the properties and then havings access to the extra funds? Would anyone recommend this? There may (will) be early payout costs involved.
To Mobile Mortgage,
re: why not access equity instead of X/coll? well, that is what we wanted to do, but being nieve we believed what we were told was the best thing to do. The banks said thay wanted it that way and our MA said it was ok. Now we know better.
Cheers,
K&R
You can dream, so dream out loud. – Bono (Acrobat)
Hi Karl and Rita
Is it a possibility for you to live in a rented house and rent out your PPOR so that it can be +CF and interest is tax deductible, the rent you pay can also be claimed if you have a home office to maintain your IP’s.
We just did that and converted our PPOR and another IP into uni student accommodation resulting in a source of passive income. Something to think about?
PadmaIs it a possibility for you to live in a rented house and rent out your PPOR so that it can be +CF and interest is tax deductibleThis is not possible as if the money trail is followed (by tax department) the original intention for the loan to purchase the house for a PPOR thus no claim or deduction can be made against the loan.
However in saying that you could always check for yourself to see if this is true and fair…. a quick anomonous call to the tax department will set you right on the rulings on this one.Looking for Positive cashflow solutions?
Look no further
Wraps-Lease Options & JV’s
http://www.kiwilogic.biz
We are investing in NZ so if you are looking for + cashflow properties…contact: [email protected] to join our database.I not sure I agree with you Kiwi.
For example, I buy a new house and move from my current PPOR into the new house. Then I rent out the old PPOR. I believe the interest would then be tax-deductible although the loan was originally taken out as a PPOR loan.
That is a fact Bennido and that is exactly what we did. I did check with my accountant to confirm. If you borrow against your PPOR to build or buy another PPOR and rent the first PPOR, then the interest on the equity used from first PPOR is not tax deductible as it is the purpose of the loan that determines the deductibility.
Hope I am clear in the explanation.Thanks guys
we are going to look into it, but we need to renovate our PPOR first before renting.
Cheers
K&R
You can dream, so dream out loud. – Bono (Acrobat)
If the X’collat is causing you problems, (& it will if you keep hooking more IP’s on) put the screws on your bank to un-X’collat them. We “un-ravelled” 4 properties a couple of years ago an split the loans into Fixed/Variable components, before adding more properties, as it was becoming a nightmare of tangled loans. ….and looking like getting worse but it served it’s purpose well to get things going.
To do it, it didn’t require a full “re-financing” as such (althought it probably was a “non-fees refinance”) but some new documents were drawn up by the Financial Institution (one of the major non-bank lenders).
I talked it thru with my “Lending Manager” who I’d built up a good rapport with and they came up with a plan to switch two property’s as collateral against 2 loans (doesn’t affect deductibility as that depends on original purpose of the loan).
Don’t recall the exact details without digging out the paperwork but it was well thought out by my L/Manager, I ran it past my accountant & at the end of the day all properties stood alone (although 1 did end up with a small, seperate $50 loan tied back to PPOR)
It only cost me about $1,800 – $2000 I recall (That was deductible anyway as done for investment purposes) but now everything is straight sailing.
You’ll need to look hard for +’CF at present and will probably have to “create it” rather than buy it at present but the market will move back over time.
GC
I had fixed term interest only loans all tangled too, found it easier to untangle them as the fixed term came up as they had grown by then and therefore we could threaten to go elsewher if they didn’t allow them to stand alone. Valuations proved we owned more than 20% on the home by that stage so was then relativley easy to change. We had tried to untangle earlier, bascially they said no and as they were fixed, it would have cost us too much.
So we waited for each to come due and in the meantime got a credit loan on our own home for future deposits so that future loans could stand alone.
Hope this makes sense. It sounds tangled jsut trying to write about it.
PK
HI Rita & Karl, well done is the first thing that comes to my mind. To have a home and 2 IP’s you are already above 95% of all investors, great work.Secondly, dont be afraid of changing IP’s for profit.
We just sold an IP in Perth that was a dog for maintainance and returning just below 6% for a townhouse in SEQ which gives us 7.5% return in our pet area. So yeah there is a cap gains question in selling, but if you like we have a couple of non performers in your mix, maybe not struggling with them is the best solution.
Look to areas that have constant if slow growth like you already have in Ipswich and Cairns(good call on both) but with a basis of return from day 1. I got one for my nephew recently in Cairns in Westcourt for $80k a 1 bedroom unit and the owner rents back at $120/wk. It takes good hunting and as many others have said, no emotions.
I have clients who use a calculator and very little else to buy. These guys sell just as coolly and cull bad choices where possible.
Some people cant be that detatched and I myself get a bit determined and emotional if I see great potential. My wife and I bought our first IP in Blacktown in sydney and it was neg geared, we were about to havea baby and loose my wifes income but could see these off the plan units had great potential so gave it a go. We struggled and just over 14 months after buying it we sold it and made $60k profit. This paid off the PPOR small mortgage we had left so then we got serious about investing.
All im trying to say is Purplekiss and others are right in saying be aware of real costs of ownership, but if like us you can see the potential in a few years maybe its worth the wait.
Something to think about. Good luck with whatever you choose.
DD
PS146 Certified Financial Planner
Don’t sweat the small stuff,and it’s all small stuff!!Originally posted by Kiwi-Fulla:Is it a possibility for you to live in a rented house and rent out your PPOR so that it can be +CF and interest is tax deductibleThis is not possible as if the money trail is followed (by tax department) the original intention for the loan to purchase the house for a PPOR thus no claim or deduction can be made against the loan.
However in saying that you could always check for yourself to see if this is true and fair…. a quick anomonous call to the tax department will set you right on the rulings on this one.Looking for Positive cashflow solutions?
Look no further
Wraps-Lease Options & JV’s
http://www.kiwilogic.biz
We are investing in NZ so if you are looking for + cashflow properties…contact: [email protected] to join our database.I too believe this not to be the case. If you move out of your PPOR and rent it, the interest on the loan will be tax deductible. The purpose of the loan was to buy a property, when the use changes from personal to business, then claiming the interest would be OK.
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 guys,
you have given us something to think about. We just bought the buyer beware programme and we are going to Steve’s seminar in May to learn more. (we can’t wait) [
]Cheers
K&R
You can dream, so dream out loud. – Bono (Acrobat)
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