Increasing Portfolio

[WebBoard]

From: Mike .


Suggestions would be VERY helpful
From: Jeremy
Date: 18 Oct 2000
Time: 00:46:42

Hi all, I am not sure what to do and would like help from property minded people. I may not take your advice but would very much like ALL opinions on what to do.

I have around 2.2m worth of property in Aust Loans totalling 1.2m @ 8.0% I have around 1.1m worth of property in US about 750k loans @ average 7.5% US property is performing very well except this year tenants trashed two properties and due to fine line between 'wear and tear' and 'vandalism' I got no insurance money for the $US10k damage. That has all but wiped out my 'income' for the year.

I have about $350k equity there, which was very hard fought for and I don't want to sell up as it was hard to get and California is going ballistic in cap growth terms at the moment. I would expect to double that in 1-2 years time.

Concurrently with this I am renovating a terrace in Sydney worth around 700-800k AUST. Building time has blown out 8 months to 20 months due GST panic and hail related demands. The rental value of this is 800-850 wk and should be completed in about 2 months; holding costs of this property are around 4k AUST per month.

I have a home worth around 500k which should rent quickly for at least 430-460/wk. I also had another deal in US fall through and I am waiting for the proceeds (I should get all my money back!?!*) $US15K back at the discretion of the local Real Estate Commission, but it is taking time. I am REALLY running out of cash and not sure whether to:
1)sell my own home (takes time and if I borrow 50k (6 months breathing space) at even 14% it is only 7k/year is that just stupid to sell?)
2)rent my own home (won't cover all debts but would help and is immediate relief)
3)borrow more on credit to cover mortgage short term and would be able to keep property or
4)sell current home (as above re time, but may hold banks off not sure how they view interest payments during selling process) lessen debt then look out for better property, borrow more and have something 30% nicer in 6-12 months time. This money is locally Tax Free.
5)I could sell a US property, but they took about 6 months to buy, and I don't want to lose the foothold, despite the US/Aussie dollar equation. It's easier to start a credit line than to explain why you gave up after 1 year.

Please do not say, "well you were trying to do too much". I was and if Greenspan hadn't raised US interest rates (Hard to explain what being knocked back on million $ finance due to the 'spike' on the US 10 year T-bill rate feels like) I would have had another $6m worth of property and it's considerable cashflow, but investors got spooked, Hail happened, girlfriend lost job, builders couldn't get tradesmen/supplies on time due GST panic, those f******* at the tax office STILL haven't given me my 221D applied for in May, I signed a building contract without a completion date and I had tenants destroy a property on who's insurance I didn't understand properly.

I doubt anyone could have foreseen such a disaster (Skase/Bond??) but what I would like is constructive help or suggestions from anyone. Thanks in Advance - as the saying goes. Get creative!

 

[WebBoard]

Les

Reply: 1
From: Mike .


Re: Suggestions would be VERY helpful
From: Les
Date: 18 Oct 2000
Time: 20:59:30

G'day Jeremy,

If I'm reading your numbers correctly, you appear to have an LVR of around 60%. On that basis, I can't see why you would not be able to refinance a property (perhaps your own home?) to give you the "necessary" to tide you over.

Of course, you would only do this if you are totally convinced that your current properties will grow in value into the future.

And, with the numbers given, even if Banks won't lend (for reasons best known to themselves) an "alternative" lender who will loan to a percentage of the asset (usually 70 - 75%) with no regard to your serviceability, might be the way to go. They loan based on the Capital value, knowing that (if necessary) they can sell the property and regain their money. It will likely be a percent or two higher than a Bank, but if it prevents you having to sell to meet a liquidity problem, then it could be money well spent.

Regards, Les

 

[WebBoard]

Jeremy

Reply: 1.1
From: Mike .


Re: Suggestions would be VERY helpful
From: Jeremy
Date: 18 Oct 2000
Time: 23:32:00

Les, You are right and as a last resort I will do exactly that. I joined Westpac Private after being 'touted' by them on the premise that they are by no means the cheapest - and they aren't! but they are GREAT in what they offer in service. I can pick up the phone ASK for cash/new IP and I will get an answer back IN 15 MINUTES!!! (and NO FORMS!) I pay around $15000 a year for that privilege but it is a fantastic service.

Due to their 'rule bending' ie actually talking to me and listening I bought the US stuff, and got the Terrace underway. It isn't their fault that everyone else conspired against me. I know loyalty with banking is a thing of the past (and I've changed banks a lot) but the product they offer is vastly superior to any I've dealt with and I am loathe to go back to dealing with the idiots I was previously accustomed to.

Added to that I am not sure about the LV required above 1+m. I hit a very nasty barrier when LVR dropped (not that anyone told me) to 70% above 1m. Could I ever hit that sort of thing again?

 

[WebBoard]

Robert

Reply: 1.1.1
From: Mike .


A Suggestion
From: Robert
Date: 18 Oct 2000
Time: 15:54:09

Ouch!!!

Well, here is a start, maybe. Consider selling the property that is under construction and get them to provide you with a 10% deposit, so there would be your $70-80k. This would keep you going for sometime yes, then on completion you get the rest of the money (of which the great Ozzie ATO would of cause take their piece [chunk]).

Would you be at a loss if you sold off this "dog" of a property? I call it a dog due to you needing to spend out $4k p/m and as yet have no return. Would this scenario fix your problems??

I can't see why your 221D is taking so long. My partner got hers in 3 weeks. Resubmit it to the ATO, they've probably lost it [typical].

So that will cost you 2c. As that is my 2c worth.

Cheers Robert

 

[WebBoard]

Jeremy

Reply: 1.1.1.1
From: Mike .


Re: A Suggestion
From: Jeremy
Date: 18 Oct 2000
Time: 17:18:05

Interesting suggestion, I hadn't thought of selling Redfern. Shame to lose a 750-800k property, and pay tax on 500k but definitely something I hadn't thought of. Tax office just doesn't like me, I should have my 221D in the next month or so they say.

In my 10 years of working life I've been fully audited 3 times, in addition to twice just for my 'other' work, but wasn't singled out so to speak. Thank you very much for your reply, another suggestion to have if banks get excited! Good idea.

 

[WebBoard]

Bob

Reply: 1.1.1.1.1
From: Mike .


Re: A Suggestion
From: Bob
Date: 19 Oct 2000
Time: 07:39:25

Jeremy

I know you're not afraid to try things on, so how about taking Robert's suggestion of selling Redfern but turning it into an income stream with a wrap or a lease option? I'm not an expert on these but there are some in this forum who have done so or you can always hit Andrew Gray or Steve McKnight for some advice. Best of luck.

(That'll be 2.2 cents - **** GST!!)