A story from a newbie

[Yea'Na'Eh]

Greetings all

I've been sitting on the sideline for a wee while now and have picked up a heap of valuable advice, so thanks!

The following is our scenario. If anyone has any info or suggestions we'd really appreciate some feedback.

Between my partner and I we have four properties:
#1 - Partners part-time home, owned in his name, value 260k, P&I mortgage of 120k.
#2 - My old home, now rental. Ownership split:
30% my parents = 75k (cash)
64% me = 139k (P&I mortgage)
6% my son = 16k (trust)
Total owing on house = 230k
Vlauation as at August 2005 260k
#3 - Rental investment. Purchase price 63k. Set up as LAQC. 100% borrowing IO. Yield before expenses = 12.4%
#4 - Do-up property, live in while renovating. Purchase price 184k, renos 60k, expected sale price 275k.

As you can see, the situation is pretty messy, particularly property #2. Now that the "partnership" thing has commitment stamped all over it our goal is to pay off the home loan (#1) ASAP.

The solution as I see it is to sell #2 to the LAQC for the latest (Aug 2005) valuation of 260k, pay my parents their initial cash input of 75k plus a third of the equity = 11670k, return the 16k plus 6% equity of 2k to my sons trust, pay off the 139k mortgage, and put the remaining 16k equity against the home loan (#1).

This does mean that we will have to top up the LAQC for rental #2 to the tune of $30 per week, plus rates etc. This shouldn't be a problem based on our current incomes.

Assuming property #4 gives us the expected return of 31k, this will be used to reduce the home loan. Therefore 120k loan minus 16k (from #2) minus 31k = 73k left.

We then concentrate on paying this off ASAP, say 2 years.

In the meantime, we do another do-up or 2 or 3, live in it until we both move permanently to property #1 (I can't live there yet as the house is in the country and is some 60km's distance from my sons college of which he has 3 more years to go), then keep it, or them, as rentals.

My partner doesn't get quite the same heart palpitations as I when it comes to property investment, nevertheless he has his own business aspirations. I on the other hand aspire to having a portfolio of rentals that give me a "livable" passive income, and as I love to renovate I would like to have one of these on the go every now and then.

Until then, I sit in my office 8-5 pondering, doing my sums, reading your posts, and dreaming of the time when I awake to the sound of the birds, drink my coffee on the deck overlooking nature, and head off into the bush for a time-constraint-free mission on my mountain bike!

Thanks for reading, all comments welcome :-)

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Looks like you have been busy but you probably need to see an accountant,who knows about property. An interesting situation.
I'll have a go at some comments but you still need some good advice.
When you sell #2 to LAQC I don't think you can claim depreciation as an expense because you are an associated party. But you can probably charge all interest charges as an expense to reduce the tax that you pay on your monthly salary. Using IR23BS you can convert that tax loss in the LAQC to cash in your salary which could help cashflow.#4 do up and flick you would need to make sure that if you do this often it doesn't set you up as a trader.

[mals69]

Here's a thought

out of the square - sell it all up and invest in commercial property and travel the world on the better cash flow than residential.

[Yea'Na'Eh]

Thanks Doug, yes I can see some advice is needed.
Malcolm - but where's the fun in commercial? ... I'm in my happy place with a paintbrush in hand :-)

[mals69]

Have the nicest commercial building

out there with your paint brush in hand.