Hi, we overpaid for a 2 bedroom unit in a relatively good capital growth area. Paid 158,000 – renovated for 15,000, all on 100% lend. So need 180,000 just to cover mortgage. This is our second home in this area, and the negative gear is draining our cash funds. Appraisals came back after renovation at 162,000-169,000. Bank valuation remained at 160,000 due to 2 other units in the block selling much cheaper than what we paid.
Would love to sell and buy positive anything just so there is not a drain on our resources.
We are fully aware of the mistakes we made, which were made before we read steve’s books, we just dont know how to fix them. the only thing we can think of to recoup our money is to do a wrap option, but even then, we would have to wait for our money (same as waiting for capital growth). We are more than willing to walk away with a small loss recognizing we made some big mistakes, and thinking it would be wise to move on to better income producing properties. If we sold for a realistic price of 167,000 after agents fees, it will leave us with 15,000 in debt. Plus rental yields in the town average 4-6%, and there is no other way we can increase it. Any help or ideas would be greatly appreciated. ThanksHi,
Perhaps u need to decrease the cash required. Have u considered:depreciation, increasing the rent, decreasing other costs, refinancing.
The thought of loosing $15K would hurt, but as you said the unit is in a relatively good capitol growth area so u need time to increase the value.
hrm
thanks for that, but we have thought of all those, its just a little bit too old for depreciation, no other way to increase rent or decrese costs, and partner is home loans lender, so no need to refinance, we have the best deal going! Do you think it might be better to recognize its a loss, and move on to better things?
we overpaid for a 2 bedroom unit in a relatively good capital growth area. Paid 158,000 – renovated for 15,000, all on 100% lend. So need 180,000 just to cover mortgage.OK – not so good – you’ve got yourself into a pickle. You realise this will cost.
If we sold for a realistic price of 167,000 after agents fees, it will leave us with 15,000 in debt.OK – and what if you get 25 people coming through the property, 3 of which make an offer, all investors who won’t fall into the trap of overpaying – and the highest of those is 145K – before agents costs ??
What’s your strategy going to be then, and if it’s ‘be insulted and reject them all out of principle because you need more’ and carry on holding it, how long can your cash reserves sustain the outflow ??
What has the performance of the asset been, as compared with your fully aware financial expectations and projections when you purchased it initially ??
Seeing as though you are fully aware of all of your mistakes…whatever they all are…I question why this has come up after reading Steve’s book. What exactly do you mean by mistakes ??
Sounds by your response to hrm, you’re both a full bottle on all the solutions and have covered all possibilities, and you’re all on a really fantastic financial deal with hubby being a lender. This makes no sense to me…you should be offering solutions to this you are all so switched on, not asking questions about it.
It appears however all is not as you flippantly describe and now it’s crunch time. You reckon you are more than willing to walk away with a small loss…I think prospective wily and cunning purchasers in this current climate will severely test your resolve and realistically it’ll come down to whether you are more than willing to walk away with a much larger loss.
You have quite a few big decisions to make, none of which look too appealing. But I’m sure you’ve thought of all of those as well and are fully aware of them.
Finally, as you requested, my idea is to…bight the bullet and take the unknown large loss…but then, you would have already thought of that as well.
Postscript…of course you would have fully researched the next acquisition on the horizon and I’m sure it’s way better than what you have already and those financial projections have all been done such that you once again don’t overpay…or is that moving just a tad too far in front ??
I don’t get a warm and fuzzy feeling that you are fully aware of everything as you describe
property is a long term and illiquid asset. You obviously haven’t had the place long and negative gearing is a proven strategy despite the trendiness of positive cashflow. have you applied to vary your weekly tax bill? there must be some depreciation as you have just spent $15k on new fittings. it seems as tho you have $7k of lending costs that can be written back over 5 years. not to mention your weekly neg gearing.
Personally I think you are in here for the long haul and need to make it work. if you seek a pos cashflow portfolio by all means go for it, use the cashflow from a new property to prop this one up. but please don’t panic and – to coin a phrase – chuck the baby out with the bath water.
just my opinion of course
http://www.megapropertygroup.comINVESTMENT SALES * RENTAL SOLUTIONS * STRATA MANAGEMENT
dazzling, while i appreciate your honesty, it appears you are mocking me, and thats a bit harsh. all i was asking for was not solutions, but i was asking what would other investors do if they were in my position. i realise what has to be done, what could be done etc etc, i was just curious to see what other investors would do in this situation.
Hi Audrey,
I guess if you finally decide you will sell, maybe marketing it differently would get you a better than market value price?
eg. Interstate investors are not always as good as the locals in assessing market value. Maybe find an agent who works with international investors? Disclose everything that is positive about the property ie purchase + reno work and leave out the negative numbers. For the lazy invester it may be enough detail for them and not look for alternate numbers.Or maybe target home owners who are local as people usually are prepared to pay for what they like rather than market value.
Note that none of this is misleading or morally incorrect. Of course if a potential buyer asks the right question you should provide accurate information…
Or…
If you do plan to keep it, assess if renting as furnished helps increase your yield.Or…
What are you currently living in? Will it rent for more? Swap houses for a year or two…Some of these ideas may be silly, but may help you think of other possiblilities.
Good luck
MatHi Audrey,
Not sure I’ve got this right – but it sounds like you are opting for a $15k loss to prevent paying $6k per annum. Is this close enough?
From where I sit, if this is a good Capital Growth area, I’d be more inclined to hold it but look for another +ve gearer to offset it. But then, I’m more a “Capital Growth” proponent than “positive gearer” – so do take that into account.
Can’t see the sense in paying $15k to save $6k pa. Especially as only 4% growth will more than cover your loss – the only question then becomes “how long until 4% growth happens again?”
You mentioned a town – is no chance of higher rents from Uni students, or providing furnished accom. for visitors, or B-n-B, or Corporate accom, or “something else”? Rent out the garage if the tenants don’t use it?
Benny
PS Am I close with my figures?
Hi Audrey
It’s good to read about other peoples “mistakes”. Mostly it’s only success stories that are told…
I’m in a similar situation – I recently bought a brand new negatively geared property on the outskirts of Brisbane on 100% finance before I read any of Steve’s books.
From reading these books I’ve learnt a lot about what to look for and how to evaluate possible investment properties. Also the books once and for all punctured the hype of negative gearing.
But the new information also made me feel quite badly regarding my existing investment property, like I’d just made the biggest mistake ever.
I’ve naturally re-run the numbers from my property and wouldn’t have bought it again knowing what I now know.
However I’ve decided to hold as the property is in an area that is easy to rent out. I expect a reasonable growth over 10 years plus I also think rent is to increase quite a lot in Brisbane over the next 5 years (but not enough to turn this into a positive cash flow). My net loss per month is 500 AUD after tax refunds.
Call it speculation, but I’m at this stage not willing to sell and realise a larger loss and losing out on a long term capital gain over next 10 years. At least I hope I’m right….?????? If I at any stage can sell for more or less no loss I will sell straight away (no emotional ties).
Be sure I will not buy another heavily negatively geared property. I have Steves books to thank for that important eye-opener.
Best Regards, Rune
Well, your definitely not alone in this situation… my partner and I brought our first house 2 years ago and have since split up. The place is in Sydney and as you can guess prices haven’t risen since we got it, but I like to think in our area they haven’t dropped too much either. The property we brought as a home, not an investment, so it is very nice and the rent I currently get for it is not even close to paying the mortgage.
I debated selling and taking a loss, but worked out it would hit me for round $20k but if I held it would cost round $9k p/yr… Based on this I could hold it for 2 years without reaching the ‘sell now’ loss. I’m confident that within 2 years the value of the place will have increased by at least $20k so figured I was going to come out at least even and if prices increase then I’ll be ahead.
Just remember if you want to be rich overnight property at the moment probably isn’t the easiest way or least risky way to do it… then again if I’m wrong I would love to know and get rich quick
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