Hold, sell & invest elsewhere or develop

[orpheus]

Ok here we go:

We have 2 properties in New Zealand.
One is a PPOR with a value of about 1.3m and the other is an investment property with a value of about 1m
The investment property earns $915 per week.
We also have a business which after all costs but before tax we net somewhere on average of 20k per month.

We have built this business up over the last couple of years and it did not always net this much of course and the properties have increased in value particularly in the past 3-4 years.

We have total debt of 1.3m and the property values would be close to 2.3m...

So the question is now that the business is performing much better and there is money coming in every month would you pay down existing debt or sell the investment property?

We have just started to pay 5k per month against the debt (P&I @ 5.49%= $7500 per month. We put in 5k over and above this) and could continue this for the next few years. Ive had a look at some calculators and we could have this debt paid off in 15 years or so.

Or we could sell the investment property repay 1m in debt and be left with a PPOR worth 1.3m with 300k in debt against the business and the PPOR. We could then pay off the existing debt much faster and then either reinvest in property or Shares etc etc.

The property also have development potential however and we could add a couple of flats which would increase the yield but we would either need to save to get this done or take on more debt.

Goal is exit the rat race ASAP and have a nice little passive income so I guess my thought are which road would you take? Sell or hold, pay down debt and possibly develop?

The wife and I are 40 & 41..

She wants to hold and I want to sell...

Market Value: Property 1- 1.3M Property 2-1m
Original Purchase price: Property 1- $670k Property 2- 600k
Original Mortgage Amount: Property 1- $495k Property 2- $480k
Interest Rate: Average- 4.79
Mortgage Term: 30 years Interest Only
Term remaining: 30 Years
Amount remaining on mortgage: 30 Years
Gross Rents: $47500 per year
Principal and Interest (the P&I of your PITI - should match with the above info):
Taxes and Insurance (the T&I of your PITI):
HOA costs:
Deferred maintenance notes:
Anything else special or unique in regards to the numbers of the property (not the property itself; things such as city assessments, back taxes, special costs due to unique features of the property, etc. etc.):

My best guess is I could develop the downstairs area in to 2 two bedroom flats which would cost 150k or thereabouts including consents and approvals. Each of these units would rent for $500 per week each. So 52k in rent on a $150k building cost.

Thanks,

[marty998]

New Zealand has no Capital Gains tax right? So in theory you could sell and not have to worry about losing a chunk of change to the tax man.

Question: How taxing is the business on your quality of life? $20k a month is fantastic.

I see your quickest path to passive income being to develop the property (or sell it with plans and approvals in place to a developer).

Hmm... also.. you are netting $240k a year from the business + ~$45k from rent. Where is all the money going (how much is tax?)

[orpheus]

Hi Marty,

Thats right there is no capital gains tax.

The business has been a bit taxing but we now have 15 staff and 3 years ago it was just the wife and I and a handful of staff, so its getting much easier and we are now getting holidays!

The bulk of any profits from the company over the past 3 years has been put back in. We've had a great life style and do not want for anything but the accounts seem to always be near overdraft.

That said it is getting better and we can now see 20k as a realistic monthly figure and a lot of the cars leases and some other debt are due to retire so that figure should get better over the next 2 years..

Tax last year was 50k for the two of us I believe..

Thanks,