All Topics / Help Needed! / Cash Flow Problem!

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  • Profile photo of fivetalentsfivetalents
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    @fivetalents
    Join Date: 2006
    Post Count: 11

    Hi all,
    [hmmm]
    We have about 450K of equity in our home at the moment, which we are renting out because we have moved interstate. We want to buy a property and develop-which we can except that we have a cash flow problem. We can borrow some money but not enough for what we want to do.We have three small kids under five and I want to stay home with them. I do some work but my husband is the primary income earner and he is a teacher.
    So we have all this equity but can’t unlock it!! Our home in Perth is paying for itself so we don’t need to sell , I feel.
    I know if I went back to work this would solve the problem but there must be another way-?
    Any suggestions on creative ways to get finance or equity partners?

    Thanks
    TD

    Profile photo of XeniaXenia
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    @xenia
    Join Date: 2002
    Post Count: 1,231

    You can find a JV to finance part of the development project.

    Try some creative techniques such as vendor financing when selling to increase cash flow. This would ease the pressure off a negatively geared property and allow you to hold it longer.

    I’m sure one of the finance brokers from this forum may be able to offer some other finance solutions. I’m just offering the types of things we do, both my husband and I dont have jobs [biggrin] (and loving it!!!)

    Investment Property Management
    http://www.adprop.com.au

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,190

    You could probably get 70-80% LVR on your property withou too much trouble. This should free up a lot of funds. These funds could then be used as deposits for the next deals.

    If you had a cashflow problem you could borrow some equity and use that to repay part of the loans, but this strategy could be dangerous if you are not careful, and don’t end doing well on the development.

    Terryw
    Discover Home Loans
    Parramatta
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    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of crushercrusher
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    @crusher
    Join Date: 2002
    Post Count: 186

    Why can’t you unlock your equity? What is the issue that is preventing you from doing it? [confused2]

    Todd Burns
    http://www.freepropertyhelp.com.au

    Profile photo of DerekDerek
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    @derek
    Join Date: 2004
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    I’ll preface all my following comments with this – there is limited information provided here so what I have to say may be off track.

    Originally posted by fivetalents:

    We have about 450K of equity in our home at the moment, which we are renting out because we have moved interstate. We want to buy a property and develop-which we can except that we have a cash flow problem.

    Given you have moved interestate I am assuming your existing property is your former home and as such it is highly likely that the loan is still on P & I basis.

    First step convert your loan to interest only. You may be surprised at how much cashflow this frees up.

    If your dream development is going to create a potential cashflow problem have you considered borrowing a little extra to cover your payements during construction? See Terry’s comment.

    Have you had previous experience developing?

    Developing can be very lucrative. Equally it can be very draining (financially and emotionally) and you need to determine whether you are both up for it.

    At the end of the boom (when that is/was, or will be is open to conjecture) is often a time when mum and dad developers get themselves burnt. You will need to ensure your feasibility is comprehensive and spot on.

    Cashflow is often a ’emotinal’ thing. Often we get used to living on what we earn that we find it difficult to imagine scaling back on some of our excesses. I can think back to times in our life (new bub X2, new house, new car loan) etc that we have wondered how it will all work out.

    So, is it fear off cashflow, or fear of debt. I suspect that you may well be looking at a ‘smallish’ home debt and are in the process of taking out a ‘bigger’ loan. Maybe it is this that you are finding daunting.

    If this is close to the mark then the key point to remember is that this borrowing is for a growth asset.

    We can borrow some money but not enough for what we want to do.We have three small kids under five and I want to stay home with them. I do some work but my husband is the primary income earner and he is a teacher.

    Has a broker/bank told you what you can borrow? If it is a bank I would suggest that you consult a broker. They have access to greater number of loan products and as such may come up with a different number.

    If the amount stated is your ‘real limit’ then you will need to modify your development plans. Maybe something smaller, something in stages and so on.

    So we have all this equity but can’t unlock it!! Our home in Perth is paying for itself so we don’t need to sell , I feel.

    Unlocking equity is easy – I suspect you need to see a broker and not your bank. Sure you may need to go to another lending institution but one step backwards to make many forwards is sometimes a good strategic move.

    I know if I went back to work this would solve the problem but there must be another way-?

    Any suggestions on creative ways to get finance or equity partners?

    If you have a bucket load of equity then a no-doc lend may be the best solution for you.

    If I were to consider being an equity partner with someone else (I am not by the way) I would expect to see a detailed feasibility study, some runs on the board to prove your capacity and a track record. Can you provide these to would be suitors?

    Derek
    [email protected]
    The Investors Club http://www.monopoly.tic.com.au
    0409 882 958
    Skype – derekjones2113

    Profile photo of fivetalentsfivetalents
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    @fivetalents
    Join Date: 2006
    Post Count: 11

    Thanks guys, lots of food for thought!!

    The amount we can borrow is our limit(in terms of repayments, interest only) so i think we might try to do things in smaller steps and are looking into doing a jv.
    [hair2]

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