Rent out or sell for capital

M

Matry11

Hi all

We have bought a house just over a year ago for $150K and have renovated it to "executive style" with the initial intention of selling it for around $100K profit. We wanted access to "cash" to buy another house and do it again and build up our "cash" resources to eventually buy a business and yet another home.

We dont have any savings left as we have put everything into the renovations of this house - approximately $35,000 and we havent paid much off on our mortgage as we didnt intend on keeping it initially so the interest only was ever paid. Our plan was that we sold this property, buy a reliable vehicle we desperately need (we have just had a child) get married and renovate another couple more houses. We were told to buy and sell is the way to go to get wealthy.... we need more than one opinion please.

Since having a child I guess your values in life change but we would still like to jump on the property ladder and get ahead in life and build a portfolio, not struggle. We have currently a household income of $43k (I am on maternity leave at the moment) $80k when I return to work soon.

Our main question is, how do we afford to keep this house and rent it out and buy another one for us to live in and get access to money for a new vehicle, get married (not extravagent) and more renovations on the next house??? Or do we go with our first option of having to sell the house in order to get "cash"

We have done a spectacular job on this house and we could get $275 p/wk in rent and our repayments are $258 per week or if we sold we would get quite easliy $240-260k.

We are young and naive in this field and would really appreciate "your" advice.

:confused:
 
Could someone please tell me what LOC, LVR, LMI mean? I am sorry to sound ignorant but I am REALLY new to all this, as you can probably tell buy the way I cant "crunch" the numbers like you, but I am a SPEEDY learner!;)
 
Matry11 said:
We were told to buy and sell is the way to go to get wealthy.... we need more than one opinion please.
Click to expand...

Matry11

Who told you that buying and selling is the way to get wealthy??? Are these people property investors (or, indeed, any sort of investors) themselves - and have they actually done what they are telling you to do??? Beware of 'armchair experts'!

By buying and selling frequently you are going to pay a huge amount in transaction costs - agents' commission, advertising costs, CGT, stamp duty, removal costs etc. The REAs and the government will love you, but it won't do a great deal for your wealth creation goals. That is not to say that you should never sell, but one of the options you could consider is accessing the equity in your existing property to facilitate further investments.

This forum is a great place to start - you will probably be able to find answers to just about any question you have about IPs.

Welsome to SS - and happy investing!

Cheers
LynnH
 
Last edited:
Buying and holding is also a great way to become wealthy, Matry. Many of us here do that, and while we can argue the merits of buy and hold vs buy and sell all day long (it depends on so many things) I wouldn't say buy and sell is 'the way to go'. If you believe that long term property goes up, then it makes sense to hold onto properties. Just refinance and take out the equity you 'create' from renovations. As Lynn said, fewer costs and fewer taxes mean more left for you.
Alex
 
My boss owns a few properties and several franchise business and said that buying a property and selling it was the best thing he did as far as making money was concerned. I did however want more opinions as I do his bookwork and I see that as far as "assets" go he has millions as far as cash in hand he has buggerall. Just in these few responses I can see that refinancing is the way to go. Its pretty scary getting further into debt, but I am confident with myself and my decisions and I believe we will do just that. Refinance. I hope you guys can help us through our journey to becoming wealthy in money and life.

PS what I have read so far in this whole forum is incredible, I cant begin to imagine the knowledge that is online at any given time. So glad I found this forum.
 
I agree with what others have said - don't buy and sell. You need to get yourself a good mortgage broker of which there appear to be quite a few on this forum. A mortgage broker will explain what all those terms mean.

You need to get your properties revalued, possibly refinanced and maybe a line of credit (LOC). Much, much cheaper than buying and selling.
 
Hi Matry

Firstly congratulations sounds like you have done a great job and whether you sell or refinance is as a much personal decision depending on your long term goals as much as anything.

Here is explanation of some lending jargon the industry tends to use :

LOC = Line of Credit / LVR = Loan to valuation ratio / LMI = Lenders Mortgage Insurance.

My personal thoughts would be to retain the property, make sure the loan it is structured correctly, access the equity and do another one.

The rent would certainly assist in servicing the interest repayments and there will be some non cash deductions you will also be able to claim to defray any shortfall.

It is funny people who say SELL SELL SELL and take the profit tend to forget this is a journey into wealth creation and not a 1 off wonder.
 
a little unsure

My personal thoughts would be to retain the property, make sure the loan it is structured correctly, access the equity and do another one.


I am a little unsure of what you mean "structured correctly" I just have a home loan with bank of qld - I am on my first home owners grant and I have access to any excess money I put on it. Not too sure if thats what you mean or is there other types of loans I should be looking at when I try to refinance, and speaking of which what type of things should I consider when refinancing. This line of credit? what is the advantage/disadvantage of this?

Do you only borrow what you need? The money you borrow do you have to show quotes on things you need to reinvest into?
 
Matry11 said:
My boss owns a few properties and several franchise business and said that buying a property and selling it was the best thing he did as far as making money was concerned.
Click to expand...

Buying and selling is ONE way of doing it, and maybe it worked very well for your boss. That's fine, but it is certainly not the ONLY way. Plenty of people get rich buying and holding, too.

Matry11 said:
I did however want more opinions as I do his bookwork and I see that as far as "assets" go he has millions as far as cash in hand he has buggerall.
Click to expand...

Cash in hand isn't the most important thing, especially when you're still in the 'building' stage. For buy and hold, gross assets drive future gains, cashflow allows you to keep it, and net assets provide you with the resources to build it up.

Matry11 said:
Just in these few responses I can see that refinancing is the way to go. Its pretty scary getting further into debt, but I am confident with myself and my decisions and I believe we will do just that. Refinance. I hope you guys can help us through our journey to becoming wealthy in money and life.
Click to expand...

If you want to invest in property, debt is something you have to get used to. Remember that with debt, the amount of debt isn't the most important. Cashflow and net assets are much more important. Most people only focus on the amount of debt and get scared: and most people aren't rich.
Alex
 
Matry

If you decide to retain these properties and they will be neutrally or positively geared then you may wish to consider buying in a Discretionary Family Trust structure.

If they negatively geared then a Hybrid or Unit Trust structure maybe more appropriate.

If you access the available equity then you can use this to fund the next renovation or utilise it as deposit for the next property.

I am sure B of Qld are very good at the simple loans but unfortunately as their branches are franchised the advice you get is only as good as the manager who purchased the franchise.

Regretfully they are never going to tell you you can do better elsewhere.
 
Can you please tell me what neutrally or positively geared and negative gearing is? I, like everyone else have heard the words used and "pretended" to know what they mean, but could you please just tell me.

Much appreciated
 
Matry11 said:
Can you please tell me what neutrally or positively geared and negative gearing is? I, like everyone else have heard the words used and "pretended" to know what they mean, but could you please just tell me
Click to expand...

A property either results in positive cashflow, neutral cashflow or negative cashflow (after taking into account all rents, expenses, tax refunds, etc).

So, a positively geared property is one where you have borrowings against it but your net cashflow is positive. A neutrally geared property has zero cashflow, and a negatively geared property results in negative cashflow.

The media often use these terms as pre-tax. I prefer after-tax, as tax can be a BIG part of the numbers.

In even simplier terms, a positively geared property after tax PAYS you to own it. A neutrally geared property costs you nothing to own it. To own a negatively geared property you need to put money in from other sources (e.g. savings from salary).

These are fundamental concepts. The above is a very limited explanation: I suggest reading a few property investment books to get the concept down pat.
Alex
 
Matry

Simple explanation: neutrally geared means your property income covers your property expenses, positively geared means income is more than expenses, and negatively geared means expenses exceed income. You can also have a situation where you are negatively geared but cashflow positive (CF +ive) - in this case, the expenses still exceed the income, but non-cash deductions (such as depreciation) can give you 'money in the hand'.

By this stage your head is probably spinning - it's the same for everyone when they start out. Make the forum your friend and read as much as you can about property investing, and the terminology will become familiar quickly enough.

If you decide to go ahead with property investing, please make sure you find yourself a good property-savvy accountant - and pay them whatever you have to. They are worth it. Your 'average' accountant simply will not do - you need one who is a property investor themselves.

Have fun!!!

Cheers
LynnH

Alex beat me to it, too! Geez, Alex, how fast do you type???
 
Do you have any recommendations, I have read Rich Dad Poor Dad many years ago and have just got it out again to read tonight, I also have the Cashflow quadrant, it bored me years ago but now I have an interest in this it will mean different things. But I am sure you both can recommend a book that stands out to each of you.
 
LynnH said:
Alex beat me to it, too! Geez, Alex, how fast do you type???
Click to expand...

I think I can do 75 words a minute, if I concentrate.

Matry, Rich Dad Poor Dad and Cashflow Quadrant are decent books to start with. After that, go for books that are specifically about Australian property investment.
Alex
 
Matry

As Alex said, look for books written by Australian authors - anything by Jan Somers (she and husband Ian are sponsors of this forum), Peter Spann, Michael Yardney, the Reno Kings, Terry Ryder, Steve McKnight and Margaret Lomas. Your local library should have a good collection to get you started. There is a comprehensive list of recommended reading somewhere on SS, but I can't locate it at the moment - will post later if I come across it.

Cheers
LynnH

P.S. Alex - 75 wpm is awesome!!!
 
You must log in or register to reply here.

Similar threads

M
WWSSUD? What Would Somersoft Users Do?
Replies
8
Views
2K
skater
skater
M
To add a name to the contract or not?
Replies
4
Views
2K
Terry_w
Terry_w
N
Structure
Replies
5
Views
2K
Terry_w
Terry_w
S
P&I loan for investment property?
Replies
12
Views
3K
Peter_Tersteeg
Peter_Tersteeg
S
PPOR or IP again...
Replies
3
Views
2K
Terry_w
Terry_w
Back
Top