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How can we live off the equity?

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  • How can we live off the equity?

    Can we live off the equity?
    My wife and I have investment properties with a mortgage of $3.5 million. Total value of all properties is around $7 million based on 2017 CV. Market valuation would be close to $10 million. The gross annual rental income is around $210K. We pay P+I for investment properties. We also have almost $1 million loan for self-occupied home. I'm just after some advice. We tend to hold the properties for long term. Can we live off the equity?
    Many thanks in advance

  • #2
    Originally posted by AKL1990 View Post
    Can we live off the equity?
    No. You can only live off income.
    Equity is an illusion until realised in some way.

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    • #3
      Sell $3.5m of property

      Pay off $3.5m of mortgages

      Pay Tax on Rental Income

      Live off the rest.

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      • #4
        If not living off a day job, the idea is to increase income and reduce expenses. Use some of the free time to work on skills. Some thoughts -

        Make sure all the rents are always at or a bit above market. Keep on top of essential maintenance before it turns feral, and defer nice to have items. Switch to IO for a while while you still can. DIY where possible, and increase skills to do more, including for others. And including property management and accounts. Check if you can do your maintenance under an entity where you can be paid for your time, though needs investigating first as may not be worth it after tax. Check central or local government for subsidies based on income but not assets. Aim for the lowest marginal effective tax rate you can. Check if any of your rentals are exempt under the RT Act and therefore other compliance covered by the Act, eg rent to family.

        Obviously there are other ways to increase income and reduce expenses.I was very taken by the story of a young solo mother who made extra cash by buying up used woollen blankets from op shops for pennies, mended, washed in high end wool wash, line dried and sold on Trademe. Only suggesting that as an out of the box idea. One of mine did babysitting - overnight especially paid very well.

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        • #5
          We have lived off equity for the last 7 years. Every 3 years we get a 100k topup which is only about half of our capital gains. So yes, you can do it. Just call it "renovations"

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          • #6
            Yes probably, but you will need to do some financial rearranging, such as going to IO. Another possible problem is that your income looks low for 4.5m debt to get a large overdraft to live off.

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            • #7
              You may have been able to, but you want anymore once Labour have enslaved the RBNZ to their demands.
              Once you get forced on PI for all your loans as well as DTI you will find your income per year will be dwarfed by your Principal and Interest payments, especially if you are getting close to your used by date.
              Meaning even though you may have been able to make a profit to live off, you wont see a penny of it as they will force you to pay off principal each month greater than your cashflow.
              When that happens you will have to reapply for loans, you will be forced to sell a property to have the funds to pay the principal, except you will have to do an application to see how much of that you can keep as LVR's will be 50% and DTI maybe in, so the bank will take all the funds, and keep you on principal and interest for the rest of the debt.
              Get as much separation between banks as you can right now, if you are under 50% LVR, get some property released as security now.

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              • #8
                Originally posted by crashy View Post
                We have lived off equity for the last 7 years. Every 3 years we get a 100k topup which is only about half of our capital gains. So yes, you can do it. Just call it "renovations"
                Although possible, also dangerous to rely on capital growth to do it

                "DEBT BECOMES IRRELEVANT WITH INFLATION".

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                • #9
                  Originally posted by AKL1990 View Post
                  Can we live off the equity?
                  My wife and I have investment properties with a mortgage of $3.5 million. Total value of all properties is around $7 million based on 2017 CV. Market valuation would be close to $10 million. The gross annual rental income is around $210K. We pay P+I for investment properties. We also have almost $1 million loan for self-occupied home. I'm just after some advice. We tend to hold the properties for long term. Can we live off the equity?
                  Many thanks in advance
                  IMHO if I was in you situation I'd sell all but your own home pay off all your RE debts ... 2.1% return is a poor gross return on capital ..so thats going give you around 5mill in the bank once you take out all the RE -Lawyer fees ... plus your own home debt free worth ???? lets say 1.5mill

                  then I'd be out looking for a Blue chip commercial property .. 67%+ NBS Long term fixed term lease ... should be able to get 6-7% return

                  something like this > https://www.realestate.co.nz/3938841...dway-stratford

                  I would think they would want around 10mill you would have 50% deposit .... so 5mill debt (80% of your 1.5mill+ RES property 1.2mill would be loaned at low RES rates 2.9% 5yr etc) ... even if the other 3.8mill is 6%-7% your still looking at having a good chunk 100k+ pa of the 700k pa income to live off as well as pay down the Debt within 12-15yrs of so(your'd own a 10mill Blue chip primary food source with ROR out to 2081 !!!!!!! with a yearly income north of $700k with next to nil zero stress )

                  Last edited by JBM; 28-02-2021, 11:44 PM.

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                  • #10
                    Unit trusts spread over many properties/shares would be safer in preference to owning one building.
                    Easier to sell. Less return with fees and higher taxes. Not so dependent on one tenant.
                    The three most harmful addictions are heroin, carbohydrates and a monthly salary - Fred Wilson.

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                    • #11
                      So property unit trusts over shares?

                      cheers
                      Donna
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                      • #12
                        Reverse equity mortgage (although the "cost" is too high for me to stomach)?

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                        • #13
                          Depending on age and needs Reverse Mortgage can work, they are increasingly popular despite Rellies getting in the way
                          www.ilender.co.nz
                          Financial Paramedics

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                          • #14
                            Originally posted by donna View Post
                            So property unit trusts over shares?

                            cheers
                            Donna
                            Have a mix of everything - Property, shares, gold, bonds...
                            Direct ownership gives the best return with higher risk.
                            But it gets to a point where the hassle and work required out ways the need for an extra % point.
                            The three most harmful addictions are heroin, carbohydrates and a monthly salary - Fred Wilson.

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                            • #15
                              Originally posted by crashy View Post
                              We have lived off equity for the last 7 years. Every 3 years we get a 100k topup which is only about half of our capital gains. So yes, you can do it. Just call it "renovations"
                              Which is tax evasion.

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