Servicing Debt when you exit rat race

This may be a dilemma investors will face today or down the track.... if they decide they want to pursue property investing after they exit the rat race.

I gave away the day job some years ago now, but never stopped investing. About 3-4 years ago now I started property developing and the aim was to have 3 projects pa on the go... that was a joke, a little too ambitious to say the least. Stressful because you are trying to juggle cash flow, loans and projects and sometimes it just wont work because Councils etc will not be working with you but against you. Not saying you cant do it, just not for me.

However, the major issue was how my partner was going to exit the rat race when we needed his income to service debt for our development sites/projects. We had enough income to live a good life, but this was not going to fulful the dream of property developing. What made it worse was my partner hated his job.

Partner was very stubborn and would not give away the day job until we worked through this, we needed 2 years of tax returns, ie completed development projects which increased our income. The strategy during this period was to sell all development projects and be cashed up and to hell with the banks.

Partner leaves his job on 1 July (financial year 2016) Our development project are treated as a business and solely there to make money and reinvest into other projects. We ideally like to do 2 projects pa, this is manageable but 1 pa is OK too

So its one thing reaching financial freedom but its another if you want to continue playing investor/developer etc.

I think investing is about finding solutions, I have found there are always obstacles, if you have the ability to overcome this you probably have a good chance of succeeding

MTR

 

You could built up enough cash and loc to be able to self fund future developments with mortgaging them to a bank.

 

@MTR - congratulations. What a win. The path you've taken from where you started - so inspiring!

 

Its not all beer and skittles as they say or as @Blacky says

 

It's totally worth it though Property Investment is hard work....and development even more so. The big challenge is dealing with builders / tradies as we found...

Someone I know went down the route of a private build. Assume the home was high end with build cost of 700k or so (assuming from what they said). 45% build done, poor quality and 55% paid. It can break families

 

On the same page, that's is exactly why we have been selling down, the plan was to be able to fund out own projects.
Also with APRA who knows what's ahead this year

 

I'm working out this issue at the moment. I leave work in 2 months time, hubby does a day a week or so of online stuff. We're going to move to NZ though in the new yr so hubbys job will be gone. Plan is to be semi retired and try house and pet sitting to explore NZ. I want to keep investing though and have permission this time lol. We've got cash in UK but may need to leave it there for a while until Brexit settles. This stuffed up my plan of putting the cash in offsets of a few higher yielding properties and living off rent

Current plan is to be mortgage free in NZ, cover basic costs with the existing rental income there. 3 months remote Aus locum per year, 1-2 trade/flip per yr in either country. Dividend shares sounds worth looking at for servicability. The full time job's been holding me back with working on this stuff and even the couple of ips I bought early this year have earned just as much on paper as my job. I'm going to give myself a year out to see how this works.

 

@MTR on commercial loans where your acting as the project manager why don't you just pay yourself as one of the consultants? So essentially you factor into the feasibility your pm fee (salary) for the period of the project, as long as you meet the lender's criteria for this. That would solve the cashflow Issue. Although on residential loans the issue remains I guess.

 

I already do this, that was part of the strategy. Set up another business and create another salary, hence why I needed my partner to work so I could complete the projects in 2 year time frame.
In the future though I may need to go down the commercial route, dependent on project size etc.

I don't use commercial loans, only resi as its cheaper option and there are lenders out there that make this avenue attractive proposition. This way you don't have to sell OTP. In future I may start keeping developments ie sell 2 keep 2 etc.

MTR

 

Great stuff @MTR.

Yeah I like the options of keeping some selling some. Reduce debt but also expanding your portfolio and increasing cashflow. Also lower lvrs. Best of both worlds really while taking risk into consideration.

 

Yes, me too.
Though I started off with selling everything I build so that I have huge cash buffer as per what @Terry_w mentioned, basically funding your own developments if necessary.

MTR

 

Are you in a position now to fully fund your own stuff?

 

Yes I can, though I can actually source finance for my next development and build which is my preference.

 

Thread please

 

When I get my plans and permits approved which should be in the next month or so I will start a thread on this project, also in Melbourne.

This one has been interesting, a little battle with Council, not exactly what @Westminster experienced with council but nonetheless a pain in the arse.

Thems the breaks

MTR

 

I hear ya re pain in the ass battles with council. I thought my 1 year easement saga was depressing... but that pales in comparison to what council put myf through. What doesn't kill you makes you stronger i guess. Definitely learnt to forget any comfort zones with developing.. just doesn't exist imo.

 

Just when you think you have the finance hurdle then there is the Council hurdle - I totally agree!! In theory it would be nice to have one in construction and one in Council and play tag team but in reality it's a completely stressful juggle of rezoning + council + councillors + changing town planning schemes + finance + builders.
I wouldn't give it up for the world but there is no crystal ball to predict timelines. Hubby is always asking and I gaze into my crystal ball and try and assess how the next year will look. It's about 60% correct but 40% wildly varying. I cannot stress about the 40%, it is what it is and it's all the things I have no control over.

Congrats to Mr @MTR leaving. He will be your pool boy

 

His already started his new job... Pool Boy and Garden boy