Sell or hold?

Hi B2luck,
Your post today indirectly led me to have a read about those regional areas that have mining as one of their local businesses. I must say it was interesting to read the comments by many who seemed to have in-depth knowledge of those areas in regional Queensland. Your post that led me to the mining thread was this one :-
https://www.propertyinvesting.com/topic/4404256-qld-mining-regions-bowen-surat-basins-gladstone-willing-to-help-anyone-with-questions/page/8/#post-4652133

Now today, you say this:-

We bought a new house as an investment property in emerald Qld, in 2011. The property price has dropped approx 100k . We have it rented out for 300 per week. By the end of 2017 we will be paying the principle on the mortgage also, which is when we might feel a financial squeeze.

Going by comments in that thread from “Josh”, he believes that Emerald is far more than just another mining town, and that he believes it to be a major service centre for many surrounding mines and mining towns. He also believes that the long term for Emerald will be solid when considering it as a 10 year investment and not a short-term one.

From my end, I can add nothing re Emerald itself – but re your “Do I sell, or do I not?” question, my thoughts would be to consider a few points:-
1. Can you afford to sell today, and thus “lock in” a Capital Loss – assuming that there is a loss of $100k if you were to sell, and don’t forget to add in the costs of sale.
2. If you were to sell, do you have another plan for the extra $$ that are currently supporting a negative-geared investment?
3. Do you agree (with Josh) that Emerald will be profit-making when considering a longer-term investment – e.g. ten years?
4. Can you afford to hold it if you agree with 3. ?

Going on from 4, if you wanted to hold, then can you cut costs and/or lift income?
Do you envisage being able to raise rents up from $300 in any way? e.g. can you renovate to command a higher price? Or, if currently unfurnished, can you pull a better rent by making it furnished? Is there a better (lower) vacancy rate for furnished properties? Is there a possibility of adding a granny flat in that area? If so, can you add one cheaply (e.g. move a second-hand mobile home onto the site for $50k and rent it for an extra $200 a week – a 20% return!!).

On the “small fish are sweet” side of things – can you add split-cycle air-conditioning and add $20/week to the rent? Or add a carport and put $10 a week onto the rent? In short, what does your tenant want/need that they will pay a bit more to get? Make sure that the rent increase more than covers either the cash cost in one year, or borrow extra to cover the cost of the upgrade and pay just 5% interest, leaving the extra cash-in-hand to help you hold on.

Or can you cut costs by renegotiating the mortgage term or changing lenders? Go from a Standard rate loan to a Basic Rate? Can you look to continuing with an IO loan after the loan goes off IO and onto P&I? Again, though I know this CAN be done in my area, I don’t know how lenders view Emerald, so you would need the expertise of a finance person (MB?) who is familiar with Emerald. Of course, any change to a mortgage will likely include a cost (application fee etc) so do be sure that the gain is worth the cost.

Other than that, I hope others with more local knowledge of Emerald can help further,

Benny

Hi B2,

I was glad I was able to provide a few thoughts that might work for you.

Now that I know this was a new built house, could it be that this place is in the right location to be desirable as a Corporate rental? I don’t know how many companies move staff into Emerald, but corporate rentals usually want :-
1. Properties in a central location, or near their place of business.
2. Properties need to be well appointed furniture-wise
3. Properties need to be top quality in all aspects

Consider a mine or a company sending a trouble-shooter to Emerald for 6 months to sort out a problem. Or, they might provide accommodation for whomever of their managers goes up there next – one moves out, another moves in. In an ideal situation, the company might take out a lease at a VERY GOOD rental for years at a time.

When moving in these circles though, there can be quite a bit of competition between the landlords, so you would need to know you have a deal before setting it up and spending heaps to “make ready” for whomever it is that wants your place, and perhaps they might even dictate just what fittings they want you to provide.

Why not, if they are locked in on a long-term lease? Give ’em what they want, and you put your price on the rental to cover their requirements, plus ……

Good luck,
Benny

Just one more to have a think about.