Forum Replies Created
Hi Martoa
After much discussion we have decided to not sell any of the three properties. Since then two of them have become vacant, which given they are fully furnished is not surprising!
We have yet to find a tenant for the first (six weeks so far) and are beginning to lean on the agent
The second only came up 2 days ago – fingers crossed there! One of them needs to get a tenant quick!I reckon it is probably to late to make the decision to sell as the FHOG ends soon – now we are in it for the ride!
As for getting our tax back early – we are well aware of that – but really enjoy the $10-15k bonus every year!
Cheers
Wide Mouth Frog
The point of asking the questions is the sleep at night factor. After the FHOG ends at the end of September/December, I am anticipating a drop in the market, and am concerned how this may affect me.
I am 90% geared (and yes the valuations are current!) and the reason that we are c/f +ve is because the properties are tenanted furnished – it costs about $4-6K to furnish the properities nicely and it brings in a truckload more $
I have got the move to IO under control, but cant do that yet with out penalty until later this year.
My question centres around if it is better, given the gearing and anticipated drop in prices, is it ok to hang on, or better to look at reducing the gearing?
As for living in them, I lived in st kilda for 6 months and then my wife lived in hers for 6 months (before we got married)
Currently we live in rural vic due to work so cant live in any of them
Thanks
Thanks for that Terry,
I am not sure why, but I think the point is being missed….. anyway – to answer your questions
We cant convert to IO now – we are awaiting fixed rates to expire
We currently rent
We are not even close to factoring in things like CGT
My questions are about whether to hold three properties (which are doing ok) through the remainder of this financial crisis, which I see deepening after the FHOG disappears, or to liquidate now. I understand that things like CGT and many other factors will cloud any decision we make.
What I am trying to establish is 3 properties, highly geared in strong capital growth areas (but still anticipating negative growth over the next few years) and currently c/f +ve.
Given the high gearing, and the chance to get out before the FHOG expires, do I seriously look at that, or do I grit my teeth and wait out the financial crisis.
I see our options as
a) sell Richmond by the end of September to capitalise on the FHOG and fix interest rates on the other 2
b) fix interest rates on all 3 and bunker down for the storm
c) liquidate all 3 (again, by September) and look at re-entering the market when the property market has stabilised!I guess I really want people to say which of these people think would be wise and why!
Thanks
Wide Mouth Frog
Richmond, not for a few years, East Melbourne will go IO in September, but at the end of the day, that is not really the issue, as overall we are ahead by about $400 a month. I agree that will increase the buffer, but I am more concerned with the gearing levels, and future of property. In Steves Budget video, he talks about the end of the FHOG and some of the ramifications. My question is more about how to manage my risk now to maximise the effects of a possible property downturn
I look forward to your comments
Thanks
Wide Mouth Frog
Hi
Any one looking to set up a company in NZ can email me at [email protected].
I am a kiwi and can set one up for you relatively inexpensively andit takes about 3 weeks.
Irish Kiwi
Having worked for Westpac (NZ) in their specialist Property Finance Unit I make the following observations (assuming Westpac NZ and Westpac Oz work the same way)
When financing a commercial property deal (ie anything which is for making money – not as a residential purchase) the banks look for 3 ways out (in no particular order).
Sales/ presales
Interest servicibility
Mortageee sale/ bankruptcy etcSales/ Presales
Lets say you can build 10 houses on a block, including land aqusistion costs, permits etc etc for $1.4m and you can sell them for $200k each (after sales costs etc). If you have sales for 7 then – easy – your in as 7*200k = 1.4m. You now own 3 properties unencumbered which you can either sell for your profit, hold onto for an income stream, borrow against for future work or a mixture of all 3.
On a development like this, depending on your history of this type of work, the builders reputation etc then you can probably go for max 60% geared.
If you sold only 1 property and applied the full 200k to the outstanding debt you would now have 1.2m debt with 1.8m security – 67%.If you sold 2 then 1m debt 1.6m security (62.5%) and if you sold 3, .8m debt, 1.4m security 57% geared.
So in all reality you would only need to have presales or 30% of the properties for the bank to look at the deal.
Interest / Serviceability
However. You need to prove you can pay the interest bill (usually an income of 1.5x the interest bill) or you could choose to capitalise the interest (add to the loan). In this case, 3 properties sold would leave .8m debt which at 8% would be $64k/yr interest. In this scenario you would have ~7.5 months to either sell another unit and remain under the 60% limit, find some more security to give the bank or start paying the interest out of cashflow – usually it doesnt make to much difference to the bank which you do.
Mortgagee/bankruptcee etc
Now the 3 properties that you have presold must be arms length. You cant sell 1 to your mum, 1 to your dad and 1 to your brother, because if they default the bank is in a tricky situation where they now have to get you to sue your mum, dad and brother when they default on finishing the deal and that is not something most people like to do!
Bear in mind that if you sell the first property for $190k net then the remaining properties are now all valued at $190k not $200 therefore your presales needs to go up.
Now in your case you say you have 75% presales – given that (and assuming that they are unconditional and at arms length), I would assume that most major banks will fall over themselves to lend you the money.
If you want help with this then email me and Ill see if I can help.
Cheers
Frog
Salubrius
Is the regular listings that you get common knowledge? Or is it a private thing.
If its common, where is that sort of information found? A website or specific business type?
I am not trying to “steal” your listings, just get an idea of where to look myself
Thanks
Frog
Hi,
I have a house that I am thinking of selling due to the possible interest rate movements.
My email address is
Regards
Wide Mouth Frog
