Hi All,
Not sure or maybe not confident for my next move,
I currently have 2 IP one in Perth and one in South Oz with a combined value of approx $865k with this investment i owe approx $760k.I have heard all the stories of people buying property after property but i just don't know how they do it, at the moment it feels like my finances are stretched to the limit, i haven't approached the bank but i doubt they would lend me any more money and i would be scared to borrow more.
I know others would have been in this situation so i am hoping for some advise, weather i sit tight for a few years and let the equity build up.I guess cash flow + would be the only option for me at the moment but if any property was without tenants i would be Scr$#*@Hoping someone can help
Thanks'
NathSorry to tell you, but they don't have 2 properties tieing up over $800k like you've done. I'm guessing you are heavily neg geared with these 2 properties as well?
When you here the stories of people buying multiple properties in 10 mins, they are usually buying cashflow pos properties that are cheap and in regional/rural areas.
They do quick renos and get them revalued, then use the increasing equity to buy again.
Thios is all done in a booming market as well.
Not to say that it can't be done right now, but it certainly is harder now than when those stories were written.Have you had Depreciation Schedules prepared for you properties yet? I'm assuming by the values of them that them are fairly new?, thus the 'on-paper' deductions may be substantial and improve your cashflow through better tax returns. The increased cashflow is poured straight back into the loans; this will help to accelerate your debt reduction and increase your equity faster.
Other than this, I guess it's a matter of being patient and waiting for values and rents to rise, or try to find a pos cashflow property to offset the neg cashflow of the other two.
Hi Nath,
I could suggest you look into Cashflow Loan, i.e. you pay approx half of the interest only and the remainder is capitalised. By doing this, your rent is probably sufficient to pay off the interest. Hence, you will not be so negatively strapped. This is a good strategy only if your properties are enjoying a pretty good capital growth. If you need more info, please email me.
Cheers. Karshin
[email protected]kchoong wrote:Hi Nath,I could suggest you look into Cashflow Loan, i.e. you pay approx half of the interest only and the remainder is capitalised. By doing this, your rent is probably sufficient to pay off the interest. Hence, you will not be so negatively strapped. This is a good strategy only if your properties are enjoying a pretty good capital growth. If you need more info, please email me.
Cheers. Karshin
[email protected]Be very careful of this type of loan. This is one of the main culprits in the recent implosion of the sub-prime lending industry in the USA.
Basically, you are paying half the interest now, the rest is tacked onto the end of your loan. After a certain period (a couple of years or so) the loan reverts to the normal repayment amounts.
The strategy with this type of loan is that the property will have gone up in value over this period to cover the extra interest that has 'capitalised' on the loan, so your LVR is still at an acceptable level, and you have cheaper repayments at the start to help with the cashflow.
But the problem quite often is this; in 3 years time the borrower's financial situation has not improved, and they can't afford the new real repayments. They have to sell.
On top of this, the property hasn't gone up much in value (no-one can predict this either), and the capitalised interest on the loan means the loan is now higher than the property is worth. The borrower now has to sell at a loss.
The Banks and the Mortgage Brokers don't care because they make money out of loan churning and the trailing commissions on the loan.
In my opinion, unless you have an absolutely 100% positive feeling that the property will go up in value more than the capitalised interest (will the M.B or the Bank give you a guarantee in writing?) then don't do it.
If you need to use this type of loan; you probably can't afford the property.
I agree with Marc, especially with regard to comparing yourself to others on the forum. I'm in a similar position to you, 2 IPs, not a snowballs hope in hell of paying stretching to a third at the moment, but 2 years ago I had 1 IP and thought I could never stretch to 2. In the meantime have bought a PPOR and a second property.
The maths is pretty simple. You either need to earn a lot more to buy that next property, or you need to get tenants that pay off your loans. If you cant do either of those, then you do what my wife and I did – sit tight for a while, improve the quality of the IPs if you can, pay extra to your home loan and wait for the rental market to outstrip the interest rates. That could take a few years, but is probably safer (i.e more conservative) than entering into high risk financing. At least at the moment you can afford both properties and you have assets worth $800k.
Good luck!
Nat
You took a big bite and now you need to chew like Crazy .Now you know its better to start small and grow big then start big and not be able to grow at all.
…Time patience and chipping away at the debt is all you can do for now…
keep chewing Nat eventually you will be able to swallow this lesson down and be in a position to look for an I.P to add to the portfolio. I know its frustrating but you just have to wait it out………
good luck !Thanks to all for advice, i think i will sit tight for a while with what i have, The property's i have are in area's where i am confident they will see big capital growth.
I originally brought my Perth property in 2005 this has gone up in value big time which has allowed me to borrow against it and buy property in south oz, but now looks like the second bite of the cherry was a bit big, but am sure i will come out of this well in front of average inflation………..
So thanks to all for your wise advise, but for now i will sit tight keep reading forums,books and stay motivated….Thanks
AgainNath
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