I currently own an IP in Brisbane, rented out for $350 pw with a $250k mortgage.
I am having to tip in $500 approx each month for mortgage as well as strata fees, rates, water, insurance, pm fees. This property has historically had great capital growth, 15 years ago it was sold for $90k, now valued at $290k.
I need to start purchasing more properties to reach my realestate goals but can not access equity yet.
I also have some personal debts of approx $40k.
Assuming I can sell the property for around $300k, I could pay off my personal debts and free up cash to invest. Problem is I will have no deposit or equity to borrow with so it will take time to save up deposit.
I am torn between waiting for the properties value to increase over the next few years so I can access equity, or sell it now and start with a clean slate.
Any suggestions, ideas or advise is most welcome.
DannyitsandrewParticipant@itsandrewJoin Date: 2007Post Count: 294
Are you able to add value to your IP to create equity? Quite a few forumites do this to help them leverage into more properties.
Go as far as you can see and you will see further.
Thanks for the feedback. The only way I can see to increase the perceived value in this property would be to replace the kitchen with a more modern kitchen. Not any opportunity to add an extra room or anything of that nature.
DannyJamie MooreParticipant@jamie-mJoin Date: 2010Post Count: 5,069
You don’t need to spend a lot of money updating a kitchen. If the bench top and carcass are in good condition you might be able to get away with new doors, handles, sink and a flash mixer – a new splash back can also do wonders.
Thanks for the feedback all.
Danny FDanny F wrote:I could pay off my personal debts and free up cash to invest.
I'll take the other approach – reading the fine print it would seems like you are going to have to confront some spending/lifestyle habits. I see little value in selling an asset to pay off personal debts unless there is no other option.
Sure you can upgrade kitchens as per the other posters have suggested but the underlying issue may well be outside the four walls of your property. Being a successful investors requires good decision making AND good personal financial management.
Seems like you need to work on your management first as $40K in personal debt will be a huge hand-brake on further borrowings.
What you have said I know to be true. I thank you for your feedback.
Do you have any suggestions when it comes to developing good personal financial management?
Personal change is some times a very hard thing to do and it is an area in which i will be putting alot of time and effort into.
Thanks for replying to my question.
No worries Danny.
Now I don't know how long it has taken to rack up the $40K so what I say may seem like a slow process but good things come to all who wait.
At the moment your focus should be to get rid of those personal debts while making sure you maintain and retain your investment property if at all possible.
1. Set yourself a realistic budget starting with your fixed commitments loans, rent etc
2. Budget costs for needs such as food, utilities, transport, fuel etc
3. See how much you have left over – this is your discretionary spending.
But in your case you will need to devote a fair chunk of your discretionary spending onto a debt reduction strategy.
Simon Macks (an old time poster) worked a strategy that started with the smallest debts first. His strategy was to pay off the smallest debt as quickly as possible (make it hurt a bit by reducing expensive social/lifestyle habits).
Once the first debt is paid off use the money normally earmarked for the smallest debt to then tackle your next smallest debt and so on. Eventually you will only have one personal debt with all of your surplus money being devoted towards reducing this debt.
But – as you said – changing habits is very hard. Set your self achieveable goals and work towards them.
Quick question are you paying P & I on your loan. If so convert your investment loan to Interest Only. Use any money saved through this process to tackle debts. Also consider submitting a PAYG Tax Withholding Variation form so you get some tax benefits back in your pay packet rather than at the end of the financial year.
PS Cut up those credit cards.
I currently do pay P&I on my loan. I will look into this further.
Cut up credit card, good idea.
Next step is to set an achievable financial goal for myself and reach it.
I do not know enough about withholding tax variation form so i will look into this as well.
Thanks for the advice Derek.
Much appreciated.Richard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
Sorry i have to question either the rate of interest being charged on the loan or the structure or manner in which you have the deal set up. If the loan is over 80% then you would incur LMI if you refinanced but i guess it all depends on how much you are paying on your personal loans. You could split the loan to safeguard the Tax deductibility but would at least be paying the non deductible personal debt off at a sensible rate circa 6.25%
A 250K loan on interest only with a 100% offset account or split combo loan with part Fixed interest only and part P & I could save you a couple of $$$ per month alone.
More hard data would be need to do the figures justice but sounds like your lender is not doing you any favours.
Yours in Finance
Richard Taylor | Australia's leading private lenderLauryMember@lauryJoin Date: 2012Post Count: 35
I certainly dont have the experience of the previous forumites but selling would be a extremely backwards step. By the time all the commisions and taxes etc come out of a property sale you end up with a much smaller cheque that you anticipated. Restructure the loan to generate some extra cash flow and then smash that 40K debt coz that is whats holding you back. It might be worth approaching a broker to talk about re-structuring and what that will do to your finance capacity. There are some great opportunities around at the moment for investment and it would be a shame to miss the boatDanny F wrote:I currently do pay P&I on my loan. I will look into this further.
Changing to interest only should be a relatively straight forward process for most banks. There is no need to delay this action on your part. Effect will be pretty much immediate and you'll be able to start using the money saved converting to Interest Only to tackle that $40KDanny F wrote:I do not know enough about withholding tax variation form so i will look into this as well.
Happy to explain it to you. A withholding variation is relatively simple for most people. If you want some guidance send me a PM and I'll talk you though the process but you'll need to fill in your own form. The ATO is currently accepting variation forms for next financial year. So it is a good time to get yourself moving and take action.