Monopoly Money

My name is Tom.

I’m 33 and married, with a four-year-old daughter. We have a $530k mortgage on a house valued at $670k which we bought 20 months ago. We also own a piece of land valued at $125k. With living expenses, we are a little cash poor at the moment. So my question is: should I buy a commercial property (a factory) as an investment with the land as equity? My company (which I own 50 per cent of) could lease it, and I would be the landlord and the tenant. Would love your advice!

Tom

You’re considering taking the Bruce Willis Die Hard approach to financial planning: Bruce would buy the commercial property -- cobbled together from a series of credit cards -- and then flip it to Mark Zuckerberg for $20 million by the time the credits roll.

You, on the other hand, have a young family, a young mortgage, a young business, and (understandably) no spare dough at the moment.

Now is not the time to be buying a commercial property. If I were in your shoes, I’d sell the zero-income-producing piece of land and create a six-month Mojo account (usually it’s three months, but as you’re in business it would be smart to have another three months buffer).

With the leftover money I’d either invest it into the business (but only if you can generate a good return) or pay it off the mortgage.

That being said, if your business is tied to a physical location that you don’t own -- like a restaurant, a shop or a dental clinic -- it can be a smart idea to buy that property in your self-managed super fund (SMSF).

However, I don’t think your factory is in that league, and I know you’re not ready. Instead, screw down a good rental deal on a factory with a long lease, and pour your money into expanding your business.

Scott