Need Advise about selling to raise capital

[Trumpess]

Hi,

I have hit wall with finance to acquire more property,so now it seems my only option is to sell one or two properties & Re invest with a new strategy. Or, do I sit & wait for more gain?
I dont have enough equity or cash to use as 20% deposit for next the purchase as it stands, so even lo doc wouldn't help with my current portfiolios LVR being about 72% already. so,unfortunately I cant keep all my current portfolio & simply add another to it f I want to move ahead soon.

My income is too low to re finance all property to full doc loan. Looks like I need to sell something then re -invest. Im thinking of using funds from sale for a deposit on a reno and for reno costs. Perhaps if i can do a few of them one after the other & keep selling them, then at least I can build up my "bank account"

Im not sure which ones to sell though (or even if I should sell any)

This is what I have that I would sell if advised:

Unit in Melb I have owned for 10 years has about 100K equity and costs me 8K per yr. out of pocket

Oldish Unit in Surfers Paradise with beach views-No growth since purchase 3 yrs ago so no CGT. At least I could get my 60K (original 20% deposit) back out. This property costs me 11K per year out of pocket.

Old unit- potential development site. Not much growth past 4yrs Only get about 10K out of that one. Costs me 3K per year out of pocket.

Some say NEVER sell, others say its OK to sell. I feel stuck and need ideas. Should I sell the first & second ones. The first because its had a full cycle & the second because its highly neg geared? Should I sit & wait for more growth??

Any suggestions greatly welcomed and appreciated.
Thanks

 

[investor2009]

Hi there!

May I ask, what would you do with the small sale profit(s)?

AFTER you've paid most of it to agents and the tax office?
Remember, you'll also have to pay back your neg gearing benefits throughout the years of holding plus CGT.

By the time you sell you've already taken a big hit, and to top it all off you waste the rest in stamp duty and conveyancing fees to buy again. So all your profit will be gone and you'll be back at the very start. In saying that, the Surfers property looks like a killer..

I'd refinance up to 80% and wait for growth.
That means you get to keep ALL your realised profit thus far as you wait for more.
If you wish to renovate for profit then my aim would be to refinance and capitalise the interest. You may well create much more equity than you spend..

Are you sure about the $100k figure for your Melbourne property over a 10 year cycle? Seems rather low to me., but maybe you refinanced it a few times to purchase your others.

 

[RumpledElf]

Remember, you'll also have to pay back your neg gearing benefits throughout the years of holding plus CGT.

You mean depreciation I hope.

Noone would invest in property if all the charges for rates/water/maintainence you had to pay upfront and then again to the taxman.

 

[Trumpess]

Investor 2009: Thank you for responding. You make sense about the cost involved in selling.

I have mostly been a lo doc borrower for investing. Whenever I saved 20%, I bought with no real strategy for the short term, only long term growth but now Im impatient and want to create value myself after reading & researching value add strategies. Cashflow is becoming an issue as I have been paying the outgoings on the 3 investmemt properties from my PPR LOC. My idea was to re-finance all to 90% using full-doc to get cash out to create a LOC to get 5%-10% deposit to invest from as well as interest cap existing investments while directing all income from the properties to my home loan to assist with PPR debt reduction and cash flow. The idea was to buy & renovate a few props along the way & buy or create cash flow positive property to offest shortfalls on my 3 current investment properties. Even though the shortfalls are tax deductions, I only really save 10K in tax yet the cost to me is around 30K per year so Im still out of pocket 20K. I realise now that for the best tax benefits, it needs to be from depreciation not from me forking out for maintenance & body corp etc. So also part of my future plan would be to build to have the depreciation to offset some tax.
For now, I want to get get lump sums of cash to pay down PPR & get rid of some other large non tax effective debts. Embarrassed to say my credit card debts are rather huge (38K) plus I have tax debts to repay(approx30K) CRINGE!!

Unfortunately, my income isnt showing enough to re -finance to get cash out using full doc or to borrow any more money.

I cant use equity in current properties to go lo-doc as there isnt enough equity.

Thats why selling seemed my only option.

Is it just claimed depreciation that I pay back? What about if I sell at a loss?
Perhaps selling prop number 2 is the go as I wont have any CGT & can get the 60K deposit back out. That not really enough to buy back in with though unless I look regional mining town with high rents maybe?

All my properties have had rent increases recently and are:

Prop 1- 395K (bank valuation) Melb unit
Paid 225K 10yrs ago
Owe 307K (due to re-fi)
Rent $385 week (shortfall costs me 8K per yr)

Prop 2- 300K (if Im lucky)QLD unit beach view
Paid 295K 3yrs ago
Owe 239K
Rent $365 week (shortfall costs me 11K per year) Body corp over $100 week!!

Prop 3- 190K Qld Unit on Canal (possible development site)
Paid 180K 4yrs ago
Owe 171K
Rent $230week (Shortfall cost me 3K per year)

PPOR 415K
Paid 395K 15mths ago
Owe 317K LOC 323K interest only

As you can see, quite Im in quite a pickle. Im actually already at 79% LVR not 72% as I stated earlier.

Any obvious answers to all this?

 

[investor2009]

Thanks for sharing your finances with us, I respect that you are being totally up-front. No need to be embarrased, I can see you made a small mistake and are making plans to rectify that as we speak.

Your 38k CC debt is a little alarming and I can now see why you require cash-flow so urgently.

With property debt of $30 minus $10k per year or $20k after tax this seems o.k with me considering you are invested in growth property if we average 7-10%ROI per annum, minus rental income.


If you feel comfortable bringing your total borrowing on investment properties only (not PPOR) you will have no trouble holding for the shorter term (investment property/tax deductible debt only) whilst working toward using your take home pay to reduce both credit card (higher interest rate) and then your home loan debt. Your capitalised interest borrowings on 3x IP's may last you a few years before running out, and 16% or so growth on all 3 properties over a few years will offset this, and add to your wealth.
I see you currently sit at 79%LVTR though which makes this a little harder, but you may be able to refinance just one property to get you through the current storm.

Sometimes it's hard to see the forest through the trees like we did in the beginning but remember, this is only a test, you will win long term if you stand tough.

Your second property with the gigantic BC bill has to go though in my opinion. It's just not a good investment. Which may be a blessing for your finacnces and cash-flow!

 

[Unit]

Are you able to get more rent for your beach view unit by renting it out short term as a holiday unit.

 

[Trumpess]

HI,

No the beach unit would actually get less-high management fees & cleaning fees etc.. I asked management about the returns There are a lot for holiday lett & it gets shared between them all.

Also , the high turn over of people through it would trash it quickly. Its furnished. I recently did cosmetic reno to it & put in nicer furniture at the same time.

The rental market was slow & it was empty so I did it up & got a tenant straight away. In hindsight would have been cheaper to just drop the rent.

No regrets tho as it was good practice & will stand out more than the original ones in the building so should always be easier to rent.

 

[Ridin-High]

Here's what to do

- Pay down credit card debt ASAP, either transfer to a low interest card and smash the debt or use money from LOC to pay CC then pay LOC off (lower interest rate then the CC 7% vs 20%)

- Call the tax department and organise a payment plan for the outstanding tax liability so they stop wacking crazy amounts on top

- QLD property is a buyers market at the moment. Do your own research but if it was me i wouldn't be selling now

- Switch any loans which are not interest only to interest only

- Use income tax variation and claim expenses/depreciation through out the year increasing your take home pay instead of waiting till EOFY to get it back and put the extra money you are getting take home reduce non deductable debt

Regards,

RH

 

[Edmond Dantes]

I'd forget about buying new property and put all my efforts paying off my credit card. I won't be able to sleep with 38k of CC debt.

Also, a property costing you 8k per year after 10 years of holding it.. that's a lot.

good luck mate

 

[wylie]

I would be selling the one that is costing you $100 per week just in body corporate, and which it appears you have some equity in (but you will lose sales commission - unless you can list it yourself). If you can get what you think it is worth, pay off the credit card and tax debts (or pay them down after you pay commission etc).

If the tax bill is more urgent, pay it first, and reduce the credit card right down, cut it up or reduce the limit to $2K or less so you cannot run up that amount of debt again.

Then I would sit tight until something improves (salary increase, rent increase). Buying something else just seems a mistake, going on what you have said.

 

[Kinnon Bell]

Trumpess, in regards to your credit card call your financial institution and negotiate yourself credit card interest rate. You'd be a high profit customer and they should bend over backwards and offer you a lower rate.

 

[Propertunity]

IMO, you should not be buying any more property for the time being. (yes! a BA said don't buy property )

In summary you need to do 4 things:
1. Pay off your CC debt
2. Pay off your tax debt
3. Increase your income
4. Reduce your property expenses, which may mean selling off some of the largely neg. geared one/s, .......possibly the Surfer's Paradise one and the Melbourne one, in that order......and no it is not a good time to be selling on the Gold Coast, so it may not be possible, but it would give you heaps of cash to pay down bad debt and save you $20K in outgoings.

This would allow you to re-position yourself to make some better investments going forward.

 

[wylie]

IMO, you should not be buying any more property for the time being. (yes! a BA said don't buy property )

Hope the trolls read THAT!!!

 

[Propertunity]

Hope the trolls read THAT!!!

LOL yes, I see the irony.

 

[Trumpess]

Here's what to do

- Pay down credit card debt ASAP, either transfer to a low interest card and smash the debt or use money from LOC to pay CC then pay LOC off (lower interest rate then the CC 7% vs 20%)

- Call the tax department and organise a payment plan for the outstanding tax liability so they stop wacking crazy amounts on top

- QLD property is a buyers market at the moment. Do your own research but if it was me i wouldn't be selling now

- Switch any loans which are not interest only to interest only

- Use income tax variation and claim expenses/depreciation through out the year increasing your take home pay instead of waiting till EOFY to get it back and put the extra money you are getting take home reduce non deductable debt

Regards,

RH

Hi,
Thanks for your input, I appreciate it.

I have been looking at lower rate balance transfer cards. Hard to find one or two with big limits. The biggest was citibank & I have just come off their low rate. I still have 15K with them & they have me fairly low at 9.99%

I dont have enough equity to use LOC

I have arranged payment plans with ATO (but they still want fair chunk each month)

I agree QLD is a buyers market- thats for sure.

All my loans are IO- even my PPOR

I am working with an ABN & pay my own tax so, no variation (221D) can be applied( hence the tax issues now)

 

[Trumpess]

I'd forget about buying new property and put all my efforts paying off my credit card. I won't be able to sleep with 38k of CC debt.

Also, a property costing you 8k per year after 10 years of holding it.. that's a lot.

good luck mate

Thanks. Yes i have been losing sleep. Not over the debt but trying to think of ways to make more money.

 

[Trumpess]

I would be selling the one that is costing you $100 per week just in body corporate, and which it appears you have some equity in (but you will lose sales commission - unless you can list it yourself). If you can get what you think it is worth, pay off the credit card and tax debts (or pay them down after you pay commission etc).

If the tax bill is more urgent, pay it first, and reduce the credit card right down, cut it up or reduce the limit to $2K or less so you cannot run up that amount of debt again.

Then I would sit tight until something improves (salary increase, rent increase). Buying something else just seems a mistake, going on what you have said.

So I shouldn't increase the limit to use as deposit?--Just kidding!

 

[Trumpess]

Trumpess, in regards to your credit card call your financial institution and negotiate yourself credit card interest rate. You'd be a high profit customer and they should bend over backwards and offer you a lower rate.

Youre right- Im going to do that tomorrow. Thanks for the suggestion. I appreciate it.

 

[Trumpess]

IMO, you should not be buying any more property for the time being. (yes! a BA said don't buy property )

In summary you need to do 4 things:
1. Pay off your CC debt
2. Pay off your tax debt
3. Increase your income
4. Reduce your property expenses, which may mean selling off some of the largely neg. geared one/s, .......possibly the Surfer's Paradise one and the Melbourne one, in that order......and no it is not a good time to be selling on the Gold Coast, so it may not be possible, but it would give you heaps of cash to pay down bad debt and save you $20K in outgoings.

This would allow you to re-position yourself to make some better investments going forward.

Sensible advice- thank you. I agree with all of the above. Im working on point 3 as we speak.
Im hesitant to sell in case I CANT buy back in. To confuse me further, I spoke to the the owner of the agency this afternoon that manages my prop in Melb and he advised dont sell if I can hold as its a great property. He expects it to be worth 50K more in 12mths. (They also sell lots of property so he wasnt saying it to keep the management listing- I dont think?)

 

[Trumpess]

Hope the trolls read THAT!!!

Whats a TROLL??