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Desperately need help

Discussion in 'General Investing Discussion' started by adrian88, 11th Nov, 2010.

  1. adrian88

    adrian88 New Member

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    11th Nov, 2010
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    Location:
    gold coast, qld
    Hi, just wondering if anyone can give me some advice. My husband and I owe $425,000 on our home loan, which if we sold now we would probably get $665,000 (paid $795,000). We currently only can afford to pay the interest which is approx $500 per week.

    We also have another loan for $476,000 (interest only) for 2 units. One unit we paid $200,000 and get $200 per week rent, the other $376,000 and we get $320 a week rent. However, out of this rent we pay costs etc and we still have to put in $170 after tax money each week.

    We do not have any other loans but we are finding it a struggle and seem to not be going anywhere. We thought that the units would go up (had them 3 years), yet we are trying to sell them and we will probably lose $30,000 as the market has gone down.

    I feel completely incompetent and do not know what to do to improve our finances. Should we just sell our house and live in a townhouse (paid off) and invest in investment properties? We also have 2 children, one in $8,000 per year private school and a baby. Can anyone suggest what we should do?
     
  2. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Hi adrian88

    Ask yourself the following questions:

    Do you want to continue subsidizing your property?

    What would be the effect of a housing price drop? by 10%, by 15%?

    What would be the effect of a 3% interest rate rise?

    Do you want to live in a townhouse?


    Don't wait till you get mortguage stress before you bail out. I don't know what the future holds, but it helps if you have a few backup plans. And see an advisor.




    Johny.
     
  3. adrian88

    adrian88 New Member

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    Hi Johny
    Thanks for your reply.

    In answer to your questions, I don't really feel like subsidizing my property if it isn't really going to go up and I feel if the housing market could drop another 10 to 15% should I cut my losses and get out now.

    As far as interest rates go, if they went up by 3% my husband would just have to work harder even though he doesn't want to work as it is! I think we both have mortgage stress as it is.

    Also, I don't want to live in a townhouse because I love acreage living but if we are going to have no money free now and at retirement (i'm 36, he's 48) I'd rather cut back on my house now.

    Do you know of any good financial advisors that don't try to sell you their products? Thank you for your help.
     
  4. Johny_come_lately

    Johny_come_lately Well-Known Member

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    Hi,

    I don't know the Gold Coast, but choose a fee per hour advisor. They charge for time rather than commision. It helps if you go there with a big list of all your questions. It also is a good idea to go with your partner.




    Johny. :)
     
  5. jeddi

    jeddi Member

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    Hi Adrian88,
    It seems to me the best way to deal with this situation is to sell the units with a vendor finance strategy like a rent to buy or instalment contract.

    That way, the buyer will pay more for the property and you won't lose a whole lot of money.

    The buyers also cover your outgoings which will give you the debt relief you need.

    It will enable also you to keep and live in your own house.

    I don't know what area of Qld you are in but usually there are more buyers than houses available for vendor finance properties.

    I did this for some of my properties that I could no longer afford to keep and I haven't looked back.

    regards

    Dianne Marshall
    Easy Home Ownership Solutions - Hi and Welcome to Our Website. | Own - Preloved Homes.com.au
    vendorfinanceproperty.com
     
  6. Chris C

    Chris C Well-Known Member

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    Of course we can, but remember you get what you pay for.

    I offer this thread to most people who are heavily leverage as some food for thought. It normally proves to be an interesting read and offer alternative way of thinking and some further points for research:

    http://www.invested.com.au/85/leverage-strategy-37587/

    Why did you think they would go up in value?

    Earn more and spend less is the best place to start when it comes to improving your finances.

    After that I recommend investing in things that make money.

    That depends on what you value most.

    Tell him to get used to it. Money doesn't grow on trees and there is no easy path to riches it requires hard work coupled with working smart.

    This is the age old balancing act of living within ones means whilst also aspiring to have the things we want.

    You can have what you want in terms of material things, but it will mean giving up other things like time as you have to work harder to afford the nicer things in life.

    Best of luck with it all. I too recommend sitting down with a financial advisor - one that has your interests as their priority would be a bonus (but they are harder to find). Failing that I highly recommend starting your own financial education and start reading lots of threads on these forums as well as recommend financial books.
     
  7. Jacque

    Jacque Team InvestEd

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    Hi there

    Second some of the excellent advice that's already been given. Of utmost importance is visiting your accountant to work out your actual cashflow position and formulate a plan from there.

    Holding property for a mere 3 yrs isn't really giving it sufficient time for an investment asset. Depending on what time in the cycle (and where) you bought is obviously going to affect your short term cg and rental returns. In theory, the longer you hold property the better your cashflow position becomes, as the rent increases to cover your outgoings. However, it does sound as though you're stressed about your current situation and need to revise. It happens. Best of luck moving forward.
     
  8. Billv

    Billv Getting there

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    Adrian88

    Can you rent part of your property out?

    Alternatively why don't you sell the IP's?.
    The markets will recover but with interest rates going up and the tourism industry crippled it won't be any time soon.

    If I was in your situation I'd sell the expensive IP first
     
  9. GunnerGuy

    GunnerGuy Index & Property Investor

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    Location:
    Kuala Lumpur, Malaysia
    Adrian88,

    Chris C has some very good points that should be strongly considered I believe.

    I am in a similar position to you with PPR and IP's and being negatively geared on cashflow. Also ages are the same, but I bought the properties 12, 10 and 8 years ago.

    To add and compliment these and others comments I would say .....

    Sit done and take a deep breath and relax.
    Sit with your partner and discuss what you want to achieve over the next 5,10 and 15 years with regards kids schooling, income, and living standards.
    Remember there are things we want and things we need. These are commonly very different.
    Prioritising the needs is important, the wants are just that .... desires.
    Remember we cannot have everything we want in life and have to make clear decisions and have a clear plan.

    This all seems nice and cosey but you are asking what action should I take.

    Well once you have a good feeling on what is importnat with your like eg. kids, job, superannuation you then need to consider what action to do NOW to put you on that path. As is said there are knownens and unknownens.

    The knownens include tax implications for your actions, and possibly job security, and the unknowns include housing price fluctuations, rental market fluctuations.

    Some investors are debt free focussed. Focussed on achieving a stable house, good schooling for kids and no debt. With no debt then you have more choices I believe and if you need debt in the future for whatever reason you can get it if you have none.

    With only having the IP's for 3 years that is not enough time to allow you to gain from the IP strategy. 7-10-12 years is the time frame you need in order to ride the changing housing market. Unfortunatley your purchase date was possibly at the top of the current cycle, but how long will this 'general' downturn in house prices continue. Can you survivie this period whatever length it is ? You are already stressed and you may have to wait 3-4-5 years before the properties give you any real return.

    Difficult choices but taking a hit now and liquidating some of your property assets may be the best way forward. There is still a lot of uncertainty in the Global financial markets. Who knows how strong China really is. Australian interest rates I believe will continue upwards in the next 12 months.

    I am currently selling one of my I.P's, at a price I am not too happy with but fortuntaley in the black for me but that is since I have owned it for 7 years.

    Long winded I know but ....

    Sit down one evening when the kids are in bed and spend 3-4 hours with your partner deciding what is important. What are the NEEDS of the family now and in the future. Achieving the needs will hopefully help you have the choice in the future on which of your WANTS you can achieve.

    Investing is about restricting your spending now so that in the future you can spend (and maybe not work). I would seek a path that reduces your debt to a low or comfortable level, this protects you from possible job losses and increased interest rates in the future. If this means taking a loss now it may be better than having 2-3 years of stress and then still possibly taking a hit in the future.

    I think it boils down to the unfortunate fact that it looks like you did not buy the IP's at the right time (no fault of yours) and that I do not believe that IP investing will not be what it use to be. The next 10 years will not be the same the last 10 years. Some one on the forum may say 'how can you say that. No one knows". Which is true. But do you really want to exposure yourself in these uncertain times ?

    Just some thoughts. I hope it works out for you.

    You need a clear exit plan (where do I want to be in 5-10 years), put a plan together, act upon it. Stress will be reduced when you know where you are going, how to get there and implement the actions to achieve this.

    All the best,
    Gunnerguy
     
  10. adrian88

    adrian88 New Member

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    Location:
    gold coast, qld
    Thanks for your advice

    Thank you all for your advice. It is really good food for thought. I have arranged to see Canterbury Financial, Boston One and my friend recommended Wealth Farm. Hopefully, they may be able to put us on the right path as my brain keeps swirling!!
     
  11. Billv

    Billv Getting there

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    Just be careful with some of these guys because it could be in their interest to refinance/restructure people's loans to get commisions.

    Nothing wrong with getting commisions but loan restructuring and refinance is not necessarily what people like yourself need. IMO you have too much debt and too much non deductible debt as well.

    Did you borrow the deposit for the IP's or was it your own money?
     
  12. adrian88

    adrian88 New Member

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    gold coast, qld
    Thank you Bill

    Hi Bill
    Thank you for the information about using some of these companies. Do you know of any reputable companies that may be more helpful? Also, in answer to our investment properties, we borrowed 100% on them both as we hadn't saved any money (except equity in home) and thought this would be the best form of forced saving, however, I'm now starting to think this isn't the answer as we do not have any quality of life, just work and come home. That is why my husband is cheesed off too because he works hard all month and then it is all sucked out of our bank account again, leaving nothing for holidays, etc. Also, I know a lot of people are in our position, but you would think that after earning 100 after expenses and tax we should be doing a little better!!
     
  13. Billv

    Billv Getting there

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    Adrian88

    I can't make a recommendation on financial advisers.
    In relation to your comment that you no longer have a life, I fully understand you.
    Investing in property was easy a few years ago when properties were cheap and loans were easy to get.

    Now it is all changed, property prices are high and the speculators can't easily get loans or there isn't much money to be made and they stay out.
    Also, from what I read, moving to QLD isn't as popular as it was in previous years and many areas are oversupplied so I'm guessing that QLD could have a period of price stagnation or slow growth and you could even see price corrections in some areas.

    My point is, don't prolong the inevitable hoping for a quick market turnaround because its unlikely. Interest rates are going to go up more, so the situation is likely to get worse.

    Take care
     
  14. wealthfarm

    wealthfarm Member

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    Location:
    Gold Coast QLD
    Hi Adrian88,

    Its Nick the CEO of Wealthfarm. We can definitely help you work through these questions and determine the best course of action. Feel free to call me or email me direct to discuss this further. We are a fee for service business, and the only one in QLD and only one of five in Australia with the 5 ticks of approval (ISO accreditation).
     
  15. JPM Group

    JPM Group Member

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    Location:
    Moorabbin, Victoria
    Adrian88,

    Good advice for the members above.

    To save you cost, I am an independent advisor and this is what I would be suggesting.

    1. Sell the IP property that is valued at $376,000 and utilize the sale proceeds to reduce your existing IP loan of $476,000. This would leave you with a outstanding loan of approx $100-105,000. At the current interest rate of 7.6%, you will pay $7,600 or $146 per week. (so this would turn into a positive cash flow).

    2. BUDGET - Have you completed a budget. I tell all my clients that must treat their household like a business (income coming in and expenses out). You need to determine the surplus or profit and then look to utilize this effectively. In your case "deleverage" is the key! I can provide you will a budget planner.

    3. PRIMARY RESIDENCE - Once you understand your cash flow, you may need to sell your primary residence to purchase a house that your cash flow can support the loan repayments (and not just interest only).

    EMOTIONS - GunnerGuy explained it well. Dont panic!! It all comes down to how the financial position looks - Please complete a sophiscated budget analysis and this will assist you in making the correct decisions.

    In my mind, you need to deleverage, for the peace of yourself, your husband and your children.

    You will be fine.

    Hope this helps.
     
  16. wealthfarm

    wealthfarm Member

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    Is this advice.....

    This sounds and looks like advice to me, not sure if I would sell the property, is this really the best advice in the long term. Before we can provide advice we like to get a full understanding about what is important to you, and discuss all your options. Too many advisers will tell you to sell, which is a short term bandaid, not a long term solution.

     
  17. JPM Group

    JPM Group Member

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    Location:
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    WealthFarm maybe you are treating the housing market to kindly. When someone has significant cash flow issues and cannot make principal and interest payments on their mortgage, this is not a good sign. It represents too much debt, and this is a major issue for alot of Australians who are inundated with debt.

    Unlike world governments, we cant just print money and sell bonds to inject capital.

    The best thing for the case above, at least they have a positive equity position. Now use this to deleverage and free cash flow - and make sure you understand your budget and discretionary spending.

    As for advisers saying to sell - well as an owner of AFSL and having true independence it is about maximising clients position. In this case it is quite simple, deleverage or find a higher paying job to support the cash flow.
     
  18. wealthfarm

    wealthfarm Member

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    James, thanks for your response. I agree that the cashflow is a significant problem, but I dont believe in giving advice, nor are we allowed to under our regulations, without knowing the clients full situation, which we clearly dont. I thougth being an owner of your own AFSL that you would know what you said constitues advice, and is advice.

    I still believe there are other alternatives, and selling may not be the best option (it may be once all info is provided).

     
  19. JPM Group

    JPM Group Member

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    Wealthfarm yes very true - hence the disclaimer below that all information is treated of general nature. For any personal advice to be provided, a completed client form, FSG to be signed before any Statement of Advice.

    I have a number of clients who have put too much pressure on themselves financially due to leveraging. Leveraging is fine, given strong cash flow and tax planning measures but to me the above case is quite simple. I am sure she will find sound advice on a personal level - at least she is taking measures to act on this problem.
     
  20. wealthfarm

    wealthfarm Member

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    Hi James,

    I agree with your comment, at least there seeking advice and hopefully can get the right answers.

    Your disclaimer isnt enough, you still provided advice but lets not get in a slinging match about that.

    Best Wishes

    Nick Sinclair