About two years ago I sold my share in the business I'd worked in for 16 years... (the owners were selling up); and was also in the position of being made redundant. In short I ended up with a mortgage free home (Val @ $400k), and around $200k in the bank. I was over 8-5 (with lots of international travel thrown in), & wanted to work solely for myself... No partners etc etc (other than the bank!)... And of course improve family time quality etc.
I spent some time looking for a business, and eventually found a 9 unit concrete block motel... Wait, it's not as bad as it sounds... For a start, It cost < $1 mil.
I live in New Zealand... A small 'city' of around 100 000, popular tourist destination and a lot of seasonal employment in fishing and agriculture.
The building is located 1 block from the main street.... Everything is walking distance, it is located on the riverbank, so great outlook etc... The zoning is city fringe, allowing me to build to 4 levels (currently one block with 6 units is two levels, the other, with two units is single level).
Im not running a motel, not the lifestyle for me!, and have just got through the last of the bookings that were there at takeover...
Given their location etc the units are very rentable long term... To the point where when I've advertised online, I have had to withdraw the ad after 3-4 hrs as I'm swamped with enquiries!.
I'm in the process of doing some minor building work to develop another studio unit in what was a 4 car internal garage... (60m2... 600 sq ft)... (this is in a 2 level building on the site).
There is also the opportunity to do this in the other (single level) building, taking this from 2x (2bdrm) units to three units....
Currently rental income is $8400 per month, and will increase to $10300 per month when the other units are completed... Outgoings are $5750 (mortgage)... And around $2000 for taxes, some energy costs, mantainance etc.
Being mortgage free, with one spouse and one dependent, no car or credit card loans/debts and with my wife earning $2500 per month for part time work, we can live pretty comfortably (in fact were about to head off on a two month trip through Asia)...
Here's the rub -
The single level building is solid concrete block and as city planning allows for it, I have been talking with my planner and architect about building on another two levels and developing 4 x 75m2 (750 sq ft) apartments. This will cost around $500k (the bank have said no problem... Do it)... each apartment is likely to be worth @ $225k on completion.
In short I will then have $1.15mil debt (up from $650k now).... $8500/mth repayments, say $2500/mth sundry outgoings ($11000 total) v's $15000 gross rental income ($4000 gross surplus).
So we're in our early 40's (our son is 9yrs)
The mortgage is over 15 years, so by mid 50's it's paid back and our income increases to today's equavilent of around $150k per annum (gross... I've assumed my wife stops working). Given its rental income it's pretty much inflation proofed.
Given all the planning and consenting process I'm going to go through, should I go the 'whole hog' and have the (now) 14 dwellings placed on separate ownership titles, and sell down say half of them and eliminate the debt ?... If I sold the developed block for example, I'd end up with say $200-$300k in the bank; rental income of $7000 per mth (gross), say $1500 outgoings.
There is no capital gains tax on property in NZ, though there is a goods and services tax, however on the development I'll be both paying and claiming, so I've factored this in.
Mortgage intest rates currently 5% in NZ...
So 'in summary' - $250k in the bank and $5500/mth (gross) or $4000 gross and $1.15mil of debt... With the carrot of $12500/mth in 15 yrs.
Our 'gearing' will be less than 45%, excluding the family home, but I still don't know if I want debt > $1mil.
I'm tempted to sell off some units, get some cash and develop another business... While having the safety of the fixed income of $5500 per month, from the units I keep... Looking after apartments might get boring (I do some consultancy, but it is a bit sporadic; I could of course put more effort into looking for opportunities in this field, but then I don't want to get stuck with major commitments to others again!)...
Be interested in others thoughts.
Thanks