Buy and never sell..? Need advice

[investor2009]

Hiya'!

I am normally of the 'buy and never sell' brigade, but my wife & I are having other, more lifestyle orientated thoughts. You can't put a price on good living.

I have four properties in total in my name only, this includes the house we live in. My wife has no loans, c/card, car or other. I have property debt only. We go halves in the mortgage.

Our market (Darwin) has tanked a bit these past couple of months and while this is good for buyers, it's obviously bad for sellers. We are looking to buy a rural property that is still close to town at the lower end of the spectrum of around $600k. BUT.. we only have maybe $20k cash between us at the moment and I am personally shot for finance with my portfolio as it is now (negatively geared)

So, I am looking to liquidate 2 properties for a decent deposit, . and to also increase servicing

First property was purchased for $250k, loan topped up to $300k to buy others and would sell for $370k in this depressed market.
Second one with a loan of $310k and sell for $370k also. This wouldn't be much after all fees and CGT (How much would that be? not sure how to work this out. What fees are applicable for selling also?) The total portfolio would only be $100k less than it is now by cashing two properties in, which is pretty good in my eyes.

We have our sights set on one place we really like for a good price, but with nothing even on the market yet how would we go about getting preapproval and snagging it without first selling? (bridging loan applicable here?)

HELP!! We're looking for ideas and possibilities.
Thank you.

 

[ianvestor]

You can't put a price on good living.

Sure you can, it's $24,000 per week.

We have our sights set on one place we really like for a good price, but with nothing even on the market yet how would we go about getting preapproval and snagging it without first selling? (bridging loan applicable here?)

One possibility is to use the equity in those 2 properties that you are thinking of selling, as a deposit. This would involve having all three (those 2 plus the new one) cross-collateralised which can be bad for flexibility if you need to sell one of them later on. Still worth considering though if you don't really want to sell.

 

[investor2009]

Thanks Ian, but remember, I'm already stuck for serviceability, topping up with more equity would make things even worse.

Our PPOR is our best performing asset and even though it's CGT free we would really 'like' to keep it because its in good condition, rent would cover repayments and we think it will be a good performer. We're open to selling it depending on how bad we want to move.

 

[BuildingBlocks]

On a slightly different subject, is it worth looking at a different market for the next one so that you don't get stuck if the single area tanks again?

 

[Mick C]

Hi investor2009!

Looking at the numbers.

1. There be no benefit in a top up- with the amount of LMI payable at a 90+% LVR it will eat up most of your available top up.

2. If your struggling to meet serviceability and you only have less then 10% equity in your home , then a bridging loan is not possible and NOT advised!

You need your existing home ( the one your selling ) to have at least 30-40% equity to make a bridging loan work and most importantly you must be confident that the home will sell within 6 month!


3. Have you considered renting your PPOR and renting for a period of time, or move into any of your investment home- this swap and switch tactics if done correctly with the right property at the right time in the market can see you turn a lot of your -ve property to +ve or see a flow of cash from the tax man

In my hay days, i used the swap tactics and converted my PPOR into a IP for a period of time...while i rented somewhere else, and the place i rented suited my lifestyle perfectly! ( close to work/ City)

4. Lastly, if you did sell...just be aware this not reach your desired outcome. If you sold both property ( current loan of $610K) and went to buy a new place for $600k ... at a 90% LVR the loan amount would be $540k! that's only a $70k difference from your original position.

It means later down the track, you may get stuck with the same problem and wont be able to grow financially.


My Suggestion, work out:
1. The numbers
2. Figure out how much do you get back from each property ( rent + depreciation + tax) and which one is dragging you down - i would hate for you to sell a property that could have been your star performer!
3. Do a cash flow budget on what your income and liability are ( Try to cut out any "non essential" liability ie lower CC limits, cancel any membership )
4. Timeframe, yes even though we all want a better lifestlye...it still takes time to set up.- Progression is the key. Planning is your answer


Regards
Michael

 

[investor2009]

Thanks!

We have around $120k equity in our PPOR GCT free and that one is sitting at about 70%LVR
and we also have our PPOR on an IO loan and rented it for almost a year so it paid for itself from the get-go, and THEN we received stamp duty paid AND the FHOB to top it all off once we stopped renting and finally moved in! I already had three properties prior t doing this so am no real stranger to thiking outside the box.

A good REA friend of mine had the same chat to me last night when I asked about selling the two units, his advice was sound and he said that all my hard work could go down the drain but I don't see it like that at all because my outgoings would be about the same. You know I'm paying out $21,000 per annum before tax for the three investment properties and can only receive a maximum of $10,000 back at tax time because I earn a low(ish) income of $53,000 pre tax. So really.. the other two properties don't do much for me tax wise.. They ARE, however a bit of a burden on occasions. So really, it may even cost me LESS every week for (almost) the same amount in capital I had WITH the two units.

We have considered renting the new property out, but we would actually receive a much better rent on the place we're in now, and we are buying for lifestyle, not to stay where we are now. If we did rent the new property it would be more of a financial burden than if we did not.

Like I said, our total asset base would only drop by $100-$150k from $1,650,000 to $1,500,000 so it's really not much of a difference for the rewards it would bring personally.

 

[Marty McDonald]

Hi,

Sounds like you have your answer.

In terms of how to finance it you would have to try and and negotiate an extended settlement on the purchase so as to give you time to sell your other props. You could get a pre approval based on selling your other props and renting out your current PPR with the sales to occour prior to or simultaneosly with the new purchase. Not without risks though!! ie falling market / can't sell for required price(s). I would want at least a 4 month settlement, 3 at a stretch if you don't think it would be hard to sell the props quickly. Bit risky though.

If the extended settlement is no good for the vendor then maybe make your offer subject to selling the units. That said most pople in the right mind wouldn't accept those terms.

 

[investor2009]

Thanks Marty. Good advice my friend.

Yea, we've given it some thought and I spoke with the agent for the prop we were looking at and it's under contract already so that particular one is no longer for us, but plenty more and this might give us time to get our finance organised.

Good to know some lenders are prepared to take sales pending and future rental on our current PPOR into account, you may be right about the longer settlement..

I even thought about swapping two units valued at $760 for one house valued a little lower. I know SOMEONE would accept that, just not most people though.. That would save us placing them on the market and agents fees etc

 

[Paul Thewlis]

Hi Investor 2009,

When you say you share the mortgage between you and your wife, are you saying she helps pay for it and the loans are in your name alone, or is she a co-borrower on the mortgage. Does she work? The structure of this might impact on how you structure the finance.

If you are looking for a loan pre-approval based on the selling of the two properties, you are unlikely to get anything worth relying on from a lender until you have a contract of sale on the two properties being sold.

Regards
Paul

 

[investor2009]

Thanks man.

All loans in my name and my wife pays half of that interest only mortgage.
My broker is currently going through our situation and will come out with a plan of action soon. I've got a REA going in to one of our props today for a valuation and we'll go from there

 

[investor2009]

Ok so we've got one appraisal of 'offers between $370,000-$390,000'.
Purchased 1.5 years ago for $295,000.

Awaiting another property but we expect around $370,000 for this.
Purchased 2 years ago for $270,000, asking price $310,000

CGT will be around $25,000 with the 50% discount before taking into account our property holding/repair costs for the year, so $17,000 or so for $130,000 in gains, ex agents fees of $20,000 so we keep around $93,000 profit or so. selling sucks.. but it's o.k for us in this instance.

Turns out the final numbers should look a bit like this:
total val $1,500,000
Holding costs (total after tax) $26,000p/a

Current situation
total val $1,660,000
Holding costs (total after tax) $31,000p/a

So we get MORE lifestyle, using LESS of our own money
But a little bit smaller portfolio, we can continue to buy so it all evens out.
This time we'd like to buy something that's more neutrally geared than so heavily negative. The two properties we are liquidating will save us $14,000p/a..