Hi Guys, We have been scratching our heads for a few months now and I’d really appreciate any suggestions from any of you gurus out there. Here’s the story: We purchased a PPOR in Melbourne SE Suburbs Purchase price: 955K - June 2016 Currently valued at 1.1 Mil We have also paid down 200K on the loan. Currently Leased brings 5K p.a positive cash flow. We are looking to purchase positive cash flow property where we can add value. Either another floor or subdivide and build another one, renting them both. Where should we be looking? What would a safe plan and strategy be? What could we do that would allow us to move onto the next deal after that? My thinking is not to touch the equity yet and just use the cash. Any help or advice is greatly appreciated.
Hi @mendy770 Welcome to PC. Do you mean you have leased out your PPOR now, and you are yourself renting elsewhere? Is this your long term PPOR? What are your reasons for using cash and not extracting equity? Recently one of our clients did a reno project (this was in NSW), property purchased for $560k, added value via a reno (from memory under $30k), and revalued less than 3 months later at $680k. This is not a positively geared property, but will enable them to leap frog onto their next investment property. When you say 'a safe plan and strategy' - what does it mean for you? It is different for everyone - for some it would be leaving cash in a term deposit
welcome to PC @mendy770. you are in a good equity ( & asset ) position I say. lots of info missing there from your post, so difficult to say what is a "safe plan", and the "plan" to achieve what, by when. you mention 5k positive cash flow, do you mean your PPOR is rented out? or part of the PPOR is rented out? ( if that is the case, it might affect your CGT if you sell it in the future) it sounds like you have done your own research and have the idea of small "development" or adding value. have you spoke to your bank or broker to find out how much you could borrow ( regardless using your equity or not), this will pretty much determine what you could do.
Hi Thanks for your reply, Yes we had to move from our PPOR for work so no longer live there. This isn’t good for long term as will be too small. Just preferred using cash and keeping equity for later date. A safe plan for me is one where worse case scenario you can at least remain cash flow natural, and add value and cash flow at a later date or after a development etc. There’s no point in leaving the cash in for a few reasons: 1. It’s a taxable income after expenses 2. Taking out the 200k will put me at cash flow neutral or very little negative. Also forgot to mention: we are on full time salaries and approved for a further 1.1mil purchase at 20% LVR.
Thanks Eric for your response, Please see my post re our current position. What do you advise? Property is fully rented out and we have no intention in selling in the near future. It is a great property in a prime bluechip area with great growth. H
you are in a nice financial position @mendy770 I would seriously suggest you to read more on the forum and absorb more knowledge, opinions, ideas, ask more questions, BEFORE you take next move. "cash flow natural" is only a cashflow status at the time when you measure it, what about when interest rate goes up, and less tenants looking for rental ( thus you might need to reduce rent), then it could become cashflow negative.
Thanks Eric, I’ve been reading a lot but seems there’s so many strategies out there, I’m finding it hard to get a sense of the next move. The reason why it’s hard is that I want the next move to be a step towards another one and not a move that keeps me stuck in the same position for too long.
if it is in a bluechip area, and it is your first property, if it was me, I would keep it, and use it as a cash cow ( to extra equity) to build my property portfolio. think long term, and think bigger. it is not only about the next property, it is also about next SEVERAL properties. you have good income ( judging from the approved loan amount), good equity, why not making it bigger? lots of ppl on PC ( include myself) and out there, the biggest regret is NOT THINKING BIG ENOUGH.
good think. BUT, cash & equity are 2 complete different things. it is not practicable to always use cash to build an sizeable portfolio ( unless you have unlimited supply of cash )
Any experience or knowledge in subdividing and building? A lot of people say they want to subdivide and develop etc... it just rolls off their tongue without them grasping what they are really saying and understanding the risks and amount of work that's involved. Also deals which are CF positive are usually not development stock. At least I haven't seen any. From what I've seen, development sites are usually NCF from day one of purchasing the site.
You misunderstand this point. Taking the cash out won't effect the deductibility of interest on this property. Interest may be deductible against the new income the redrawn loan amount relates to though. Tax Tip 11: Further Borrowing against property deductible against the income it generates Tax Tip 11: Further Borrowing against property deductible against the
If you are interested, there is a free webinar about this called Small Property Developments Made Easy. I copy edited the book, which extends on the topic, and can't wait for it to come out myself because I found it so amazing the ins and outs of developing creatively. Editing is easy, investing is so much harder!
