Decisions?

[Patti]

Hi Team,
After some help!
I am married with 3 small children.
We have a home valued at $500K, the mortgage is $2450 per month. The equity on our property if we sold up, cleared fees etc would be $180K.

I live in Whakatane, the current rental rates for a home of "comfort" is around $300 per week. There is savings per month of $1100 if we sold and rented, that appeals to us.

Would we be best to sell our home, take the $180K in equity, invest in a rental or rentals?

I have done some basic figures and it seems possible, the rental mortgages and associated expenses can be paid by the tenant if we buy 2 rentals valued at $220K each.

Is investing the $180K the best option or should stay as we are?

Please advise if you need more details

Thanks in advance

Regards
Patti

[SuperDad]

Hi Patti,

Welcome to PropertyTalk. Firstly, your posting is not in the best place on this forum - I'll send a message to the moderators and get them to switch it to the "Property Investment" folder. Many more people will view it there.

Secondly, it does sound like there are good financial reasons for your selling, renting, and investing. If you haven't done so already, have a good look around this forum, as this question has been discussed several times. But again, on a purely financial basis, it looks like you will make more money if you rent and invest. One of the major benefits will be that your expenses, including the interest on the mortgages, will be deductible if the fiance is raised for the purpose of investing. (Sorry if you already know this - but I'm not making any assumptions about what you do or don't know at this stage).

Just so you know, I'm quite new to property investment myself, so I'm no "expert". Hopefully others with more experience than me will be able to help you with your question also.

Best regards,

Paul.

[BusyLizzy]

Hi Patti - and welcome to the forum!

As per Superdad's post, I have moved your post to the Property Investment forum.

[Gerrard]

Hi Patti - only you can make the choice on what's right for you, but a few things to think about:

1) what will you do with the spare cash if you start renting now?

2) rents will increase over time, so in (say) 10 years you may be paying double the rent you are now. You mortgage payments wil stay constant until you have paid it off then they will be 0

3) 2 x $220 IP's is less than 1 x $500k own home. So you will miss out on capital growth on the $60k difference.

I'm a big fan of home ownership but it doesn't suit everyone. Look at the long and short term implications then decide what's best for you.

Cheers
Gerrard

[NZGEMS]

Hi Patti.
Good on you for deciding to do something about your situation.

For me personally I like to own my home and as Gerrard says you get the capital growth, although I dont think thank is a huge thing seeing you will get it in your rentals, but in time you can pay back your own house.

Why not sell it, and buy a cheaper one your mortgage may only be $300 a week anyway on that. I beleive there are still some really good investments in your town (yes not the flash houses) and probably not the $220 ones either but just get out and study the market.

I think for you first you need to decide how much income you need to retire on, when you plan to retire (if ever) Is one of you going to give up work or are you just trying to buy a few houses over the next 10 or 20 years to live off when you retire.

There are many things to consider here, I personally do a mix of trades and buy and holds, I use the extra trade money to pay down the ones I am keeping. But to get into this it takes time to get set up, once you have the ball rolling it doesnt take long.

Certainly if I wanted to now I could go back to a job but I am having way to much fun not working and just doing what I feel like when I feel like it to ever consider that, of course I am working in the sense but when you are doing what you love it doesnt feel like work. And takes up very little time, the rest is mine to do what I want.

My husband doesnt have a job either, he is currently doing up a house to resell and we have plenty more lined up for him to consider when he finishes this one.

If you just want to buy one or two rentals a year that is very acheivable infact i think you would be wise to keep your jobs as you obviously have good incomes so you could get them paid down quickly. (that is unless you want to get into trading because in that you can make way more money than you can working)

Another idea is to change your loan to interest only while you get your rentals set up and put the extra into the rentals, not that I am suggesting you buy ones that dont pay their way.

There is alot to consider here and there is nothing wrong with changing your goals as you go along. I used to, infact still do. Even forget to set some alot of the time, am working on some at present though surprizing the drive it gives you to get them done, I have been writing them down every day since the end of last month and that is going to continue for at least 3 more months, ( I recently redid Keith Cunninghams business mentoring course and he got us to all do that) it does keep you focused, I acheived well last time i did it 3 years ago so am expecting spectacular things now I am doing this daily writing.

remember what you focus on you attract to yourself so write some goals out and then work out how to go about acheiving them.

With your own home selling and renting for a short time can be an option, if you feel that will suit you (just reread your post) but have a goal to buy a home again at some stage. I guess you can always live in one of your rentals I have done this for a period of time, mind you in our case that was when we were rebuilding our own home and doubling its size. Paid for the whole thing with cash created from our trading houses.

This Property game gives you lots of options on how you can live your life beleive me and you will find you will be living a life far beyond your wildest dreams that you had probably only had 5 years ago.

So good luck, go to it, keep us posted of your progress and if you have any questions put them here there are plenty willing to give their advise to you.
Robyn

[Monid]

To back up what Robyn has said, by all means downgrade homes to the cheapest house you can handle living in.

The use your incomes to pay this off as fast as possible.

Use all of the money generated from the sale of your current home to pay off as much as possible from your new home. You can then use the equity in your new home to invest in rental properties, banks will usually let you go to about %80 Loan to Value Ratio on your portfolio (Home + rentals) Though in the current market most would reccomend staying somewhat below that.

This has the advantage of being more tax efficient than simply using the money to buy a new home and some rentals straight out.

Good luck
David

[Neo]

Patti, I was in a similiar situation.

We have a 2 1/2 yr old and a 8mth old, I work 1 day a week and stay at home the rest of the week to look after the kids.
We had a lifestyle block worth 440k (mort 125k ) so we sold and brought a smaller block 372k (mort 78k ) to enable us to buy more rentals in the future, we currently have 2x 3bdrm houses and 2x2bdrm units we are building on the back of the property with 2 units at present.
Life does get busy with kids and property, good on you for thinking ahead, Since we down graded I am happier with our situation - a warmer house, repayments are $200 wk. Let us know how you get on....
I wish you every success in your journey...

[Patti]

Hi guys,
I wish I had discovered this website a lot earlier, I must thank my good friend Mark for passing this website on to me.
Just wanted to say thanks for all your words of wisdom.
My wife and I have now got some different perspectives to look at. All your messages make sense to me and as most of you have mentioned its up to us and what we want to achieve in the years ahead.
At the very least this has endorsed the point of sitting down and working out where we want/need to be in 5, 10, 20 years time. Property seem to be an option to create lifestlye if you work smart.
Once again thanks for your words of encouragement and advice. It is pleasing to see...in a weird way...that we are not the only NZ couple that have these financial dilemas.
We look forward to reading more messages on our scenario.
Best regards
Patti & Flis

p.s. being a "freshie" not sure if posting this as a "quick reply" is where it is meant to be?

[BusyLizzy]

p.s. being a "freshie" not sure if posting this as a "quick reply" is where it is meant to be?

Hi Patti,
Yes - 'Quick reply' is fine to use. This just allows you to enter a simple response... well, quickly. If you wanted to do a more complex reply (eg more formatting, icons, pictures, quoting, etc - you would use the Go Advanced button.

[4thecat]

There is a thing called " Life, Lifestyle ,Quality of Life and so on "

You can make a lot of money in Property ( if you collect enough of them ) ,by working hard, getting stressed out over tenants not paying the rent, raising interest rates and how to pay the mortgage week after week and the list goes on and on.
And,,,,,,, if you play your cards right, you can become the richest man in the grave yard too ! (:-)

Personally speaking, try to find a happy medium, where you don’t become a slave to the mighty dollar, have some quality of life, and invest the rest in property or shares or whatever you believe in makes a good investment. After all, you only live once , ( well I presume so ) so enjoy every day and treat it as if it was your last. But at the same time put enough away for later on in life, without getting stressed out about it.
There are a lot of people out there, working there buts off, and getting stressed out over mortgage repayment, money ,and long working hours. If you ask them why they do it, some say, well I don’t want to be poor, and when I retire, I want to by a farm, and grow my own vegetables , and travel and ……. What ever they may want to do one day , when they have lots and lots of money .
Little do they know , by the time they get there, they are probably to old to bend down to pick the vegetables, or chase the Goat across the paddocks . And Wheelchair acceses may not be available everywhere , the places you wanted always to travel to ..…
The most pressures thing out there is not money, or gold or property , it is " TIME "

So, sell the property, and rent a place, buy yourself a investment Property, invest some of the money and live.

[Monkeyboy]

If you love the house you are in then stay where you are. Use the equity in your own property to buy the rentals. Get a line of credit and then loan this money to a company that you set up. This makes it tax efficient. This also saves you paying $20K in agents fees and the capital growth on your own place will benefit you over time.
Now with my quick calculations you could probably get about $120K out of you property, more if you wanted to go to 90% LVR. This money could be used as a deposit for up to 5 houses of around $200-$220K. Of course you need to find houses that you can add value to, and therefore increase rents. There are various ways to add value - extra bedrooms, sleepouts, minor dwellings and even subdivide and build. Adding value is what will really maximise your $$, especially in todays environment.
Just my thoughts and look forward to hearig your progress.