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From: Mike .


Confused
From: Anne
Date: 6/19/00
Time: 11:16:54 AM

Hi all. I am very new to IP's and I have just been reading some of the most recent entries and I guess like the majority I'm am keen on becoming financially free.

I have a problem with my own property that after countless hours my mind has now become so boggled I can't think straight - so I'm hoping someone may be able to heeeellllp. I own land valued at $250,000 with fantastic ocean views - if I put a house on it the value with be approx $650 -$750,000(with debt of approx $200,000).

Now my dilemma is do I hold this property and get capital growth or do I sell and buy IP's and hopefully get greater capital growth? Which way will get me to my goal of financial freedom sooner?
 
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Les

Reply: 1
From: Mike .


Re: Confused
From: Les
Date: 6/21/00
Time: 11:02:23 PM

G'day Anne,

Welcome aboard. Before we start, let me say that I am a very new investor in IP's - hopefully my thoughts might give you some ideas, or prompt a response from others with more experience.

First, I take it that you OWN the land freehold - thus the $200k debt would be simply to put a house (?) on it. With "fantastic ocean views" it sounds like a winner - so my initial reaction be to say build a house (motel, block of flats, etc. - whatever suits) so your block of land can return you some cash while you wait for the land's value to increase. And with Fantastic views, that is surely guaranteed.

Once they are built (value ~$700k) it should be easy to borrow against it for other IP purchases (subject to your capability of getting a larger loan - DSR, etc.) With that kind of equity, there should be little holding you back - even if it means stepping out of the "usual" role of borrowing from Banks, and instead going for "Asset Based Finance" (where they will lend say 70% on the value of the property - doesn't matter what you earn - forget DSR, etc.)

With such an asset base, I would think you would be in a great position to purchase other IP's WITHOUT selling this little honey.

You don't say where it is (seaside town/city, or boonies - I assume the former) but you sound confident of its equity growth with a structure on the land. So, on that basis, I would suggest taking a serious look at doing something with it - and KEEP IT. Could it return more as a motel or seaside units than as a house? Take a look at the likely money generated (and cost) of each type of structure and see what suits this land.

Then build it, refinance it upon completion, and launch into other IP's.

Of course, what you end up doing depends on your own personal risk profile. Maybe you would feel safer NOT building - instead selling, and using the cash as deposits on a number of IP's.

What I can say is that you're starting out from a position of strength - so call your shots, and go for it.

Of course, check EVERYTHING you decide to do with the appropriate advisers (accountant, solicitor, etc.)

And let us all know too - we're interested in hearing (and helping where possible) what other investors are doing, how they're going, what challenges they're facing, etc.

And if my thoughts are off base, I hope other readers with more experience will set me right and give you an alternative direction.

Good luck,

Regards, Les
 
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