I find myself in a rather interesting pickle to say the least.
I purchased a one bedroom apartment off the plans three years ago. Paid way too much for it. Bank valuation came in 20k below purchase price. It is VERY negatively geared and costing me far too much to keep. One year after settlement I find 200 apartments for sale IN THE SAME SUBURB and cannot sell mine even at a lose.
I can give it away and loose everything but obviously that is not my prefered option.
I was thinking about buying a one and then when I can afford it another +CF property in a rural area where I will get good cash flow but no capital growth to offset the weekly chunk that this apartment is taking out of my bank account.
Is this a good idea or am I going to get myself into a worse mess if I get bad tennants etc.
Thanks to anyone who is willing to offer advice.
JD[blush2][confused2]
I doi not know whether this will help you but I came across some builders in Melbourne recently how are offering a lease to purchase deal. You need to buy the land the builder pays your interest bill until the house is finished. A person agrees to buy the property at an agreed price in three years time and pay you a 9% return till then. This may help you with cashflow. It also means that you will not have a property to get rid of. Hopefully in three years the market and or rent for your property would have improve. New Zealand would be another option but you would need a 20% deposit.
Let me know if you want more details and I will put you in touch
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand Buyers advocate
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I reckon buying a cashflow positive place would have been a great idea 2 years ago, however from my experience, prices have doubled in most rural towns in just 2 years. This is because of people chasing cash flow+ deals. Not many cash flow+ houses left anymore, except total dumps in towns way out in the sticks. I know plenty on this forum say you just have to look to find them, but purhaps these people are looking at total dumps in towns way out in the sticks.
good luck.
Maybe if you told us the location of the unit, we may be able to help more.
The Mortgage Adviserhttp://www.themortgageadviser.com.au
It sounds like a similar situation to me, I bought a lemon from the Investors Club in Alexandria, Sydney 4yrs ago when there were hardly any apartments around Alexandria and then whamo all of a sudden there everywhere. I have tried on a few occasions to sell mine but unsuccessfully. The only saving thing is the rents are increasing around there, perhaps they are around your area now as well, if can hang on for a few years.
Hi JD
Perhaps it would help to sell your property if you tried in different markets or added some creative extras eg a rental guarantee (that you could live with). Similarly there are techniques to improve your rental return towards cash positive. At least this would give you some alternatives to the “sit it out” option.
This is a hard one JD. Not sure what you should do but here goes.
.
The repayments you have on this property are what you would have expected when you got into the deal. ie you knew there was a shortfall. There is nothing wrong with that particular strategy.
.
In this case the capital gain has not materialised which has you worried.
.
Considering the huge entry and exit costs of getting into a property i think you might do well to hang onto the property for the medium term.
.
Selling a dog property can be a good idea but if you are going to take a complete bath on it that’s a different story.
.
Is this property holding you back in terms of your overall servicability? Do you have any others in your portfolio? PPOR ?
.
There is alot to consider. You also need to think about what you would do as an alternative. would you stay out of hte market altogether of find another investment?
.
Cheers.Thankyou All for your replies,
The apartment is in Spring Hill, Brisbane. We paid 258k. Bank valuation was 240k. We can’t give it away for 260k.
We are getting $285 rent per week. Repayments are $1487 per month interest only, variable.
Body Corp, Rates and upkeep are a wopping $5k a year.
The funny thing is that we bought this apartment to make some money for our childrens education. We paid someone to give us financial advice and this was their recomendation. hey I could have made this mess by myself. And they got a $7,000 kick back. [biggrin][biggrin] I am not blaming or angry (past that) I have a problem and I am trying to find the best way out of it.
My problem is that this property is costing us $900+ a month out of our pocket and with one income and a family we can’t keep it up.
We decided to sell it and put the money – our loan is 215k – into a +CF property. But we realize now that we will be flat out walking away with anything.
JD
Hi JD
I’ve been studying some property things for a while and here is one I think may assist your situation.
The basic idea is to turn a negative cash flow property into a positive cash flow property.
The strategy is called Lease/ Option and there are people in Australia who specialize in it.Here’s how I think it may work for you
Your property is currently valued at $240, 000.
Add 20% for your share of the portion of possible future growth $48,000.
So you need to find a buyer for whom the following deal is attractive.They pay $8,640 for the right but not the obligation to buy your property for $288,000 at any time within the next 25 years. Until they exercise that option they lease the property from you at a rate that would pay off $279,360 over 25 years. ($279,360 is $288,000 less the option fee of $8,640). If you used a rate of 8.7%pa variable (i.e. 2% above standard market rates.) the lease payments would be $2,287.26 per month. You would also have to be prepared to reduce the balance owing if the option was exercised by the “principal†paid off by the lease payments. I imagine there would be plenty of people who would be almost certain that Inner Brisbane prices will go up by more than 20% in the next 25 years and this would be their chance to make a profit on that growth. They would also pay rates, maintenance and body corporate fees so you would need to be sure they could comfortably pay around $650 per week.
You would then have cash flow in of $2287.60 per month and cash flow out of around $1,500 giving you a positive cash flow of $750 per month to invest a little more wisely.
I have just outlined this strategy – you would need to set it up properly and get good professional advice however if you can pull it off it would certainly turn your situation around.
I also think you deserve congratulations for having a go.
Cheers
Originally posted by christobell:It sounds like a similar situation to me, I bought a lemon from the Investors Club in Alexandria, Sydney 4yrs ago when there were hardly any apartments around Alexandria and then whamo all of a sudden there everywhere. I have tried on a few occasions to sell mine but unsuccessfully. The only saving thing is the rents are increasing around there, perhaps they are around your area now as well, if can hang on for a few years.
Hi christobell,
Surely not! The Investors Club can’t have sold you a “lemon”!!! They have such a long list of criteria to satisfy before offering a property for sale to their members. Any one of a number of those criteria would have identified the approval of thousands of units in Alexandria long before you bought. I knew about the problem in 1999 when I sold my inner city unit.
Maybe they will take it off your hands and flog it to another member. They still have a lot of stock in Alexandria and surrounding areas being offered for sale. Go figure!!!
The Mortgage Adviserhttp://www.themortgageadviser.com.au
Yes Robert i believe the main criteria is will the vendor pay me between $11=$15000 on the date of settlement.
Don’t think to much else matters.
Cheers Richard
richard at castlewhite.com.au
Email me for details of our Qld wrap CD which gives you a full Installment Contract.Richard Taylor | Australia's leading private lender
JD,
I have a dual key unit in Spring Hill which I bought about 2.5 years back. I think our investments will do well over time.There’s a lot of -ve and +ve talk about Brisbane CBD.I’m for the +ve.Incidently I have also bought another, off the plan due for completion 06.
The figures u state are intersting. It would appear that you think u have paid too much and that it’s costing u heaps each month. If your loan is $215K and you pay IO of $1487 then I calculate the you are paying interest at 8.3%. This appears to be a high rate of interest…could you look at refinance.
If rent received per year is $285per week X say 48 = $13680 less say 8.8% agents costs= $12476 less the wopping $5000 pa for rates BC etc.leaves $7476 nett pa or $623 per month, therefore as you’ve said the short fall each month is $864.
You could reduce the monthly cash flow by the following:
Refinance @7%pa IO. $1254 per month repayments, reduction of $233.
Reduce pay day tax. If you have yearly losses then you could submit a form to the ATO, used to be 221D so that you receive the tax loss in your weekly pay packet instead of at the end of the tax year.
Claim non cash deductions i.e. DEPRECIATION, PROPERTY INSPECTIONS.
These are just a few suggestions. I consult an organisation named ASTORB in Brisbane and I have found them very helpfull in terms of What your unit is really worth, rental, depreciation, agents etc. etc.Cost about $200 per year. Excellent value for money.
If you sell now then u would most likely walk away with zero or owing some.
My advise if its a quality property and u can reduce the monthly cashflow to a manageable level, hang on to it.
hrm
hmackay, there is one major problem with your theory…
No lender will provide high LVR loans on the inner city glut of units as mortgage insurance won’t touch them. For those not using mortgage insurance, the interest rate is much higher but I cannot see them refinancing at 100% LVR as may be the case here.
The Mortgage Adviserhttp://www.themortgageadviser.com.au
TMA,
Thanks for pointing out the major flaw in my finance suggestion……..allways learning. However I’m sure there would significant monthly cash reductions with the other suggestions.
Would you agree?
Regards
Herb
hrm
Absolutely… I would have commented otherwise!
))They are some good cash-flow increasing ideas.
The Mortgage Adviserhttp://www.themortgageadviser.com.au
JD,
I think Herb offered some good suggestions there. And TMA’s comment about 100% LVR could be valid too. So combine the two and see what can be done.
1. Do you believe that Spring Hill values will increase in the next 5 years?
2. By how much? Is this more than what you are spending to hold on to it?
3. Could you refinance this property? (see below)
4. The current yield is 5.3% – some landlords in Sydney would kill for this return.
5. I haven’t invested in apartments, so I could be right off the planet.
Refinancing:
I agree with Herb that the current Interest rate is quite high. It could be worth checking whether you can either renegotiate (or refinance) the loan. Even if (as TMA says) the actual value won’t replace the current loan, you may be able to get a normal 80% loan on $240,000, then shop around for a second mortgage for $20 to #30,000 at a higher rate. It may still be lower than your current payments.And, yes, do check on the use of Depreciation to lower the Tax paid, then use the 1515 form (ITWV – used to be 221D) from the ATO to get some more money in your paypacket on a weekly basis. This would help you to “hold” the property, but only if you want to go this way. (See earlier comments).
Good luck with your decision
Benny
Good summary Benny.
Give Astorb in Brisie a call you’ll be surprised what they can advise you on.
Good luck.
Herb[biggrin]
hrm
I have recently acquired a “dog” from a family member we had to bail out. I am going to say that it may be important to realize a mistake has been made and it may be best to ‘cut your losses’. I had generally cashed up until this ‘gem’ arrived so it is not going to hurt but I am unable to make it pay on the original figures. Maybe it is time to consider a smaller loss rather than throwing more money away!
Thanks everyone for your replies. I am going to try and do a lease option on this apartment. Its worth a try
JD
))
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