All Topics / Help Needed! / Question on my next step forward

Viewing 12 posts - 1 through 12 (of 12 total)
  • Profile photo of Danny FDanny F
    Member
    @danny-f
    Join Date: 2012
    Post Count: 14

    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.

    Cheers.

    Danny

    Profile photo of itsandrewitsandrew
    Participant
    @itsandrew
    Join Date: 2007
    Post 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.

    itsandrew

    Go as far as you can see and you will see further.

    Profile photo of Danny FDanny F
    Member
    @danny-f
    Join Date: 2012
    Post Count: 14

    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.

    Cheers

    Danny

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Danny

    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.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Danny FDanny F
    Member
    @danny-f
    Join Date: 2012
    Post Count: 14

    Thanks for the feedback all.
    Cheers

    Danny F

    Profile photo of DerekDerek
    Member
    @derek
    Join Date: 2004
    Post Count: 3,544
    Danny F wrote:
    I could pay off my personal debts and free up cash to invest.

    Hi Danny,

    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.

    Profile photo of Danny FDanny F
    Member
    @danny-f
    Join Date: 2012
    Post Count: 14

    Derek

    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.

    Profile photo of DerekDerek
    Member
    @derek
    Join Date: 2004
    Post Count: 3,544

    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.

    Profile photo of Danny FDanny F
    Member
    @danny-f
    Join Date: 2012
    Post Count: 14

    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.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Danny

    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.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of LauryLaury
    Member
    @laury
    Join Date: 2012
    Post 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 boat

    Profile photo of DerekDerek
    Member
    @derek
    Join Date: 2004
    Post Count: 3,544
    Danny 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 $40K

    Danny 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.

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

You must be logged in to reply to this topic. If you don't have an account, you can register here.