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**whitt** · 06-02-2005, 11:54 AM

It takes many individuals a long time to get into a nice house with good schools nearby.
If you are happy where you are and your mortgage payments are comfortable why move?

Have you thought of using some of the equity in your own home for investing? That way you get to stay in a nice house and still invest.

**Neo** · 06-02-2005, 12:57 PM

Thanks for your reply Whitt, we have used the equity in our current home to purchase our investment properties. Our son is only 14 months, so he is a few years away from school. Our weekly disposable income is quite low and to progress the next step would be to sell, down grade, become mortgage free and have another $300 in our pocket each week.
Sometimes I think we are walking a fine line and this would just ease the load abit. But as I mentioned above my hubby is not to keen.

Neo

**Julian** · 06-02-2005, 01:32 PM

Neo,

I have an aquaintance who decided about 10 years ago to sell the family home which had gone up about $100,000 to $400k in their one year of ownership - they sold because their $200k loan was a bit of a bind to service. That beach-front home is currently worth in the vicinity of $1.5m. Had they kept it they could have been servicing the loan now with pocket change.

On the other hand sometimes people have to take one step back in order to take two steps forward. I currently own no residential property, having sold and rented to put all the money towards investment property.

If you are selling just to take the pressure off I would say don't do it. Keeping the pressure on keeps you on your toes. In time the pressure will ease to the point where it doesn't hurt at all and you will pleased for the sacrifices you made because of the results you have achieved.

If you are selling to further your investments do it on the numbers alone. It could be worth renting yourselves and putting all your equity to work for you. This model has worked well for me, despite selling up in one of the country's highest capital gains areas.

Perhaps an option for you could be to try to find ways to add to your income. Can any of rents be increased? If each renter went up by a humble $10.00 per week that would add $30 per week to your bottom line. Is there tele-marketing or some other job you could do from home in the evenings?

I liked your post, and the fact that you are looking before you leap. Best of luck (I hate that term "luck") with your decisions.

Julian.

**Monid** · 06-02-2005, 03:06 PM

Hi Neo
Sounds like a great idea to me, that $300 a week can be used to pay off your investments faster, and that generates more profits and more equity to make more investments, if you can find any worthwhile ones in this market.

Likewise given a limited cashflow situation this seems an ideal way to increase the amount of money you have floating around.

I'd say go for it!

**Neo** · 06-02-2005, 05:15 PM

Thankyou both for your replys.

"If you are selling just to take the pressure off I would say don't do it. Keeping the pressure on keeps you on your toes. In time the pressure will ease to the point where it doesn't hurt at all and you will pleased for the sacrifices you made because of the results you have achieved."

Yes I am looking at selling to take the pressure off, I have the strong urge to continue to breed so I want to be sure we are more finacially stable.

"If you are selling to further your investments do it on the numbers alone. It could be worth renting yourselves and putting all your equity to work for you. This model has worked well for me, despite selling up in one of the country's highest capital gains areas."

Yes I am also keen to purchase more investment property. If we were to sell our existing home and buy another mortage free, we would gain $300 per week and be able to purchase other investment properties. The bank would see our servicing ability has gone up and look more favourably at the transaction. I am not keen on renting I would rather have my own home and get any applicable equity gains.

"Sounds like a great idea to me, that $300 a week can be used to pay off your investments faster, and that generates more profits and more equity to make more investments, if you can find any worthwhile ones in this market. "

Thats exactly where I want to head, our jobs are not going to make us rich (so to speak) that is why I am keen on focusing on property.
My husband has been awesome with support when it comes to buying more investment properties, but he is not happy at the thought of selling our home to downgrade (he is not materialistic just a stability junkie)but we have reached a stand still, and this is the only (that I can see) way that we can continue to improve ourselves.

Thanks again for your help and ideas
Neo

**fudosan** · 06-02-2005, 06:31 PM

Hi Neo,

Thanks for this great post. I admire your courage and determination to venture into properties without too much money to play with. Just wondering if you have thought about turning any extra space in your house to a source of income, such as taking on a boarder or two.

**MiniMogul** · 06-02-2005, 07:00 PM

Hi Neo, here's a weird answer which is probably not the one people would think I would make. Have you considered selling one of your investment properties?

I am not sure what the difference is between the three you own, but I reckon sell the one that's made the most in capital gains and/or that you have added value to ( as it may not perform that well for the next few years if the market goes flat) or else sell the one that's performing the worst.

It has probably gone up quite a bit lately, and then you still have two IP's!
This will keep the peace with the family, your husband, less stress there, which is really so important I think.

It might be that three borderline neg geared properties plus a home mortgage are just overcommitting yourself a little much, but maybe that's too much, at least, not to the extent of having to sell the family home.

Had you thought about that possibility?
Also if you do decide to go down that road, is there anything you can quickly and cheaply to to raise the value, i.e. raise the rent, even if by only 5 or 10 bucks. Even a 5 dollar rental increase at a ten percent yield raises the price by 2600 and, that's your selling agent fee give or take a little...

Yes earning extra income is another way. Just make sure your investment properties are all at market rent, for a start...

**Neo** · 06-02-2005, 07:22 PM

MiniMogul Thankyou for your reply
Yes we have thought about that...
Our 3 rentals have little capital value in them, 2 were brought within the last 7 months. We did an equity shift 7 months ago (when we changed banks and formed an LAQC) from our first rental to our own home.
So at present there is not much in the way of equity gains to be had.
2 of the rentals are 5 year leases so they are low risk, gauranteed returns. The other is 2 x 2 bdrm units @ 9.2% (yeild based on no deposit).
We have only been in our 'family' home 2 years so for me I can easily move on.

I just want to make life easier for us in the long term

Neo (PS I will be checking my e-mails next on Thursday, so don't think I am being rude If I don't reply)

**learner** · 06-02-2005, 07:43 PM

Hi Neo

In your situation, I think you are thinking along the right lines. A mortgage-free home and surplus income of $300 a week is great at your stage in life with a young family.

Choose a good $250,000 home and you would have 4 properties which would all be candidates for capital gains in the future, and at the same time you can reduce the mortgage on your investment properties. This will build up further equity in your investment properties, and from there you can look at investing more in the future (perhaps by using the equity in your mortgage-free home) as you should be in a stronger financial position.

Good luck Neo, you've got your head around the issue.

**Gobbers** · 06-02-2005, 08:37 PM

Hi Neo

The thought that occurs to me is that if the IP's are just covering themselves then maybe something with a more positive cash flow may be worth considering. It may be worth a careful consideration as to whether they are that suitable although 9.2% is not bad there are still higher returns available out there.

The other point that comes to mind is spending control - I am currently reading Steve McKnights book 0-130 Properties in 3.5 years. In it he talks about your type of situation and states "In every case of financial hardship that I've ever seen, the problem has not been earning too little, but spending too much" As we all know it is very hard to trim back the personal spending but he talks there of making the sacrifices now so that there will be more later. You may have already considered this aspect but thought I would mention it anyway.

The great thing is that you are prepared to work with the problem you have rather bury your head and hope it all comes right. I am sure you will work out the best course.

cheers

CJ · 07-02-2005, 02:39 AM

I would not recommend selling the family home but that is a person thing for me. You are considering another child and it sounds like you are in a nice house with good capital gain potential (sea views). Capital gains rather thatn yeild are better for a home. Plus, where will you be in a few years time. if you will be in a position where you want a bigger house (say the one you are in now) ther the cost of moving back in would be big (two lots of purchase costs).

Options:

Are your current investments on interest only. If not, cjange to IO and use the cash left over to pay down your mortgage on your own house.

How much rent would your house make. Consider renting it out for the next year while you get yourself set up again and then move back in once you can afford it again. Run some numbers - this might not work?

Can you make a little sacrifice now to have it a bit better in teh future.

Just some onptions. Where the family house is involved (esp since you have kids) it is not all about money. The purpose of money is to get quality of life. Why lower your standard of life just to get money. Obviously you have to draw a line in the sand at some point if you are living beyond your means.

CJ

**tim360** · 07-02-2005, 08:39 AM

Hi Neo, if cashflow is a problem have you thought about changing your home mortgage to interest only to ease the pressure a bit. You could do this for a couple of years then change back to P&I.

You have plenty of equity in your home so should be safe if any fluctuations in property values occur.

I'm a person who believes in a well balanced life, that means I don't work as hard as I could, don't save as much as I could and spend more than I should, so probably wont acheive as much success in life as I could. But by god I have as much fun in life as I can squeeze out of it!!

Do whatever you feel comfortable with, you don't want to be burdoned by the worry of debt, but make sure you and your family are getting the most out of your lives. There's no point sacrificing the enjoyment & freedom of your youth for a retirement that may never come.... (sorry to end on a gloomy note)

**lissie** · 07-02-2005, 08:50 AM

There's an intresting article in this week's Listener about retirement savings - they make the point that the most important thing a couple in their 40's can do to help their retirement savings - is to stay together . Couples often split after the kids have left and the mortgage is paid off - creating havoc with the savings plans (or the IP's I imagine). I thought it was a useful point - if your partner really doesnt want to move ....

**dazer** · 07-02-2005, 05:21 PM

Hi Neo,

Thought I would drop you a line as I have just been through a similar scenario myself. I have my own home here in Nelson and IP's in Christchurch (100% borrowed against my own home & cashflow +ve). My house in Nelson had more than doubled since I brought it 5 years ago. I had two options I was looking at: 1. sell my IP's and go mortgage free on my own home or 2. sell my own home (then buy cheaper or go renting) and build up my IP's. I have decided to sell my own home, my reason was quite simple and that was do to with my long term goals. If I sold my IP's I would still have to hold down a job (even though I would be mortgage free) to cover my living expenses etc... but the reason I started buying IP's was to have "passive income" allowing me to do my own thing. So in my circumstances it made more sense for me to put my own home on the market and invest the money into my IP's (thus creating extra income and allowing me to buy more IP's).

There have been some quite good suggestions on this forum about how you might be able to create more cash flow short term, but I think you need to seriously look at your long term goals to determine what is going to be the best option for you.

All the best with which ever decision you make.

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