Bye, Bye Student Life

[Poi]

Hi

My wife and I own several rental properties which we purchased before heading back to school to gain a degree each. All our properties are cash flow +.

We decided to buy property before going back into full time education after a few years travelling taught us that we need a foot in the door before making a 3 year, low income student lifestyle work......glad we did too!!

We finish our studies next year and would like to buy a family house as we rent at the moment. Does anyone have any pointers on either

a) Selling our properties to release funds for a family house?

b) Keep the rentals and borrow against the equity?

We have 2 main rules. One is that we need our family house mortgage to be serviceable by renting it out if we decide to travel again. Number two is that we have created $210,000 equity in two years but would be looking around the $350,000 price range for our own house.

Someone has suggested we sell up, buy our pad and then start the game all over again,borrowing against the family home equity?

Any tips would be great

Poi

[CJ]

Another option:

Why buy a family home if there is a possiblitity you will go travelling (for a long period) again. May be different if you have kids (?do you) but if not, why not keep renting and keep increaing your investment portfolio.

Note: The decision on a PPOR is more emotional that an IP so other factors would influence your decision (ie. you would actual want to live there).

[CJ]

Option 2:

Strip out all equity and put IP on interest only to increase cashflow.

Buy PPOR with this equity and use the increase cashflow to pay it down in (say) 5 years rather than 25.

[RentMaster]

Hi Poi

Do you own the existing properties yourself or in a company?

If you own them yourself, then would could set up an LAQC company. Then sell the properties to the company at current market value. The company will try to get the biggest mortgage it can to purchase those properties off you i.e. the largest possible tax deductible mortgage it can.

The cash you receive from selling those rental properties can then be used to purchase your own home. With the cash you receive from the sales, the deposit on the PPOR will be large, so the mortgage will be smallish.

As CJ says, interest only on the rentals might be a good idea as well.

However, the cost of selling those properties to the company will cost you quite a bit of legal fees etc. Consult an accountant first.

Good luck

[Poi]

yep we have the properties in an LAQC and we also have a family trust set up with nothing in it as yet.

The reason we want to buy a family house is for several reasons. One being so that we have a constant base inbetween globe trotting. We dont have any kids and probably wont......but you never really know !!

Thanks for the advice so far everyone

[artemis]

Also, don't underestimate the costs and hassle factor of selling properties and later finding/financing/buying again. There's a lot to be said for cash flow properties - and for the devil you know!

[CJ]

Since you want a PPOR, and you have excess equity, it would be best to try and keep some, if not all of your rentals. It is therefore important to ensure you maximise tax deductible debt and pay it of slower than your non tax deductible debt - see my second option above.

[Poi]

cheers CJ, I will be meeting with my broker and accountant this week to chew the fat on this one, but i like your idea.

Question: what is PPOR?

Hows is the market in my home town? A friend told me his 3 bdrm house in kent went down 20,000 this year?

[Poi]

Actually whilst im home with the flu, i might as well post another question linked to my original one.

Does anyone know of an equation to work out how much extra cash would be required to pay the mortgage on our own house if we kept our rentals and used the equity and cashflow in the deal?

Equity $210,000
Current mortgage $190,000 @7%

Rents $265 and $220

We want to purchase a family house for around $350,000

Ive got a feeling we need to buy another 2 cash flow houses to make this deal work for us.

Any statistical misfits out there please jump in


Poi

[Julian]

Agree. Don't buy your own house. Keep buying rentals. Keep them on P&I loans (forced savings/keeps the bank happy). Live where you want to live in a rental property. Sign a fixed term lease if you desire security of tenure.
Julian

[muppet]

Hi Poi

Whatr is a PPOR?
PPOR is Private Place of Residence.

Regards

[Kiwi_Investor]

PPOR = Primary Place of Residence

Well done on the Degree Poi, I am in a similar situation.
Working FT, studying and have PPOR in Aust and IP in NZ, and trying to get finance in NZ for another IP.

K

[Poi]

Hi Julian

The reason we would like our own place is due to a number of factors but the main one being that after a while, you get tired of living in something that doesnt belong to you. Renting has always been an easy solution but we now find ourselves wanting to secure a house that is ours. Im sure that Bob Jones, Kieran Trass or Graeme Fowler even live in their own houses.

Property investing is great, we truly love it, but our goals are simple ones. When you travel extensively through 3rd world countries, the simple sense of just breathing becomes a pleasure. That is why we never get too carried away with the "owning 22 properties in the next 2 years" philosophy.

If we can live in a nice house and own 4 or 5 IP's which help pay for that house, then this little family is more than happy. During a round the room discusion at a mentoring meeting once, i happily told the group that we hadnt bought anything that month except our Turoa ski passes. You should have seen the tumble weed roll through the pondering audience !!!

Hope that helps to explain why we want a home for ourselves

Poi

ps If you ever fancy nudging someones comfort zones, get the visiting agent, broker or advisor to sit in bean bags on the floor and indulge in some unusual foreign food with you...............puts a whole new dimension on the meeting !!

[Julian]

Sounds admirable. In fact that's the beauty of this property investing thing: there are so many different paths one can take.
Best wishes with achieving your goals, and may they serve you well.
Julian