Equity but no cash. What to do?

[Mumprenuer]

Looking for understanding.

We have one investment property that has the potential of additonal equity of around $150000. However our personal cashflow dosn't allow for ANY additonal costs.

How does one go about purchasing another property. What potential strategies can one use?

Thanks...as you can see I'm new..so be kind

 

[GoAnna!]

Four possible options are:

Buy cashflow positive properties (rent covers all of your costs)

Buy (maybe renovate) and sell preferably growth properties

Use equity to cover negative cash flow. (higher risk with growth essential)

Combine shares and property to create neutral to positive cashflow.

The next step will depend upon your risk profile, your knowledge and expertise, and your investment goals.

 

[Mumprenuer]

Thanks GoAnna...

Buy cashflow positive properties (rent covers all of your costs)

Understand this concept. Finding them is the thing I'm not sure where to start where we have our current cashflow postive property...the market is well and truly now negative cashflow due to capital growth!

Buy (maybe renovate) and sell preferably growth properties

My skills are very minimal here would take a huge learning curve.

Use equity to cover negative cash flow. (higher risk with growth essential)

How does one do this?

Combine shares and property to create neutral to positive cashflow.

Sounds interesting. Again how do you do this?


I did say I was 'new' Thanks.

 

[alexlee]

We have one investment property that has the potential of additonal equity of around $150000. However our personal cashflow dosn't allow for ANY additonal costs.

How does one go about purchasing another property. What potential strategies can one use?

Have you done a full list of all your expenses for, say, a 3 month period? You may find that you have some extra cashflow.
Alex

 

[Mumprenuer]

You may find that you have some extra cashflow.

If only! Alex. Yes I've done that..there is only so many times you can do the numbers before one gets totally depressed!

 

[BlackSpider]

Another way to increase yur cashflow for servicability is to get a higher paying job or start up a business, or take an extra job.


Good Luck.

Spider

 

[Twitch]

Hi, here's a couple of random options that I would consider if I had $150,000 equity (which translates to a facility of $120k @ 80% LVR).

Option 1) $100k into income shares (eg banks, LPTs, utilities) or income MFs, then margin those @ 50% and put that $100k into growth stocks (BHP, RIO, etc) or growth MFs. Total portfolio of $200k therefore.

I would then put all dividends/distributions into the $100k LOC and let the margin loan interest capitalise. The growth shares should mean no margin calls. The divs/distributions should mean LOC interest is covered.

But that's only in theory, so thats why I would have $20k spare in the LOC.

I would do more thorough sums though, I'm just making these figures up using rules of thumb.

Option 2) Buy a ~$275k IP that is going to give growth and yields around 4 or 5%. That will use ~$72k of the $120k LOC. Cover the shortfall out of the remaining $48k, which should last 5 to 7 years. At that point refinance and get a bigger buffer.

I'd adjust down the purchase price to if I wanted a greater sleep at night factor.

The above is not advice, it gives exmaples of what I personally would consider doing if I had that amount of equity available but with no cash flow.

Good luck.

 

[Andrew_A]

I'm in the same position.

Negative cashflow and job income is sporadic at best.

When I scrape together another deposit I'm going to be looking at commercial property for better cashflow as I've had my fill of residential and renovating!

But the key is a job or business I think.. Work on your main skills.

 

[Mumprenuer]

Twitch

Both your options sound good (obviously need to do my own sums) and decide on level of comfort with either statergy.

Thanks

 

[MattR]

Another way to increase yur cashflow for servicability is to get a higher paying job or start up a business, or take an extra job.


Good Luck.

Spider

And/or speak with your accountant to make sure you're not missing some tax saving somewhere.

 

[BoatBoy]

Another way to increase yur cashflow for servicability is to get a higher paying job or start up a business, or take an extra job.


Good Luck.

Spider

Your a barrel of fun

I'll go with Twitch's option thanks

Dave

 

[ILoveProperty]

Option 2) Buy a ~$275k IP that is going to give growth and yields around 4 or 5%. That will use ~$72k of the $120k LOC. Cover the shortfall out of the remaining $48k, which should last 5 to 7 years. At that point refinance and get a bigger buffer.

Hi Twitch,
With this option, as there is currently no spare cashflow, must the $275k IP be bought with a no-doc loan?
Would you agree that standard loans are not an option?

 

[Twitch]

Hi Twitch,
With this option, as there is currently no spare cashflow, must the $275k IP be bought with a no-doc loan?
Would you agree that standard loans are not an option?

lo or no-doc is likely but depends on a whole host of things including the partners salary, obviously a broker can determine which option is best.

 

[BlackSpider]

Your a barrel of fun

I'll go with Twitch's option thanks

Dave

Come on.
Business is fun and challenging.
I started a business just 2 years ago and have just bought 1st IP, settles tomorrow!
Now can pretty much buy outright a 350K property every year from current profits.

I'm glad I spent a couple of years to increase my income rather than be on my previous crappy 35-40K income only to save and invest very slowly.


Good Luck

Spider.

 

[Mumprenuer]

I'm glad I spent a couple of years to increase my income rather than be on my previous crappy 35-40K income only to save and invest very slowly.


Good Luck

Spider.

Yes Spider...to be locked into a "crappy 35-40K income only " is a sad way to go

 

[caz]

Sounds like an awesome business. Would you like to share details with us about how you turned your life around ?

 

[grossreal]

hi all
I will say that this post is a little one sided as I believe that there is alot of people taht are in the same boat as you are in.
and I believe that you will find alot of people that want the same as you require and what you want
is someone that wants your equity that can cover the repayments and share the profit from the project with you currently
you need to try to find them.
you can try shared equity or co invest but one on one shared investing is not here as yet??
but maybe keep having alook as it maybe at some stage.

 

[Mumprenuer]

Hi, here's a couple of random options that I would consider if I had $150,000 equity (which translates to a facility of $120k @ 80% LVR).

Option 1) $100k into income shares (eg banks, LPTs, utilities) or income MFs, then margin those @ 50% and put that $100k into growth stocks (BHP, RIO, etc) or growth MFs. Total portfolio of $200k therefore.

I would then put all dividends/distributions into the $100k LOC and let the margin loan interest capitalise. The growth shares should mean no margin calls. The divs/distributions should mean LOC interest is covered.

But that's only in theory, so thats why I would have $20k spare in the LOC.

I would do more thorough sums though, I'm just making these figures up using rules of thumb.

Option 2) Buy a ~$275k IP that is going to give growth and yields around 4 or 5%. That will use ~$72k of the $120k LOC. Cover the shortfall out of the remaining $48k, which should last 5 to 7 years. At that point refinance and get a bigger buffer.

I'd adjust down the purchase price to if I wanted a greater sleep at night factor.

The above is not advice, it gives exmaples of what I personally would consider doing if I had that amount of equity available but with no cash flow.

Good luck.

Ok.. understand this in 'theory'...question I'm still trying to get my head around is funding debt with debt. Maybe I need a mind shift...can anyone help me with this?

Thanks

 

[The Y-man]

Another way to increase your cashflow for servicability is to get a higher paying job or start up a business, or take an extra job.

Valid strategy - and one that we undertook many years ago.

We did all three...and more - wife took on a higher paying job, I took on overtime, and we both took on an extra job each, and started up a business as well!

While it was very tough going, I believe it had several outcomes:
1. accelerated our investing, and cut years off the timeframe

2. gave us no time to spend money - and got used to spending no money!

3. gave us experience in the business field. Some of our business experiences cost money - but it was good to know we could do it while being backed by more "conventional" wages. Now the business pays far more than our combined wages.

4. Increased base pay due to expanded experience in 2nd jobs, allowing for promotions etc. Reputation as a hard worker (willing overtimer!) didn't harm the pay either

Cheers,

The Y-man

 

[hobo-jo]

What sort of business did you start The Y-man?