Hi all…
I haven’t been around much lately.. i used to graze the forums, lurking and learning, but the situation i’m about to described halted that because we seemed in such an impossible situation. Lately the situation has taken a turn, so i’m asking for the thoughts of some of the experts around here. I’ll try to be as brief as possible in explaining.
About 8 years ago my wife and i bought a little apartment in Sydney’s inner west. It was company title, but we had a sizeable enough deposit that that wasn’t a problem. It has been our home for all that time. About 4 years ago (around the market’s peak) we refinanced the property to pay off some debts we’d incurred in our both changing careers dramatically, plus we’d travelled a bit. We also inversted in a property off the plan. This second property came to life last year, and after a fair amount of difficulty we got our finance for the off the plan property. At the same time, and with our first child being a year old, we decided to sell our company title property… it was too small for us and we decided we’d rent for a while. With the money we’d have left after the sale we could help finance some of the shortfall between the rental of our off the plan property and it’s mortgage. The rental outgoings for our soon to be bigger rental house were about the same as our company titles’ mortgage, so in real terms our cashflow situation wouldn’t change too much. All this seemed like a pretty good situation… a situation we’d been and gotten advice on, and we were very comfortable with.
Well, after 14 months on the market, and with it’s sale having fallen through 5 times (due to buyers being scared off by either bank or their solicitors about company title), we’re now resigned to keeping the company title property. Last Xmas we decided we couldn’t stand living there any more (too small for 2 adults and an almost 2 year old) so we went and rented a place. We appeared to have a buyer ready at this point, but he seems to be continuing to be unsure, to the point where we can’t wait for him to make his mind up any longer. So we have no choice but to rent out the company title property and take it off the market.
So to summarise, we would have 2 ‘investment’ properties. One a new off the plan with a good tenant which leaves us about $120 a week short, and the company title property we’re about to rent which is an older (1970’s) building that will leave us about $140 a week short of it’s mortgage once we find a tenant. We’re also paying our rent on our place.
The problems we have is that we now have no ‘buffer’ on our off the plan property.. it has to come out of our pocket every month. PLus of course we have a company title property that is ‘worth’ significantly less than when we refinanced a few years ago, that we can’t sell.
On top of that, and as further background, i’m self employed with a slowly growing business, while my wife works in a big firm. So obviously there are tax benefits. But it’s hard to know whether our situation is good, bad, dire, or what to do next.
Any thoughts?
MC
I understand that company title does cause some problems with financing, but you say it is inner west and you bought it 8 years ago ? You would have to be sitting on a truckload of CG ? – even given the Company Title stigma. Have you thought about borrowing against the equity you have ? to fund either PPOR or investment spending.
… just reread your post to make sure I’m on topic/track… your big concern seems to be the holding costs of neg geared properties.. if you have borrowings up to 80/90% of your equity then you may have over extended yourself…maybe need to realise some of the equity, paydown debt and start again
regards.
Paul
We refinanced at the top of the market a few years ago, borrowing up to the maximum amount of equity against value available at the time. Now the property would i expect be valued significantly less, and as most lenders will only lend up to 80% on company title, there’s no equity left to draw on unfortunately.
So yes, like many others i expect we’ve over extended ourselves. Hence being ‘stuck’. If we could have sold, even for a little over our mortgage we would have been happy to have been rid of it. One less commitment.
Thanks for replying
MC
Hi Stagefright,
Have a talk to these guys, their loan product may possibly work for you http://www.affiance.com.au/Moopa/ContentPage.cfm?&PageID=8BB712D0-20ED-6ABC-20939CED788113C8
Todd Burns
http://www.freepropertyhelp.com.auHi, MC,
I came across your thread tonight and thought you are in a very difficult situation.
Based on what you described in your thread, I am not sure if you have a tenant paying rent for your company titled property. If you have no tenant at the moment, it means that you are currently paying the entire mortgage (i.e. not the $120 per week shortfall). If this is the case, your current situation is worse than what your described. Is it easy to find a tenant to rent this company titled property straight away? I am not sure if you can improve this property so that you can get more rent for it. Just a thought.
By the way, as you may know that the Sydney property market is still flat at the moment (depends on where your properties are located) and IMHO, there is no point to keep the properties for the long-term as there will be limited capital growth. I am not sure if your other new property is in Sydney or not. If so, why not try to sell the new property and redcue the debt level so that you and family won’t be affected by the heavy mortgage burdens.
Another thought comes to mind – is there any chance you can talk to other owners of the company titled property and try to convert it into a strata titled property – this will certainly increase the value of all the units. Of course, it all depends on other owners’ preference and the actual cost to change the title. Why not have a go?
Without knowing your actaul financial situation, I would suggest you to off load the properties that really cost you money as it will take a long while for the properties to regain capital growth in the current Sydney market. If I were you, I would rather sell both properties and use the proceeds to look for an investment property in the area that still has high capital growth rather than sitting on couple of highly negatively geared properties that have limited or no capital growth. The reality is that these properties are actually hurting you.
At the end of the day, it is very important for you to realise your current finanal burdens and you need to have an EXIT strategy for any unforeseeable circumstances such as interest rate rise and high vanancy rate. You really need to well prepare yourself as it is rather danger not to have any backup plan(s) and no cash reserve to cover any changes.
Don’t leave it too late while you have a chance to do something. Take action now.
Hope the above helps – only my 2 cents worth!!!
I wish you all the best with your decision.
Raymond
Thank you Raymond for your response.
The company title apartment is still untenanted. We’ve had a buyer on the hook for some time who can’t seem to make up his mind, and have been waiting for his definitive answer before renting it out. So yes, you’re right.. the actual figure we’re paying at the moment with us paying the full mortgage is much higher. The good news though is that the apartment building is one of those places where there’s always people looking, so there’ll be no problems renting it out, and it’s available for rent from this week.
The other apartment is in Maroubra in a new growing complex. Our plan was definitely to hold on to that for as long as is feasible… probably until the next tide of prosperity. Of course, we’re examining our whole situation right now, so it’s no point holding on to something that will increase in value in 5 years if you go broke in 2! So your point is well made, and certainly something we’re also considering.
As for approaching the other company title owners about going strata, when we’ve mentioned it they’ve bawked.. mainly because of the costs involved in getting the building up to scratch for strata. I think it’s crazy.. spending money to make the apartments more saleable seems like a good idea to me. And i think our dramas in trying to sell the place have highlighted that company title is still a hard sell. I NEVER thought the place would be impossible to sell though.
IN terms of working on our apartment to make it attract a higher rent… the guy upstairs has just totally renovated his apartment, and it’s resulted in him being able to charge only $10 a week more than ours. There seems to be a ceiling on what people will pay for this sort of rental in this area. So it doesn’t seem to be worth doing too much.
As for exit strategies.. we thought we had a sound one. But who would have thought we’d have a place on the market for 14 months without selling it?
Anyway.. all feedback is certainly appreciated. Thank, you for taking the time, and we’ll certainly examine all aspects of what we’re doing.
Michael
Hi Michael
As for approaching the other company title owners about going strata, when we’ve mentioned it they’ve bawked.. mainly because of the costs involved in getting the building up to scratch for strata. I think it’s crazy.. spending money to make the apartments more saleable seems like a good idea to me. And i think our dramas in trying to sell the place have highlighted that company title is still a hard sell. I NEVER thought the place would be impossible to sell though.did you just suggest it to them or did you provide them with all the information?
i.e. find out exact costs involved & also get someone to do a valuation on the properties once the title has changed. it may be enough for them to see the sense in doing it??good luck
Troy
TroynBec
The ducks are flying closer to home!!!!
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