Solutions to funding negatively geared property

[888Katone]

We have a negatively geared investment property where the yield is only 4.9% but we are trying desperately to keep it because the capital gain has been worth it. I say "desperately" as we are paying off our mortgage and the second mortgage to the negative geared property on one income currently.

We do have 55% equity however as a combination of the 2 properties.

We have now seen the light in regard to better geared properties and wish to buy one asap.

Our cashflow is extremely tight due to the investment ppty however - we are looking at ways of significantly (apart from raising the rent and revising depreciation) making the investment ppty less negatively geared.

One avenue is the possibility of using super funds and placing the investment ppty into a super fund. However we still wish to use the capital gain/equity that this property gets in order to buy more properties.

Does anyone have any ideas for reducing the mortgage burden of the quite negatively geared investment ppty in order for us to continue to purchase more properties.

Remember - we wish to keep it as it is experiencing significant capital gain.

A virtual beer/wine/spirit/slab for you if you can help !

 

[bradje]

Steve McKnight uses a clever technique. He asks the tenants, "Is there something you would like done to this property taht you would be willing to pay and extar 10 or 20 a week for?"

Basically you want to look at ways of improving the property to get more rent. That's one approach.

On the finance side, shop around to see if some lenders/brokers can get you a better deal with your finance.

Can u get a family member/friend to come in on the deal and help out....make sure you do the sums carefully and draw up a legal agreement.

Can u convert a room for a student or maybe even a granny flat for extra rent?

Couple of ideas anyhow....
JB

 

[Spectre]

How much equity is in the investment property?

I.e. could you look to sell the investment property to either you or your partner or your trust and then use the cash to reduce the debt on your PPR? Or in line with what bradje's suggesting, sell a share of it

 

[The Y-man]

Does anyone have any ideas for reducing the mortgage burden of the quite negatively geared investment ppty in order for us to continue to purchase more properties.

Increase your (combined) personal exertion income.

Cheers,

The Y-man

 

[Nth Brisbanite]

A good mortgage broker should be able to set up a line of credit for you. You could do it with your current lender or you could refinance, and get it that way. The line of credit will tide you over whenever you are short of cash or until you can increase your other income through increased rents or personal exertion.

I recently refinanced a lot of my properties which freed up a lot of equity for me. This increased cash was used to firstly, purchase extra properties and secondly to set up a cash buffer whenever I am short of funds.

 

[Pushka]

SMSF rules wont let you purchase real estate from one of the Trustees or family members, unless it is commercial. There used to be a Unit Trust option, but that too has gone. And that is as much as I can, well, help?

 

[888Katone]

Thanks guys - however most of the answers we have already considered - i.e. increasing rent - we would need to increase it by $100 a week - i don't think the current tenant or any tenant would pay $400 extra a month - looking not to go back to work yet due to 2 children under 4 - and we don't want to have any friends or family involved in our investments - just too risky (ruining relationships).

We are considering some options using part of our super and the new warrant information that we have gleaned from this site.

Thanks for your help all - lovely to receive

 

[mitch.mia]

Have you considered using the 2008 PAYG income tax withholding variation
(ITWV) application?

This will reduce the tax you pay when you receive your salary and it is based on the deductions you would otherwise be claiming at the end of the financial year.
It kind of brings forward your tax return in the form of extra money in your pocket when you get paid.
The only drawback is that you won't get a nice cheque from the ATO at the end of financial year but at least it increases your cash flow during the year.

The added benefit is that because it increases your nett income, your serviceability increases so may help for future purchases.

Anyway, just a thought to consider.

 

[gooram]

You could use a cash bond to turn equity into income. I don't think it sounds like what you're looking for because you want to use your equity for other things, but you could use some of it for a cash bond.

For more info, search on cash bonds and Rixter (member here who has used them effectively)

 

[Rixter]

You could use a cash bond to turn equity into income. I don't think it sounds like what you're looking for because you want to use your equity for other things, but you could use some of it for a cash bond.

For more info, search on cash bonds and Rixter (member here who has used them effectively)

I dont think a cash bond is the best option in this situation. A cash bond is more for increasing ones serviceability in order to keep borrowing to increase ones asset base.

888, have you thought about capitalizing your out of pocket holding expenses?

 

[kegger]

888

An interesting predicament that unfortunately many investors find themselves in.......

Have a read of a book called 'How to Achieve WEALTH FOR LIFE through Property Investing', written by Tony Melvin & Ed Chan.

I like aspects of their theory and it may assist you with some ideas on how to improve your cashflow in the short term. I would recomend this book to everyone.

Cheers

 

[marg4000]

I think you may be expecting a bit much of yourself at the moment.

From your post it appears that you are managing OK, but not able to move forward as quickly as you would like.

With a PPOR and 1 IP you are doing better than a huge percentage of the population, and with interest rates rising it may be best to simply keep plugging away for maybe another year or two, putting as much off your PPOR (or into an offset account) as possible.

Don't worry about the mortgage "burden" on the IP - that is tax deductible. If you wish to lower the overall mortgage position, concentrate on any money owing on your PPOR.
Marg

 

[Ebbie]

Does anyone have any ideas for reducing the mortgage burden of the quite negatively geared investment ppty in order for us to continue to purchase more properties.

You could put the spare equity into an income fund and use the quarterly distributions to fund the shortfall on the IP. Check out Steve Navra's fund (am I allowed to say his name on this forum? ).

 

[Spectre]

How about...
Prepaying the interest in advance
Then the commitment is out of the way for a year
You collect the rent in the meantime and SAVE IT in your offset account
Lodge your tax return & hopefully get a refund
And then with the refund + accrued rent you've got next years payment covererd too.

(Maybe - just a thought... but I havent seen a lot of discussion on Int in advance so thought I'd throw it in... noting with some lenders you then get about what.... 0.35% off a fixed so a good way to discount the rate too)

(noting also its a bit of a dice roll so get a pro to look at it for you and its just a general thought here)