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You Got to Know When to Hold 'Em

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  • You Got to Know When to Hold 'Em

    Hi - my first post on the forum.

    I'm in a situation of starting a new business and need some cash of about $15,000. I could sell my one and only investment property which would free me up $70,000 and would solve all my cash flow problems.

    However, I'm reluctant to sell. I think I'm a bit attached emotionally...and wondered whether against all odds I should try to hold onto the property for the long term?

    Or do you think its a case of knowing when to hold 'em and knowing when to cash 'em in?

    Any thoughts much appreciated.

  • #2
    Welcome to PT Sarah

    You can have the best of both worlds... if you have the equity, you can borrow on it. Have a chat with your bank. Make sure you consult an accountant to get the books right!

    cheers,
    Dave
    My Profile

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    • #3
      Sorry forgot to say I'm at max borrowing and can't borrow any more.

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      • #4
        Hi Sara - try a different broker. It's amazing how the answer can vary between them.

        Failing tht, can you sell a different property that will give you just enough? Sell your worst performing property? If you're confident of the business generating good cashflow take a personal loan for $15k? Introduce a friend of relative to the business opportunity and you take a cut of the benefits it generates?

        Or if there are no options left then which is more important - the property of the business?

        Gerrard

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        • #5
          Hello Sarah,

          Who says you've borrowed up to your limit?

          If you have a spare couple of hours, why not spend it walking into five banks/lenders in your local high street and ask each one to lend you $15,000. Two things will happen. You will get five different answers, and you will, after each visit, be more experienced on how to tailor your questions to receive the desired result.

          Have fun!

          xris

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          • #6
            Xris is right Sarah. If I hadn't listened to my bank when they said I was at my limit, I would own more property than I do!

            cheers,
            Dave
            My Profile

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            • #7
              Originally posted by Gerrard
              Failing tht, can you sell a different property that will give you just enough? Sell your worst performing property?
              Sarah did say that it is her one and only property!

              One important question to ask is what is the money for - if it is to overcome a cashflow problem and pay the suppliers, then you need to be very sure that it is for some explicable reason (e.g. the Christmas rush) and not a fundamental weakness in the business. You may get the money for this month, but those bills will keep coming in next month.

              If the money is for a pre-Christmas advertising campaign, or new machinery, or some other investment in the business that will reap rewards, then follow the advice here - try other traditional lenders to leverage you IP, or try finding some people to invest in the business directly. They'll want to see some analysis on what the risk/reward curve looks like, and how the extra money fits in with you business plan.

              If its a small, possibly, home-based business, ask the people on http://www.homebizzbuzz.co.nz for some suggestions for raising short term or long term capital.

              Hope this helps.

              cube
              DFTBA

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              • #8
                Starting a new business is not an ideal time to be asking your lender for more money. Most retail bank will see the words "Start Up" next to the numbers 50% failure rate in first 18 months and turn down any lending.

                Sorry to say you may need to go to the fringe lenders if you are not keen on selling the rental.

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                • #9
                  Failure Figures

                  Originally posted by roseneath_rat
                  Starting a new business is not an ideal time to be asking your lender for more money. Most retail banks will see the words "Start Up" next to the numbers (50% failure rate in first 18 months) and turn down any lending.
                  Only 50%? I thought the figures were much higher?
                  As in 90% except Auckland, where it's 95% failure rate
                  within 12 months.
                  Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

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                  • #10
                    Hi Sarahd
                    If you would get $70k after costs in selling your IP I would expect you are not at max, mind you you dont mention what your property is worth or if it is generating money each month for you or costing you money.

                    Are you certain your new business you are wanting to start is going to work? there are places that will give you the money for a higher interest rate for that type of thing.

                    If your house is not paying its way you are probably best to sell it and use the $15000 to start your buisness and perhaps buy a cheaper house using the remaining $55k as a deposit or even buy two of them. You should be able to get a couple that pay their way with that kind of deposit.

                    Good luck

                    Robyn

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                    • #11
                      paying its own way

                      I'm a bit confused about how you find a house to pay its own way still..??

                      If you buy a house for say $200,000 with my $55,000 deposit I'm borrowing $145,000. Mortgage payments weekly on this is $223 (approx at 8% interest only). Can you find a house worth $200,000 and rent it out for about $230 per week?

                      Any thoughts?

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                      • #12
                        Originally posted by sarahd
                        I'm a bit confused about how you find a house to pay its own way still..??

                        If you buy a house for say $200,000 with my $55,000 deposit I'm borrowing $145,000. Mortgage payments weekly on this is $223 (approx at 8% interest only). Can you find a house worth $200,000 and rent it out for about $230 per week?

                        Any thoughts?
                        Absolutely - West Auckland, we have a 3bed house that is worth around $200K, and rented at $300 pw.
                        DFTBA

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                        • #13
                          Originally posted by cube
                          Absolutely - West Auckland, we have a 3bed house that is worth around $200K, and rented at $300 pw.
                          I suspect your property is worth more than $200K. You cant get much below $250K in West Auckland with 3 bedrooms (based on market price, not negotiated price).

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                          • #14
                            I know - but I'm scared to believe that its worth any more, because I'll have an uncontrollable urge to go and sell it!

                            Planning to get valuations done in the new year.
                            DFTBA

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                            • #15
                              Hi Sarah,

                              Great to see you in the forums! Marc and I have our mortgages with Bank Direct - their interest rates are typically a lot lower than the major banks and they focus on the property investor.

                              What I would do if I was you is:

                              Get a rental appraisal on your Wgn property (from a property manager) as well as a property valuation. I'd do the same for your Taupo property too.

                              Then you present both to say Bank Direct and they work out what they will lend you. It may or may not result in you putting the rent up in your Wgn property and taking a rent from your house guest. I think the key is your Wgn property. It would value up more than the council values and I have a sneeking suspicion the rent you are getting is below market.

                              15,000 @ 8% = 1,200 per year ($100 per month repayments on the extra borrowing). I'm sure you can find an extra $100 in rent from your Wgn and Taupo properties?


                              Cheers,

                              Donna
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