All Topics / Help Needed! / WE OWN TWO PROPERTIES, CREDIT CARD MAXED OUT & FEEL LIKE WE’VE HIT A BRICK WALL! WHAT WOULD YOU DO?

Viewing 12 posts - 1 through 12 (of 12 total)
  • Profile photo of BozenaBozena
    Participant
    @bozena
    Join Date: 2008
    Post Count: 9

    Ok at the moment I just feel that we have hit a brick wall & if we dont do anything soon then we are looking at working very hard for a very long time!!  All/any suggestions would be greatly appreciated

    We have two properties-

    1- Our home: We live in
    mortgage owing on it = $510,000
    Value approx $680,000
    Principle & interest loan repayments $3300 per month

    2- Our Investment unit:  Currently rented out for $315 per week
    Interest only loan
    still owing on it = $187,000
    Value= $360,000
    Interest only loan repayments $1200 per month

    We have our $17,500 maxed out!!!

    We would like to borrow more money to renovate our existing home which we currently live in but I know if we are patient and just buy another investment property than maybe we will be financially better off and in two years time then do the reno's!!!!

    What would you guys do in our situation?
    PLEASE HELP!!

    Kind Regards,

    Bozena

    Profile photo of mickjohnmickjohn
    Member
    @mickjohn
    Join Date: 2007
    Post Count: 78

    Hey,

    Its a little difficult to determine your true position without declaring your income. There is a wealth of knowledge on here and a few brokers who may be able to offer advice, but they will need more info.

    Personally, I would pay down that credit card as a number 1 priority. Forget re-investing or renovating until that is done. If your income allows it, do it that way. If not you may consider re-drawing on your investment loan (you should speak to your accountant before doing this as you wont be able to claim that amount in any negative gearing – if there is any).

    Once you have paid down that debt, re-assess. investing in another IP now, on the assumption that you will see significant capital growth over the next 2 years may be a gamble unless you pick your areas well.

    This is not professional advice, just my opinion. Always do your own due diligence.

    Good luck

    Profile photo of CatalystCatalyst
    Participant
    @catalyst
    Join Date: 2008
    Post Count: 1,404

    I would get a LOC on the investment property. There's nearly $100K available at 80% lend.

    Let the interest for the investment property come out of that while you pay your cash into the credit cards.

    After that is paid out decide whether you can afford another IP (based on the cash flow, your income etc). Use the LOC as the deposit, legals, stamp duty etc and get a new loan for 80% borrow on the new IP.

    Be careful though not to contaminate the LOC by using some for the IP interest and some for your PPOR reno.

    Profile photo of maree_bradrossmaree_bradross
    Member
    @maree_bradross
    Join Date: 2007
    Post Count: 401

    Is renting out your PPOR an option and renting something yourself? Catalyst has suggested the best option though

    Profile photo of tractiontraction
    Member
    @traction
    Join Date: 2010
    Post Count: 1

    Bozena,
    You are taking the first step in recognizing that you need to make some changes.
    I always start with a Spreadsheet an list everything, write down all the interest per month an then wages that come in/expenses that go out.there are some great free downloads for this all over the net.Once you see it all on paper, then look at budgeting your money,that is how we started 10 years ago.It will be very tough in the beginning (an at that point most people just give up)DON'T…It does get better an easier..Start with the steps above first an then see it all in black an white an then re-evaluate.
    TRACTION

    Profile photo of luke86luke86
    Participant
    @luke86
    Join Date: 2010
    Post Count: 470

    I think you should at least consider either renting your PPOR out and renting a house for a lower rent somewhere else, or selling your PPOR. Even if you do not want to go down this path it is worthwhile considering it and seeing what your options are- remember that any debt on a PPOR is considered 'Bad Debt" by many as it does not generate any income, in much the same way as a car loan.

    Also I would definitely follow the advice of Patriot Soldier and pay down your credit card debt. However whatever you do do not redraw money from your PPOR loan or your IP loan to do this. Either set up a LOC to pay the credit card debt down (you will be paying a lower interest rate on a LOC compared to a credit card) or use money from savings or an offset account to do this. If you redraw money from a loan you will be contaminating the tax deductability of the interest and you will never be able to fix it for as long as you have the loan- you will regret it if you do!!!!

    Also I would suggest setting financial goals and then work backwards to determine the best way of investing in order to meet those goals. Simply investing in property for the sake of investing in property will likely leave you lacking direction and goals will help you gain clarity in what you want your investment to acheive and help you make better investment decisions.

    Cheers,
    Luke

    Profile photo of find_another_slavefind_another_slave
    Participant
    @find_another_slave
    Join Date: 2009
    Post Count: 25

    On the credit card:

    Get the credit card paid off as soon as is possible/practical. If drawing down LOC/loan funds to pay it off, DO NOT be tempted to double-dip (i.e. re-spend to MAX!): This takes discipline. Reduce your limit to something heaps more manageable as you pay it down.

    Another idea is to transfer the balance to a x months interest free card, and pay it off at 0% (some you can go as long as 12 months on balance transfers, watch the fees/charges). Cut up your old card (and the new one). And get cracking to pay as much of it off as you can, in the interest free period. Reduce your available limit as you go

    Sure, it'll hurt initially, but when it's gone, you'll feel a whole lot better.

    If you have to have a credit card, then keep the balance minimal (say $5000), and aim to pay it off each month. (i.e. you have cash, or credit, your total funds does NOT equal CASH + CREDIT, which is how you may have gotten here in the first place…)

    Agree with Luke's comments on investing strategy – determine what you want, then setting goals to achieve that direction.

    Profile photo of ducksterduckster
    Participant
    @duckster
    Join Date: 2004
    Post Count: 1,674

    If you are not already doing it see if you can claim any depreciation on the investment property via using a quantity surveyor.
    This will increase your  tax return and with this extra refund put it off the credit card without spending more money.

    Investigate if you can pay off the mortgages weekly rather than monthly if you are paying off monthly.
    As it will save you interest over the long term.

    Once the credit card debt is gone put what you were paying off the credit card into extra PPOR mortgage payments.

    Profile photo of Limited RecourseLimited Recourse
    Member
    @limited-recourse
    Join Date: 2010
    Post Count: 33

    If your a serious property investor and you want to go to the next level then your better off to sell your family home and rent a nice house (so your wife doesn't divorce you)
     
    Your home is capital gains free. Set your finances up so you have an investment reserve before you proceed to your next investment property. A good rule is to have 6 months living expenses in reserve and don't touch it. For the first 2 investment properties have 3 months rent in reserve and for any further investments you acquire 6 months rent in reserve will make you bullet proof..

    The next 10 years will be very tough in the property game. Having said that there are going to be so many distressed sellers.
    The key is… cash is king …if you have the reserves and the equity and are paying interest only on your investments your compound net worth over the next ten years will be significant.

    Just remember you make your profit when you buy. Our tax system rewards those who use negative gearing prudently

    Regards NR

    Profile photo of Lplate101Lplate101
    Member
    @lplate101
    Join Date: 2010
    Post Count: 16

    wow guys sound like stressful. I feel for you.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    I would suggest you look at selling the IP. Do the sums. You may have to pay CGT, but this will be small and releasing equity would allow you to pay down your PPOR loan and saving you heaps of non deductible interest.

    You can then get back on track quickly and then reborrow some money on the PPOR with a LOC and purchase a new investment. Net result is lower PPOR loan and higher IP loan saving you $$$ in tax each year.

    Alternatively you could talk to your tax advisor and set up a LOC and then use this to pay the interest on your IP loan and use all the rent from your IP to pay off your credit cards. You need to set this up properly to work.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of gronk007gronk007
    Member
    @gronk007
    Join Date: 2005
    Post Count: 54

    Bozena – what is your household income???

    PPOR – $1600 fortnight on a mortgage of $508,000 – worth $600,000
    IP 1 – $1100 a month on an I/O loan, rented out for $300/week – mortgage currently at $207,000 – worth $350,000

    My profile with mortgages and repayment amounts are remarkably similar to yours – arguably worse than yours, and while I'm not saying I'm driving around in a Ferrari drinking Champagne every night, we're both feeling pretty good this early on; I've been in worse financial situations :)

    I work full time and my wife is studying for her PhD, and therefore is restricted to working 15 hours a week over and above her PhD. We probably earn about $115,000 per year before tax. I utilise every tax deduction legally available to me…

    The difference seems to be the state of our debt – our credit card balance is $1800

Viewing 12 posts - 1 through 12 (of 12 total)

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