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Somewhat of a Predicament.

Discussion in 'General Investing Discussion' started by Ronaldio, 16th Apr, 2010.

  1. Ronaldio

    Ronaldio New Member

    Joined:
    13th Apr, 2010
    Posts:
    2
    Location:
    Sunshine Coast
    Hello Everyone,

    I am new to InvestEd and believe me I am glad I have found the site. I have been searching through all the helpful bits and pieces however my situation at present is somewhat unfavourable(I believe). Anyway what I am after is an idea of what you might do if you were in the same situation. The story is as follows:-

    We have a $360 000 mortgage on a house we bought for $340 000 (all done back before the GFC. Basically a 105% loan.

    Now we have been in the property since July 2007. and I believe we have paid off around $15 000 which puts us around $345 000 on the property which hopefully the value should have risen.

    At the end of last year my wife and I got a $60 000 LOC to do some renovations(as yet they have not started)

    What happened almost immediately after we got the credit I no longer had a job and my wife was on maternity(unpaid as she is a contractor) so in essence for 4 months we did not have an income other than the LOC. In that time we have halved the $60 000 with bills and such. (I am a carpenter BTW and I have only just started working for myself again after being offered some work)(also I am in the process of starting a new home theatre construction business to supplement the carpentry work I do as cinema is somewhat of a passion of mine)

    We also have one other loan on my work vehicle but other than that we have no credit cards or any other debt.

    If you were in the same situation what would you do? I am constantly on the look out for more work and I am very proactive in looking for it. Also I can't wait to start investing and have started educating myself on the stockmarket and property investing.

    Any helpful words of advice would be greatly appreciated.:confused:
     
  2. KateMelb

    KateMelb Active Member

    Joined:
    17th Apr, 2010
    Posts:
    33
    Location:
    Melbourne, Victoria
    Ronaldio, I suggest refinancing to consolidate your debts (including any credit cards and car loans) into the one monthly repayment.

    Then it's time to honestly look at your expenses and make some cuts. Ditch the credit cards and work on cash only. There are plenty of simple ways to save money without having zero fun (Cheapskates is a great place to start).

    If you still can't cope, perhaps it's time to sell the house and downgrade to a smaller, cheaper place or even rent and start afresh, debt free. This would be far better than being eventually forced into bankruptcy for living beyond your means.

    Good luck!

    *************************
    I DIY manage with Rentwise.
     
  3. DavidJ

    DavidJ Member

    Joined:
    28th Jun, 2006
    Posts:
    22
    Location:
    Sunshine Coast, Queensland
    Looks like you have your debt sorted out with no credit card debt but really need to look at your cashflow before you can move forward. I would suggest looking at ways to increase cashflow and if it were me i would be looking at moving out of the PPOR and renting it out. The interest will be deductible and the cash refund you get can go toward paying rent instead. You have 6 years after moving out of your PPOR in which the capital gains exemption still applies as long as you have not bought another PPOR in that time.
     
  4. Ronaldio

    Ronaldio New Member

    Joined:
    13th Apr, 2010
    Posts:
    2
    Location:
    Sunshine Coast
    The only problem I can see with doing that is...well. We would still need a place to live, and at present we are paying interest only on the home, so really only an extra $110 we are paying to be in our house per week if we were to rent elsewhere. I agree 100% on cashflow, and i am currently looking at different things to get both passive, semi passive and general income coming in. Just want a good run at some frames(house frames) for the next `12 months to get some dollars to invest. heeeeeeere goes!!! Thank you for the advice tho.
     
  5. Chris C

    Chris C Well-Known Member

    Joined:
    2nd Apr, 2008
    Posts:
    1,327
    Location:
    Brisbane, QLD
    When you are trying to balance a budget $110 can make a big difference though.

    I'm not saying you "should" or "have to", but I'd be definitely be keeping this option in play.

    After all, it's better to make a smart decision in time, than be forced into a bad one down the line.
     
  6. KateMelb

    KateMelb Active Member

    Joined:
    17th Apr, 2010
    Posts:
    33
    Location:
    Melbourne, Victoria
    Excellent point DavidJ - with interest rates set to rise even further, renting out the property and an interest-only loan with an offset could kick off negative gearing and unlock tax dollars, resulting in more cashflow via a tax variation.