Confused and don't know what to do next?

When I posted similar cash flow I was told it wasn't worth the effort of investing to only achieve this amount of income. Then I was directed to the Mr Money Moustache site for extreme budgeting Funny how responses vary depending on who posts. Anyway, apologies for going off topic.

 

Sorry I don't recall your thread.... what was your capital position?

 

Thanks, not really a fan of broadcasting online. I was making an observation. More than happy to not move on and not derail this thread.

 

It might be then because this OP had good capital already and a bunch of IP's that should grow long term. These IPs should look after themselves. So they are in a very solid position imo.

 

How much is your cash flow from property now?

 

I'll pass on a response to this I think.

 

Can I give you some other figures.

Currently, on your portfolio, IF it was all IO and IF we assume a rate of 4% for the total amount borrow (I picked a figure in the middle), then you are up for 1307 in interest payments each week

Currently you are earning 1955 per week in rent. 1855 if you take out a 5.5% management fee.

Leaves you a tidy sum of $548 p/w. (But we still have a bucket load of rates, insurances, repairs etc to take out)

That is also the about the same price as the weekly rent of property 1 or 2.

Now if one of those places is vacant, your portfolio starts to become stressed.

Also, if interest rates go up, just 0.25% you are up for another $4250.

If they go up 1% then it's $17000 - At this stage your portfolio is almost neutrally geared assuming everything is rented out.

Then on top of that, lets say hubby can't get another 160K job thats further pressure and also with high school fees.

Me personally, I think that your portfolio is so large, that it becomes really vulnerable to interest rate changes, and these are going to happen (who knows how far, but I have worked these prices on a modest 1% increase).

I don't want to sound like a negative nancy, but here to give some perspective on the other side of the fence.

At the minute, your CG and CF are good, interest rates could hurt CG and will hurt CF.


With all the other pressures, I would bank the cash for now, and wait and see what happens with the market, with the job, with school etc.

 

Forgot to add one other important point, in 2.5 years, what if you can't go IO on the first loan that expires, and it reverts to PI.

You payments will blow out massively.

The market is really changing, I think a wise move would be to wait and build a cash buffer

 

Personally i don't see the point of buying a development site if you're going to hold it for such a long time before redeveloping.

Even if you get decent capital growth from the site by the time you're ready to redevelop, i'd do my feasibility calculations on the CURRENT MV at the time, rather than what you paid for it. Your decision at the time should be focused whether you should simply dispose as a raw site, or if you can develop and make at least make 20% + return. Factoring in CG as profit will only distort this figure, if you're not making this margin purely from the development component, just sell as a raw site.

 

If I take the gross rental,
-minus agents commission
-minus rates/water/insurance, etc
-minus interest repayments

= $8400 positive, ie $161 positive per week, not including depreciation or tax treatment.

 

We estimate that by the time the loan goes IO, the amount in offsets will equal the loan amount, so I don't think this would be a problem?

 

Now work out how much extra per week is needed to get to your goal.

And how much you would have to reduce your loan amount by to get to this point.

 

ok, if I'm positive $161/wk, then to get to $1538/wk (ie 80K/yr), we would need another $1377/wk.
To do that I've calculated that the whole loan would need to be paid down. Also considering the 80K we require for retirement is a nett figure, there would need to be an additional property on top of the 4 properties we already have to get to this net amount?

Perhaps the alternative could be to invest in LIC's, ETF's, Shares to achieve this instead? I presume then we would need another property yielding about 25k/yr in rental or LIC's/ETF/Shares yielding 25K/yr in dividends. Either way this would be about another $500K invested?

 

How long would it take to pay the whole loan down?

I can't comment on whether you should invest in shares or not but consider the yields could be higher so you might need less capital.

An alternative is to sell one property and pay down the loans. See my some of my strategy posts for some ideas on this.

 

It's a simple solution and effective, sell down, reduce debt, increase cashflow and perhaps improve serviceability moving forward and take profits prior to peak ready for the next opportunity

 

Just trying to understand this..... If I sell the property with the highest CG, I would take out 195K on top of what is already owing. So in terms of reduction in loan, it would only be the loan amount owing plus the 195 K that it would reduce by? There would still be a fair way to go with the loans after that, and I'd also be in a position in having 1 less asset that is growing. I hope what I've written makes sense, but I'm not sure if this would be making our portfolio go backwards?

 

No, if you decide to sell one, you sell the property with the poorest outlook for further capital growth. Or the one causing you grief. Never sell one if your better better properties if you can avoid it.
Marg

 

What are the net yields of your properties? Apologies if I missed it. Do you have a balanced portfolio of yields? I have about 4 high net yield properties per growth property. I've paid down a few of the cheap, higher yield ones to get to cash flow target but also keep a few low yielding ones with perhaps more scope for capital growth (although I still believe it all balances out over acycle).

 

Sorry, just a bit unsure how to calculate Nett - Gross is pretty straight forward.
Do I subtract all expenses from the rental income (including subtracting the interest on the loan)?

 

How much tax do you pay pa on your portfolio?