Strategy going forward with running into serviceability issues..

[Minz]

In one way he is in a mentoring programme by the mere fact he is on this forum.

[Murph]

In one way he is in a mentoring programme by the mere fact he is on this forum.

Yep thats why I love this site and all the members and feedback.
You do have to do your own research but you really do get some pearls of wisdoms from some seasoned investors!
Through this site and a few books we turned about 200k in Mar 2010 into about 2.8m today... (if we sell etc etc)
This development will be a lot of work but we do really have a great network here in Queenstown of people we trust but Ill always turn to Property talk to get some more insight from those outside this small crazy Queenstown area!!!
Keep the feedback coming!

Murph

[Minz]

That looks a great return....now you need to make sure you look to managing your risk exposure for the future i.e. get a plan in place to ensure you are not exposed only to one town/city/economic dependency, put a wedge in place to ensure you don't slip backwards (or at least work towards it over the medium term, it is not fun doing it but it does reduce stress somewhat, that said, risk brings high rewards if all goes to plan).

[Murph]

That looks a great return....now you need to make sure you look to managing your risk exposure for the future i.e. get a plan in place to ensure you are not exposed only to one town/city/economic dependency, put a wedge in place to ensure you don't slip backwards (or at least work towards it over the medium term, it is not fun doing it but it does reduce stress somewhat, that said, risk brings high rewards if all goes to plan).

Im thinking the same thing! Its a lot of debt/ investments to have in one place...
Im thinking to put the whole thing on P&I and use the other monthly surplus we have from the business to pay of the revolving account.
Spread the loan terms over 2,3 & 5 years. As each rolls over have it in the offset and continue to payoff debt.
Anyone think this is the best option?
I love the idea of after 10-12 years of having it fully paid off and retiring of the rents but we could also keep the whole thing IO and use the monthly surplus to buy low cost index funds for the 10-12 years..
We would have an emergency fund in the revolving credit of 100k or so but the properties would be neutrally geared at 6%.
Could also save up for more deposits and I know this is a property website but I do like the idea of a mix of property and shares to retire/ semi retire as early as possible and spend time with the family.
Any thoughts?

Thanks

[Nick G]

Nobody ever went broke by having too little debt...

[Minz]

There should be an "ideal" level of debt to allow you to do both...I work with a 30% LVR and have "spare" cash for one year's mortgage payments via an unused revolving credit account. I paid down the mortgages first before focusing more heavily in the sharemarket and now maintain my mortgages on a 30 year P&I. Then I have a very low cost basic cash account with Westpac (NZ) that serves as emergency funds wherever I am in the world (had to use it twice in four years: one in Dubai when our credit card was stopped due to fraud and we were trying to pay hotel costs and once for a major car repair). The money above this goes into shares (mostly UK as I am currently non-resident), the return on these over the last 7 years has been around 21% annualised (UK holdings) or 18% annualised (NZ holdings). I enjoy the research and vibe from share investing especially as the portfolio grows (prefer it by far to property). And then there is our inherited tiny wee unit in NZ and kiwisaver accounts. I feel we are well bolted in and could now happily "retire" in the tiny unit and live very well (including paying for private education) if we have no salaried income, we could live off dividends and rent while not selling down any capital - ten years ago, I used to stress over debt and income, now, no longer.

[Murph]

There should be an "ideal" level of debt to allow you to do both...I work with a 30% LVR and have "spare" cash for one year's mortgage payments via an unused revolving credit account. I paid down the mortgages first before focusing more heavily in the sharemarket and now maintain my mortgages on a 30 year P&I. Then I have a very low cost basic cash account with Westpac (NZ) that serves as emergency funds wherever I am in the world (had to use it twice in four years: one in Dubai when our credit card was stopped due to fraud and we were trying to pay hotel costs and once for a major car repair). The money above this goes into shares (mostly UK as I am currently non-resident), the return on these over the last 7 years has been around 21% annualised (UK holdings) or 18% annualised (NZ holdings). I enjoy the research and vibe from share investing especially as the portfolio grows (prefer it by far to property). And then there is our inherited tiny wee unit in NZ and kiwisaver accounts. I feel we are well bolted in and could now happily "retire" in the tiny unit and live very well (including paying for private education) if we have no salaried income, we could live off dividends and rent while not selling down any capital - ten years ago, I used to stress over debt and income, now, no longer.

Does That mean you have 30% equity or 30% debt?
Ive been thinking about what you have said with an "Ideal level of debt"
Once the development is completed it will be neutrally geared so cost us nothing except some maintenance etc so we have the option to pay down debt very quickly or spend the next few years investing 8k or so per month into index funds or more property but im thinking there will be a better time for property with current prices...
I do like the idea of paying off the debt so the properties start producing an income but I cant get my head around if this is the best option or just leave it on a 30 year mortgage, let it take care of itself and diversify into index funds??
The capital gain on 2.8m to 3.2m even if it keeps up with inflation over 7-10 years should be good enough and if i'm investing in index funds now at 8k per month with that growth and time in the market we should be able to semi retire, retire whatever you want to call it.
We are 42 and there are a few different ways the above could work even faster... Sell the business, Sell the PPOR and move to a lower cost area of living using the rest to pay down almost all of the debt...
Just want to be in the best possible position in 3 to 5 years..

Even with the cost of the development added to the mortgage we would still be close to 50% LVR

Thanks,

Murph

[Minz]

Does That mean you have 30% equity or 30% debt?

30% debt for us with the remaining debt on 30 yrs P&I just ticking away and plenty of spare cashflow to allow for repairs, renovation and income (if needed).

I paid the mortgages down fast to begin with. Now they are on 30yr P&I as I have been share investing for 25 years as a hobby (used sold or take-over shares to pay off mortgages even faster). At the time my share/bond and actively managed funds portfolio was not huge, I grew it then sold to pay down debt. I doubt that I would have used index funds as the return is very much "averaged" and for me this averaged return was not enough to warrant not paying down the mortgages at that stage in our lives. Now, I am working my shares and funds hard, taking higher risks in parts of a larger portfolio that I won't sell down into the current mortgages as my returns are making me happy. If all turns to custard, I have time for recovery and the property portfolio and cash safety net are unaffected. At the moment it is again time to enter back into emerging markets (I did well there in the mid 2000's with Brazil but sold prior to the GFC as things were just "too good" and that makes me nervous - rightly so). Of course, I could change my plan if our life direction changes but for now this is fine.

There are so many different ways to get there, the first and best way to start is to think and plan. By the sounds of it you are well on the way just keep going and with regular reviews (and flexibility to change if you need to), you will probably be fine. There may be better ways, but I reckon, for me, if I spent too much time trying to find it, I wouldn't use the route I already have and is working well.

[Nick G]

I assume your location allows you to run the business. In which case simply pay down your PPOR with everything else on IO and funnelling into your PPOR. That's the only debt you have with no tax advantages.

Then honestly I'd look for another property where you can do what you're about to because you'll know how to make money doing that. From there, who knows. Diversify into managed funds or retire to the beach ;-)

[JBM]

Would anyone happen to know how much the bank might be willing to cough up to help with a development?
I mean if serviceability was not really an issue for them would they let you borrow back up to 80/20?
Or has it changed now as its an investment property back to 60/40?
Ive owned the property for 4 years, not sure if the 60/40 is back dated? or only on new purchases etc?
If it took a year to get all the planning and approvals in place we would have about 100k to tip in..

Thanks,

Murph

Only your banker / broker can answer that one >>> surprised you haven't be looking through the gorge ...Cromwell looks to be having another breather currently after a strong run up last year(20-30%) ...still very cheap compared to the likes of Wan/Qtn yet a short 30-45min drive to the resorts..

Growing serviceable from its centralised location >> certainly the ugly sister ...but potential is there to continue to grow its own international identity....

how families on the average resort wage can continue to live in the areas dumbfounds me .... when you have $700-$900pw rents Vs 42k average income >>>>>(take home pay $682)