2 years ago I knew very little. In my primitive brain, a block of land was a good investment. Once I started making the mortgage repayments, it quickly became clear that it wasn't a good investment at all. I have to pay nearly $2.3K per month, most of which is interest. I owe $280K on it.
After reading richdad series, I realise my folly. I bought it at the peak of the boom (you live and learn). It hasn't appreciated at all. If I sell it, I will lose money when considering agent fees and 2 years of interest payments.
It is a nice block and I have emotional attachments to it. It has water views and is in a lovely beachside location in southern WA. Should I do the smart thing and sell it and take a loss and learn from the folly?
Should I borrow more and build a house to rent it out and negative gear? Anybody ever do something this dumb?your thinking and learning so its not all bad.
If the block owes you $280k now and you build a house, thats something like $420-480k of debt (havent said you have other cash). Is that a marketable property in that area? What sought of rent could you get in the area? and is there much demand? Is your taxable income high enough to get max benefit from -ve gearing? Really need more numbers to make sense of the situation.
They say once you are in a hole the first thing to do is stop digging, do the numbers unemotionally and if the remaining costs are acceptable for you to hold (assume you want to live there eventually) then do it…….otherwise bale ASAP and spend your $2k+ a month on something more productive.
I like the analogy with the hole. I think it would be smart to stop digging. It's a shitter when you like the real estate
I was in a simular situation CHIS, I bought a block for investment in the northern suburbs and thought i could make money on it, but with the downturn in the market and over supply of land at the moment i didnt even break even when i sold it, even tho i made abit of a loss im thinking long term now instead of forking out nearly $1500 in interest every month which i was paying on a block that wasnt going to get any capital growth i have sold it now and am just gonna save up for a deposit and buy something in 2-3 yrs time. I think when i bought my block i got sucked in with all the media type regarding a "land shortage" , in my opinion there was never a land shortage, i think the develpers over heated the market so they could jack up all the prices , only releasing blocks in small amounts at a time, making people think they had to rush in a buy a block before its too late, now that the market has turned its flipped 180 degrees, they cant sell blocks so they are offering all sorts of discounts and incentives to lure people back in , like i said IMO they overheated the market delibertly and milked people for every cent that they could get out of them.
Talk with your accountant, perhaps if it is viewed as an investment, it could be considered a capital loss to be written off against future capital gain, making the loss not quite so painful. Just a thought and please not I am not an accountant.
CHIS wrote:I like the analogy with the hole. I think it would be smart to stop digging. It's a shitter when you like the real estateyep , as soon as you become emotionally attached its becomes difficult. But your plan has some merit if the place is marketable and you really , really want to be there long term. If its worth it to you then keep going……its not all about the money (as long as you arent sending yourself broke). We recently did an extension on our PPOR and we knew it was overcapitalising the place, but on the other hand we like the location and wanted to have a nice existence for the next 5-10 years so we went ahead.
I guess it is really a long term investment. It isn't an asset as it takes money out of my pocket. It's the opportunity cost of what else I could do with the money. I checked on one of those interest calculators. I will pay about $700K in interest. It's cheaper to go for a holiday there a few times a year.
I personally believe there would be some synergy of capital gain by building a house on it. Land + House > cost of 1+1. It's the puss and pain of paying interest on a block until a house is built. Can you claim interest on the repayments whilst it is still dirt if it is intended to be an investment which will be rented out?I beleive the holding costs while in construction phase are part of the cost base of the house. Happy to be corrected but thats what we experienced only we built to rent. If its not so its off to the ATO I go….
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