Need Help With Numbers & Consequences Pls.

[Olly]

Time to lay it on the line and ask for help.

Scenario
Due to a major illness (which bought my investing dreams to a halt), I've not been employed for a number of years and am on a pension. I own my own home (with an untouched $200k LOC on it) and have an IP which is CF+. My home is worth approx $450k and the unit $150k with $60k owing.

Some in my position would think "well, that's it then", but I can't help thinking I can improve my situation, especially when I still hang out here and see what other people are doing. In fact it frustrates the hell out of me and my place is littered with ideas, drawings and plans etc.! I realise I'll have to run everything by Centrelink so don't worry about that for now - just come up with the best outcome. So, get your thinking caps on and see what you can come up with please.

Thought 1
Put a granny flat in the backyard. Income will only go to paying back the LOC which I'd use to build it. Would it add value to the property? In some areas it apparently does and in others I've heard it doesn't. Don't know what category I fall into. I could live in either and rent the other out.

Next 3 thoughts depend on whether I can finance them. Can I? Will any lender help me given my position?

Also I don't know how CGT will effect me so can someone help with the figures please.

Note 1: Rough figures used below.
Note 2: I'd live in my IP (probably) while the following would be taking place.

Thought 2
Knock down my place and build a duplex. Cost approx $300k
Sell both at $450k each, pay back loan and go and buy somewhere else to live. What sort of money would I come out with? Possibly re-do this scenario again if it's worthwhile.

Thought 3
Knock down my place and build a duplex. Cost approx $300k
Move back into 1, sell 1 and pay back loan. Anything left over for me or was that a fruitless exercise?

Thought 4
Knock down my place and build a duplex. Cost approx $300k
Move back into 1 and rent the other out to pay back loan. Will I be able to do that? How does that pan out for me?

My place is zoned high density but is only 14m wide (45m long) so this seems to hamper a units or boarding house scenario (tried these), because it will create a barrel shaped building to get access to the back for parking and my local council doesn't like that. Parking problems also for a child minding business (tried that as well).

Can't do anything jointly with 1 neighbour because it's an empty block owned by a medical centre and they use it for parking and future plans (they currently own the house on the other side as well and rent it out in the meantime). The owner on the other side is a nightmare so can't even entertain doing anything jointly with him although it would be the perfect scenario. It's a rental next door and the owner of it lives on the other side of it. I've spoken to him in the past about building 2 townhouses each on the backs of our land, knocking down our houses and building another TH in the front to give us 3 props each. The only joint piece would be the driveway in the middle. He just doesn't get it. Add to that we've been arguing over a fence for the past 12 years............... I can't deal with him!

I've wondered if I should leave things as they are but get more involved in shares/trading etc but I don't know enough about it so it would be out and out gambling so that's out too. Unless someone wants to mentor me????

My final question is - can I refinance the balance on my unit? I know there's better interest rates out there. Does anyone do that for $60k? Would it be worth it?

My future is uncertain so would prefer a year by year outcome - nothing long term.

Finally - I'm also available for any work from home situation if anyone is looking for someone. Whizz bang on the PC and have lots of other admin/sales/accounts/skills. I have a car and no mobility issues. I've also got storage (for products)?

I think I've covered everything. If not - ask away.
I'm prepared to give anything a go and I do think outside the box.
So go ahead and make me richer!

Thanks

 

[Aaron_C]

As far as financing goes it might be feasible since lenders may take the future rental income into account when giving you a construction loan to build an investment property. Hard to say without the details but as an overall strategy thoughts 1-4 are possible even if you are on a disability pension.

As for refinancing $60,000 - that is certainly possible too, depending on your servicing! What are you paying right now?

 

[devank]

Hello Olly,
Sorry to hear about your illness. Your question brings back the reality and reminds what we may need to face in the future. Sometimes we tend to think that everything will be the same forever! Thanks for the reality check.

To answer your question, I think GF in an exsisiting property can do better.

I did a bit of simple forecasting for my exsisiting IP. I have attached that Excel File

You may have to custermise to your numbers. PM me (with your email) if you want me to do it for you.

Hope you get well soon.

- devank

 

[Brady]

As stated by Aaron C, you can still look at finance as long as its serviceable.

Your total income would still need to be able to service the whole debt.

Even if you planned to sell properties for a profit, you would still have to should that you could repay the debt without selling them.

 

[weg]

I know the aim is alway to not rely on any pensions or government assistance, but as you require it now, you need to look at how many of these options might reduce that pension amount before you're ready.

I don't know for sure, but I would think lump sum profits and increased property value other than PPOR for example, may have some affect.

The only one that wouldn't pose any problems, that's assuming the other options do, is the granny flat, which in effect is like having a border living with you.

On increasing income, I have a friend with a granny flat who only does short term 'boarding' which commands much more than the normal charge, so could be something to look at if you go down that path.

 

[Olly]

I know the aim is always to not rely on any pensions or government assistance, but as you require it now, you need to look at how many of these options might reduce that pension amount before you're ready.

I don't know for sure, but I would think lump sum profits and increased property value other than PPOR for example, may have some affect.

Don't quote me but I know it's close - a single pensioner can have their own home and assets to the value of about $230K

The only one that wouldn't pose any problems, that's assuming the other options do, is the granny flat, which in effect is like having a border living with you.

Actually, I think it would be a problem 'cos Centrelink would see me as getting income regardless of the fact that it would be going straight into re-paying my LOC and that I wasn't 'benefitting' from it. That 'income' would effect my pension.

On increasing income, I have a friend with a granny flat who only does short term 'boarding' which commands much more than the normal charge, so could be something to look at if you go down that path.

I thought about that when I was looking at a boarding house, but council said 1 night accommodation or similar makes it hotel/motel type arrangement not a GF, not a boarding house etc. I then have to provide parking unlike a GF where that is not mandatory. Parking can't be tandem parking as it would be at my place, and you can't park in the front of the house even though I have a drive way there as well. It's actually against the law apparently to park in the setback of a house. The fact that everyone does it and it's not enforced is neither here nor there - council can't condone it by passing plans that include it.

 

[Munchkin]

Actually, I think it would be a problem 'cos Centrelink would see me as getting income regardless of the fact that it would be going straight into re-paying my LOC and that I wasn't 'benefitting' from it. That 'income' would effect my pension.

They wouldn't take the full rent amount as your income though. They take into account interest and other costs. When I was receiving $200 a week rental income they deemed my actual income from that to be $40 per week and the income from the rental property reduced my pension by about $20 per fortnight

 

[Olly]

As far as financing goes it might be feasible since lenders may take the future rental income into account when giving you a construction loan to build an investment property. Hard to say without the details but as an overall strategy thoughts 1-4 are possible even if you are on a disability pension.

As for refinancing $60,000 - that is certainly possible too, depending on your servicing! What are you paying right now?

P&I $442.42/month. Variable Interest Rate 6.68% not including recent RBA reduction.
Rent is $225.00/week.
Servicing would be as is now - by way of rental income.

 

[weg]

I thought about that when I was looking at a boarding house, but council said 1 night accommodation or similar makes it hotel/motel type arrangement not a GF, not a boarding house etc. I then have to provide parking unlike a GF where that is not mandatory. Parking can't be tandem parking as it would be at my place, and you can't park in the front of the house even though I have a drive way there as well. It's actually against the law apparently to park in the setback of a house. The fact that everyone does it and it's not enforced is neither here nor there - council can't condone it by passing plans that include it.

There is a lot of demand for short term furnished accomodation like a few weeks to 6 months.

You treat it just like you would 'boarder' accomodation and only advertise it differently.

I suppose part of the reason you get more is because it's furnished.

You don't want it to be too short term because the neighbours would complain and then the council would most probably jump on it.

Single working people who are there for work are probably the best types.

 

[Terry_w]

The granny flat sounds like an option to seriously consider.

This would probably increase the value of your house, but would certainly increase your income. Both would affect any centrelink payments so you would need to check that out. You would also need to consider the CGT aspects.