Sell investment property or get loan?

Discussion in 'Investment Strategy' started by Mermaid, 24th Feb, 2020.

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  1. Mermaid

    Mermaid Active Member

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    I need 100K urgently for an unexpected debt I have to pay. I also have to do renovations which would mean the loan would be 25-35K more. I have two units in prominent suburbs in Sydney and was not wanting to sell any of them for at least 5-10 years. The loan will take many years to pay off, a lot of interest, but would mean I get to keep both properties. Which is the smarter option- Sell one unit and use the proceeds to pay off debt, renovations etc .and reinvest the rest (wouldn't know where to begin) or get a loan for the 100k plus the extra for renovations and keep the investment property and be saddled with debt for quite awhile to come?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Would the interest payable exceed the expected return of the property?
     
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  3. Mermaid

    Mermaid Active Member

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    This is seems so obvious but I have completely overlooked it. I need would need to get projections, however in 11 years the property has increased by 44%. It's a fairly decent increase. The interest would be significantly less than the return of the property. Thank you for bringing this to my attention.
     
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  4. Beano

    Beano Well-Known Member

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    Let us know a little bit more @Mermaid and we will look into your situation with a view to a solution

    1: The est value
    2:the loan
    3: the rent
    4: the expenses
    5: the interest rate
    6: the principal
    7: the tax depreciation
    8: your tax rate
    9:the breakdown of the $135k (is it deductable,non deductable, capitalised ,what the tax depreciation is on it)
    10: structure of the property ownership
    11: CGT potential on the two units
    12: outstanding creditors (aged) and whether interest -penalty incurring
    13: debtors (aged)
    14: are rentals market
    15: credit card debt and limit
    16: other personal loans/debts
    17: financial dependancies and future changes eg baby pending or children leaving home , divorce etc
    18:the date the $100k debt is due and can it be deferred
    19: is the $35k renovations essential to substain tenancies.
    20: are there family members you can borrow from.
    21:are you depending upon the net rental to live off
    22: what is your salary and the net surplus after living cost
    23: do you have a vehicle and is it essential or can it be sold .if so for what $
    24:are there any surplus assets you can sell
    25: are the tenants on long fixed tenancies
    26:the location of the Sydney Property
    27: do you have any defered leave such that you can do some renovations yourself to reduce the cost and are you a "handy person" or are still a beficiary
    28: do you have spare time so you can take on a part-time job
    29: are the units commercial or residental
    30: do the units comply to current standards of is the $35k required to bring it up to standards
    31: do you live in one of the units if not could you
    32: if not at home could you move home
    33: do you have any pending expenditure that can be cancelled eg trip to China or new car etc that could be cancelled and reduce your debt
    34:have you talked to the bank or mortgage broker about the loan
    35: do you have any offset accounts or facilities
    36:why do you say not sell for 5 to 10 yrs .is there a reason or will you still be selling 5 to 10 years
    37: you posted earlier that you transfer problems .Are they all resolved now
    38: you mentioned earlier you are in the GC are you still there or in East Sydney
    39: are all the current loans deductable as it seems like the acquisition was unusual (see earlier posting)
    40: are the properties under a private trust company (refer earlier posting)
    41: is there any defered proceeds from the coogee property (refer earlier posting)
     
    Last edited: 25th Feb, 2020
  5. spludgey

    spludgey Well-Known Member

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    Unit in a prominent Sydney suburb: The value is likely to be $750k+.
    So you're worried about a 10% LVR? Sounds like you never had a loan either, given you've only owned them for 11 years. I'm guessing you inherited them?

    Obviously you can do with your money whatever you want, but my personal feeling is that you shouldn't have to borrow money for a $30k renovation when you own paid off properties that likely generate an income of over $50k/year.
    That's assuming you're working anyway.

    Some of my assertions might well be wrong, it's just the way I read your post.
     
  6. Trainee

    Trainee Well-Known Member

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    44% rise in the last 11 years? In sydney?

    2 units in prominent suburbs in sydney, at least 1.5m. so why is 150k loan an issue?

    your posts show a lack of understanding of loans v property, and no long term plans. Suggest you look at some learning first?
     
    Last edited: 25th Feb, 2020
  7. spludgey

    spludgey Well-Known Member

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    Ouch, and I thought my post was being a little bit harsh!

    Can't say I disagree with anything you said though.

    I think the 44% is rental increases (which would be very good for Sydney), not capital gains.
     
  8. Trainee

    Trainee Well-Known Member

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    The op has talked about sellers / buyers remorse because they didnt know any better when they were younger.

    that would usually prompt some action to learn.
     
  9. The Y-man

    The Y-man Moderator Staff Member

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    People - I think we are missing the crux of the OP - it's the "what should i do to pay the $100k unforeseen cost that's popped up..."

    I think the whole reason we have contingency money is for these things - although I have to say $100k is a lot! And if there isn't $100k stashed away, the whole reason we invest is for a rainy day.

    By "getting a loan" for the $100k, I assume the OP means a personal loan?

    I say sell, take profit, pay CGT, get rid of immediate issues.
    Far better than a forced sale in a down market.

    The Y-man
     
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  10. spludgey

    spludgey Well-Known Member

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    I wouldn't be surprised if the cost was stamp duty (or something along those lines) to transfer the properties from a trust into a personal name.

    Why would you ever take a personal loan when you have securities that allow you to get a loan at a much, much lower rate?

    You should easily be able to fund repayments, including principal from the rent income though. So unless the OP is relying on it for income, they'd likely be far better off taking a mortgage in the long run.
     
  11. Trainee

    Trainee Well-Known Member

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    If theres a choice of selling, the 100k cant be that urgent?
     
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