We are Stuck

[edge10]

Hi,

Just interested in peoples thoughts on the following:

We own a 3 bedroom unit worth about 420,000 in this current market which we were hoping to sell to finance our house. Problem is at the current prices houses are selling at, we are not willing to sell at this low price. Our mortgage on this unit is 240,000 with a combined income of 80,000pa.
Whats the best decision to make?
Sell the unit at a low price, buy a house at a low price.
OR
Rent out the unit (rent should cover the mortgage) and take out 100% of our next home loan which could be as much as 550,000 (about $3000 per month). Sell the unit later when property market goes up.

only asset atm is shares valued at around $50,000.

 

[The Y-man]

Need a heap more info to be able to provide an opinion - how much disposable income do you have, other loans, borrowing capacity for starters....

The Y-man

 

[Ace in the Hole]

If you are selling the unit and buying a PPOR in the same market conditions, then all should be basically equal.
Safest option I think and better for your cashflow.

What if you were to keep the unit and buy a PPOR, and then prices continue to fall a little?
You'll then have less equity, but a much greater negative cashflow, and maybe forced to sell one of the properties, at an even greater loss.

 

[Rolf Latham]

Hi,

Just interested in peoples thoughts on the following:

We own a 3 bedroom unit worth about 420,000 in this current market which we were hoping to sell to finance our house. Problem is at the current prices houses are selling at, we are not willing to sell at this low price. Our mortgage on this unit is 240,000 with a combined income of 80,000pa.
Whats the best decision to make?
Sell the unit at a low price, buy a house at a low price.
OR
Rent out the unit (rent should cover the mortgage) and take out 100% of our next home loan which could be as much as 550,000 (about $3000 per month). Sell the unit later when property market goes up.

only asset atm is shares valued at around $50,000.

Hi

And welcome


couple of things I see are

1. At 500 k buy price, your Loan to value ratio will bve well abive 80 %, thus you will likely need to pay Lenders Mortgage Insurance (not that this is an issue per se, just wanted to make you aware to factor that cost into your models)

2. How much are you saving or paying extra on the unit mortgage at the moment

3. What are the future prospects for growth in the area the unit is in ?

ta
rolf

 

[edge10]

I like what "Ace in the Hole" has said, basically keep it simple, which makes sense,

The problem is I would love to keep it, but a growing family means we need that backyard.

we do not put anything extra at the moment, we are only paying off the minimum.

we have zero loans. all cars paid off.

 

[lizzie]

Couple of questions:

What are the units selling for? It's easy to say "worth" $420k, but at the end of the day it is only worth what someone is prepared to pay for it.

How much did you buy it for? If you bought for $300k, value went up to $420k and then came back down to $390k you've still done pretty alright. If you bought it for $410k then not so good - but you still have plenty of equity.

At a mortgage of only $240k on a property worth around $400k (guessing) then one would hope you would get rent of around $400/wk as a minimum ($20,800/yr). What are the current rents? At 7% (high) interest rate on $240k, $400/wk would more than pay for itself - otherwise it's not a good investment for these times when cashflow is king.

You do realise that interest paid on and investment is tax deductable and interest paid on your PPOR is not?

Personally, if you were going down that path I'd sell the IP, buy the PPOR with minimal debt and then relaunch into the IP market with the aim to buy cashflow positive/neutral (or close to) properties. Can then use the equity in the PPOR as deposits and it is tax deductable because of the "purpose" of the loan is to buy investments.

 

[edge10]

Hi Lizzie,

A unit 2 doors down sold for $420,000 Just a couple weeks ago. Another unit 3 doors down sold for $460,000 1.5 years ago.

I purchased the unit for $305,000.

 

[lizzie]

So, even if you sold for $420k, you've made $115k (less CGT) and holding $180k in equity? Good buy!

You have to remember, the market was in a mini bom 18 months ago. We sold for around $50k more than we expected to get at that time. I remember it fondly

But you also have to remember that whatever you are now buying has probably also come down in value as you're buying into the same uncertain and deflated market.

Each to their own - but remember the tax rule. Tax breaks on interest are determined by the intended use of the borrowed funds NOT the security against which they were loaned.

Money borrowed against the IP to fund the PPOR is NOT tax deductible - but - money borrowed against the PPOR to fund deposits for IP's IS tax deductable.

Also, if you have a paid down IP that is getting good rent, then that rent is classified as income ... so if you were using it to pay towards your PPOR, then you are still paying with after tax dollars.

Get your initial structure right and you'll be laughing in a few years time.

 

[BMan]

i agree with whats said and not knowing as much as these experienced investors but if your unit can produce CF+ is there any need to sell it?
i know you will pay more on your PPOR but you now have 2 assets and if times do come good again say in 5 years you could sell then for more profit outweighing the extra cost of your PPOR or still keep it as an IP

 

[Aaron_C]

Rent out the unit (rent should cover the mortgage) and take out 100% of our next home loan which could be as much as 550,000 (about $3000 per month). Sell the unit later when property market goes up.

Please be careful with this 100% business....it is a cross collateralisation in the making. Please do not fall into the trap.

 

[Thesnowyforest]

sell.

Put down deposit and the remainder $150k? into good bluechips.

take dividends to help pay off your mortgage quicker each year plus take full advantage of your offset account..

even better, get a line of credit before you sell the unit for as much as possible, then sell.

then you'll have $150k plus lets say $100k LOC = $250K INTO GOOD DIVI bluechip shares.

i did the calcs on this the other night and its pretty god damn good.

wbc for example will pay approx 8% divi plus franking this year based on a SP of $20

 

[jaycee]

sell.

Put down deposit and the remainder $150k? into good bluechips.

take dividends to help pay off your mortgage quicker each year plus take full advantage of your offset account..

even better, get a line of credit before you sell the unit for as much as possible, then sell.

then you'll have $150k plus lets say $100k LOC = $250K INTO GOOD DIVI bluechip shares.

i did the calcs on this the other night and its pretty god damn good.

wbc for example will pay approx 8% divi plus franking this year based on a SP of $20

What would the LOC be secured against once the property gets sold ? What collateral would the bank have for the $100k LOC ?