Hello,
I need advice please. I have an investment house that was a house land package built in 2008. Since then, there have been several increases in the interest rate and on my $337k interest only mortgage, the tennant pays $1400 per month and I now have to find $800 per month, to cover mortgage, council reates ins etc and its crippling me as I have rent to pay also. I was married at the time of purchase.
The house has been on the market now for the past 8 months and has been reduced from $350k to $320. The latest bad news is that since the floods in January the flood markers have changed which will affect someone getting a mortgage apparently with the big 4 banks! The house never flooded or had water near it.
I have $180k currently in savings and will be transferring $70k from the UK in the near future. I just dont know what to do, I'm really worried about this, already the house is advertised for less than the build cost. My plans are to buy a PPOR in the next year but I just dont know what to do ad would be so grateful if I could get some advice please on my best course of action.
Thank you in advance
Top of my head ……….
Floods?? You must be in Brisbane like me and yes the word on the streets is that the banks aren’t keen to touch/loan in the flood prone areas………. 8 months is a telling sign (average days on market in Brisbane is running at about 90 days) and why sell at a loss if you don’t have to….???
Take the next opportunity to take a rent increase ….. Reallocate some of the spare funds to at least neutrally gear the property via offset account or reducing the mortgage and there are still ample funds to buy PPOR and another property for that matter depending on your gearing / comfort /risk appetite and serviceability.
There are a couple of good number crunchers / advisors on here that I’m sure will chime in on this thread …..talk to one of them …. you not in that bad a position….
The house is in Gympie Beedie and thank you for your reply. I think thats it, I just don't know what to do. I was advised a few months ago to get rid and I just took that advice. If I reduce the mortgage so the rent covers, its a 150k! As for rent increase, he's paying top rent anyway for that area, most are 300-320 pw and I get $330.
I'll keep my eyes and ears open for the number crunchers/advisors to chip in if they do
.I if I was to keep it, I would like to know is it wise to transfer the current interest only mortgage to a different bank with lower rates and if I was to change to a P and I mortgage of course the monthly payments will increase. I just feel swamped by the whole thing and at the moment fell like I'm going to end up with nothing!
Some banks are providing cash rebates to customers who refinance to them – you might be able to use this incentive to switch to a cheaper loan.
Have you had a depreciation schedule prepared for the property? Being relatively new, you would be able to claim quite a lot.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Debbie
It may be possible to turn the property around from an $800 per month loss to positive cash flow by selling it with vendor finance (VF).
Of late we have been getting a lot of calls from people in a very similar situation, so you're definitely not alone. You could setup the vendor finance arrangement over five years or so and, by then, there is a chance that lenders' attitude to the area will have mellowed, so your VF buyers could refinance into a traditional loan.
Even if it hasn't, you could continue the VF arrangement and continue to receive the positive cash flow until a refinance becomes possible.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Thank you gents for your replys. I do have a depreciation schedule and all day have been thinking how I could reduce my outlay and put all the tax back into helping with those monthly payments. i suppose I'd have to shop around with different providers to see if I could change the mortgage.
Paul, thank you, youve now thrown a spanner in the works
Dont really fully understand this but will certainly do my homework. I think I have to get someone to come here and sit down with me. Any contacts for Sunshine Coast known on here?Many thanks again
Hi Debbie
We just assisted with one in Malanda (up behind Cairns). The Sunshine Coast is easy
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
In your case, with that amount of savings, I would find another investment to fund your current problem. Don’t run in circles, sit back be calm look at the numbers and see if they stack up, even if it means purchasing into shares on a blue chip company for the dividends to offset your repayments. Seems that your trying to break into the property market, but still have a bit of fear of losing, and trying to invest not to lose.
Try not to take advice off others like someone said to you to sell the property, cause that’s what they would do, look for your own advice.
Cheers hope it makes you see things a bit clearer.
I agree you should buy another investment property to cover up for the amount loss. Hope everything will be going well for you.
Thank you all for your valuable info and advice. The thought of buying another investment property fills me with dread : ) If i want to buy a PPR, surely I have to disclose that I have a mortgage on an investment property, so how would it be the same buying another investment property?
Hmmm….personally, I wouldn’t be rushing out to buy another IP right now and I can totally understand why the idea isn’t all that appealing to you right now.
To answer your question, yes – you’d have to disclose all liabilities whether you’re purchasing an IP or a PPOR. Having two IPs under your belt (one if which is so negatively geared) will impact on your borrowing capacity when purchasing your PPOR. Obviously it’s also dependent on your income and any other liabilities.
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Debbie,
The first thing I’d suggest is talking to your accountant about a tax variation form, if you’re on PAYG it means you should be able to get your tax back in your weekly/fortnightly pay, rather than in a lump sum at the end of the financial year. This should significantly reduce your out of pocket expenses. Refinancing is an option, but was the size of the deposit you initially paid on the property? As the value has fallen, you might end up with mortgage insurance if you refinance now (as the new lender will work off the valuation as it stands at the moment, not at what your original purchase price was) or worse still, having to put more of your savings in the property to avoid mortgage insurance.
As for to sell or not to sell- You’ve got savings so you’re in a comfortable position, the property is probably costing you around $4500-$5500 in real terms once the tax advantages, depreciation etc. are taken into account. Why wouldn’t you look at riding this out for a few years and hopefully make a profit on the property rather than the loss?Best of luck!
nathan
Hi Debbie,
Im with Jamie on this one;
1. Refinance to a cheaper rate- why not? ( by the way what rate are u on, and which bank?- If the deal is right the Big 4 bank will still take this location up; and def a few smaller banks would do it…)
2. Get that DP report done- you should be able to get at least 4-5k back for such a new place.
3. RE LIST this place with a different agent if you havn’t already…a lot of investors check HOW long it’s been on the market- and if it’s been with the same agent for 8month your going to have a few hurdle to overcome.Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Ironic! yesterday morning, I called the agent and asked him to call me as I was taking it off the market, called the tenant and left a message that I was probably going to keep. Five minutes later, the agent calls to say he had someone looking round at 1!! wish he'd have kept me in the loop! Not had feedback from that yet.
However, the more information I get from you guys the more settled I feel about riding it out. You will probably all be shocked but my accountant never advised me about the PAYG, wow that wouldve saved me a lot of stress this past year! I do have a DP which was done last year so I should benefit when I do my return.
My mortgage is interest only for 337k with Commonwealth. I will do some phoning around.
I have an advisor coming this morning, no obligation. Yes I have savings but I do want to buy again for myself, I really dont like renting. Could any of you suggest if I have 180k in the bank now and the 70-80 coming from the UK in the near future, how much should I put on a deposit? I have held out for a small house which started out at 410k and I offered 350, I live about 100mtres away from the property( now and know the council land value this year is at 300k, my friend lives next door.)of course it was refused, but yesterday the agent came back annd said they would accept : ) I was planning to borrow 250k and now am not sure as they may not lend Due to the IP, well I live in hope and am keeping all crossed.
Well once again, I thank you all for your support and advice on this forum. I feel a lot better now that I did before joining.
Debbie
Hi Debbie
Do you anticipate ever turning your next PPOR into an IP? If so, I wouldn’t pour too much money into the loan at the start (it will reduce the level of deductible debt – which isn’t ideal if this property is ever converted into an IP).
I’d also look to keep some of your cash in an offset account – just in case cashflow is an issue, it’s always good to have some money available.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Here is what I would do:
For your IP your probably on a rate of about 7.85 based on my calculations. I would refinance that, taking a new loan for $256k (80% of current value) and adding $81k from your savings. You probably won’t be able to get a larger loan without mortgage insurance. I have seen rates as low as 6.59% recently, meaning your monthly repayments on an IO loan would drop to around $1400. Depending on your DP this could then be positively geared.
Depending on your income/cashflow you would be in a very good financial position to purchase a $350k property. I would put down 70k as the deposit and get a IO loan with an offset account. Anything left over after that should be placed in the offset account.
Once your cash arrives from the UK you would have around $80k in the offset account. Leaving you in a strong position should you wish to invest further, either in property or diversifying into other asset classes, or just making your PPOR loan very managable.
Cheers, Pete
Hello all,
Well the latest is that the house in Gympie is off the market and I'll be doing the PAYG variable shortly./ Ive just heard that apparently there has been a further offer on the house i wanted and theyre going with that so wasnt meant to be this time and I'm sure another one will appear eventually.
I did also talk to an advisor who suggested exactly that Pete. I just feel so much better than I did a couple of weeks ago thanks to you all for your advice.
Debbie
LOL $180K in savings !!!!!
Divorce property settlement for your information Goblin!!!!
Hi Debbie.You need to discuss most of the above posts with:
1. Accountant re: Tax Variation 221d Form
2. Mortgage Broker to explore your options on the existing loan.
3. Real Estate Agent/Property Manager about regular 6 monthly rental increases in line with CPI.
4. Buy and read Jan Somers' book 'Wealth from Residential Property', it will amaze you and give you a 'bible' to wotk by.
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