Hi,
I've just read Steve's most recent newsletter about the future direction of interest rates:
https://www.propertyinvesting.com/newsletter/newsletter068Under his 'Here's What to Do' advice section, his first piece of advice is 'Exit Marginal Property Deals While You Can'.
Now the first thing I asked myself was: 'What is a marginal property deal?'
I have only one investment property, a 2 bedroom villa unit in Victoria Park, about 5km's from the CBD.
– Purchased 2002 for $165K
– Mortgage $148,500 (has been on interest only, 10% deposit)
– Current value approx. $330K (according to REIWA.com)
– Rent currently $250 p/w (recently re-tenanted, so currently at market rent)Here is my dilema…
1. If there is a likely chance that values will soon flatten and even fall, then I would be happy to sell it early in the new year (there are personal reasons for this – I need to pay down some other debts).
However…
2. If there is a likely chance that values may continue to increase (even if modestly), despite interest rate rises, then I would just get a second job and work my tail off for the extra funds I need and do whatever I can to hold on to it (not a particularly good prescription for my overall health and wellbeing, but at least I'll have the peace of mind that I'm holding on to an asset that is gradually increasing my modest net worth).
Facts to Consider
1. Prices have continued to increase in Victoria Park this year, albeit at a slower pace. I check the REIWA website values regularly. 2bedroom homes in Vic Park were $315K in April, now $334K.2. Adjoining suburb values are much higher and have grown more in recent years than Vic Park: 2 bedroom homes in South Perth (west of Vic Park) are now $461K, in Lathlain (east of Vic Park) $550K, and in Burswood (nth of Vic Park) they have gone ballistic now at $617K (up from $217K in 2005, to $422K in 2006, to $617K now!!).
This leads me to believe that Vic Park should benefit from some spillover and should do some 'catch up', so maybe I should continue to hold?
3. The resources boom out West is likely to continue for quite a few years yet, equating to a continued supply of cashed up investors.
I would appreciate some feedback from any Perth specialists on the forum?
a) Do you think Victoria Park values (postcode 6100) are likely to now flatten or fall in light of Steve's interest rate prediction?
b) Or do you think they should benefit from the factors outlined above and continue to rise (even if modestly) despite higher interest rates?
This is a BIG decision for me as to which way to go, so I thought it worthwhile to ask the question here for some experienced advice from seasoned investors here. Your opinions will help me to come to my final decision on which way to go.
Thank you for taking the time to read and respond to my enquiry.
Amy
Hi Amy, I'm not a Perth Specialist but have invested for past 14yrs in Bris and Perth. On my first property (Bris, 2 bed unit 5k's from city). I went from having a 6.95% interest rate to a 10.5% interest rate 2 years later so I've previously experienced rising interest rates and a flat market. Rents rose also though so I wasn't affected. I sold it 8.5yrs ago for $104,000, now it's worth about $340,000. If you can ride it out Vic park is an excellent location and will provide good growth. Building costs in Perth are rising by 5%/yr. Land supply in Vic park is limited which should force prices up also. I agree with your list of facts to consider also. Also consider:
Can you afford to hold onto your property if interest rates reach 10%?
Can you improve your property, (new paint job, freshen it up) and increase rent?
Is your property manager renting your unit for a reasonable amout or renting it too cheap?
Can you allow a pet in your complex and ask for premium rent?
All the best, LindaI would hang on if at all possible. The underlying economy in Perth is still strong and Vic Park is a great spot. I sold a unit in West Perth a year ago as it had gone from making me $50 a month to casting me $50 a month. I could have sold it now for $60,000 more but gave it up for $600.
Such is life and these experiences all go towards making achieving ones goals that much more rewarding.
Thank you Linda and Attrill.
Indeed, I don't want to sell it. It's just that I have a non-property debt now totaling $90K which I need to reduce & eventually eliminate.
One option is to take a second job and work like a dog. Not a good prescription for my health and wellbeing, but probably the route I will choose.
The other option was to sell VicPark. The least favourable option, but after reading Steve's last newsletter it made me think twice that maybe it wasn't such a bad option after all?
But the questions I had to ask myself were "What is a marginal deal"?? (as it is still negatively geared) and "What is the likelihood of my property value flattening for the next 3yrs, or even falling a little", because if I had a crystal ball and knew for sure that it would flatline or even drop, then yes, I would sell it, spare my health, and re-enter the market in a couple of years.
But of course… we don't have crystal balls. My next best option was to ask the experts here, and it seems both of you hold the same outlook as I have held. I still think VicPark will grow in the next 12 to 18mths. Watch this space for an update in 12mths time to see whether it does or not.
Yes I can handle a further 2% rate hike on that mortgage. That's only an extra $3K pa. The bigger challenge is working my butt off for God knows how long and maybe compromising my health to clear the unrelated $90K debt.
Well… as someone once said… life wasn't meant to be easy.
Thank you again for your inputs.
Amy
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