guys/girls this is my situation:
IP purchase price: $172,000
loan: P&I 100% + costs ($180,000)
rent: $165/weekcurrently, after taking account of the tax return, this property is costing us $100/week.
We have only owned the property for 4 months, and since searching this forum and since defining our financial goals as wanting to be financially independant (not having to work), now undersatnd that this may have not been the best purchase.
the block is approx. 750m2 and has a 3BR brick veneer house on it, in a beach side suburb.
we have thought of 3 options:
1) we keep the property as is, and pay off the loan at the maximum allowable extra repay ($5000/year) to get to 20% ownership faster.2) build a second “villa” at the back to increase the rental coming in or to sell and pay off some of the mortgage (keeping in mind we may not get any further finance as we are at 100% plus costs already)
3) sell the property as is and cut our losses. i believe the property would be worth around the $180,000 mark, that is without a true market valuation.
if in this situation, what would you do?
thanks in advance for your valuable insights.[tired]
nathan
You could evaluate the possibility of lease-optionin git or selling it on a terms contract to give you positive cash flow and some capital gains. A negative gearing rescue, I think it’s called.
There are quite a few people on this site who are very experienced at it, why don’t you do a search, find their posts and ask them for some time and buy them lunch.skippygirl
Hi Nathan
Maybe one more option for you to look at would be vendor finance or commonly known as Wrapping. If you are unsure of this investment vehicle take a look at the getting creative forum
which will give you a general understanding and you can follow up from there.Steve Mcnight also has a wrap pack available for purchase which gives you ample information and everything you need to complete a wrap deal. Although its not cheap, it can be if you put it to use.
Just my two cents worth Nath .[whistle]Regards Risky
If you want the rainbow youve got to put up with the rain!
I think you are being too harsh on yourself – I wouldn’t be rushing into selling the property and taking a loss. On the face of it, it sounds like a quality place that’s returning close to 5% gross – not bad. I would just pay as much in as I could afford, adjust your weekly tax deductions to help you if necessary, then when you have enough equity in a couple of years time or as soon as you can borrow the money, develop the back unit. Consider keeping both if they are running ok. get a QS depreciation schedule done on the property too so you kow exactly what to claim.
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
thanks guys
the only problem i am faced with, with regards to wrapping, vendor financing and lease options, is that the house is in South Australia. it is to my belief that it is NOT legal to do these things in South Australia?
i am not sure whether this is correct or not? if it was an option, then maybe these options would then be possible?
[blink]
nathan
Hi
I’m with John. Why sell? You would lose too much. Just because it is not positive cashflow does not mean it is a dud. Hopefully it will quickly grow in value, being near the beach.
Building another unit on the block would be a good option if it is doable.
You can do lease options in SA if structured correctly.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Keep it! You seem to be able to afford $100 a week, so don’t panic. Clear your head of all this must be cashflow positive or else rubbish.
CF+ has a place in investing in real estate but it is not the be all and end all. Investing in real estate is still about the basics like location, development, proximity to services, potential for growth, returns.
Do yourself a favour (if you haven’t already) and read books by many different authors – build a well rounded knowledge base, rather than relying on a single investing idea that by default pushes you towards the lower end of the spectrum.
A.
nathan,
You owe 180k on it, so you’d hardly sell it for 180k- why start over when you’ve just begun?
Beachside property- might be some chance of CG there over a few years. If I was you I’d buy and hold, and wait until the next cycle. Until then, you can maybe do some improvements for the tenants and get some more rent, and add some money into your mortgage to reduce the debt- then you’ll feel like the burden isn’t so big
Remember, values are falling- and selling under 12 months means any CG you get will be eaten up by CGT.
The next few properties can be CF+.. you might have to let this one go for growth!
kay henry
$100 per week? Are you sure? That sounds like a lot of money for that price of property.. I pay a lot less than that on some of my properties purchased for $340K (fully financed).
Have you got a QS report?
Just because you have now read one book and come to this site, doesn’t mean that you have to completely change strategy. there must have been reasons you bought the place. If they don’t stack up now it’s a bit different, but I wouldn’t sell, cos then you would be out of pocket.
Cheers
MelOriginally posted by melbear:Have you got a QS report?
Good idea Mel. If you hold on to it
Another angle:
If you sell for what it has cost you ..you have at least gained a new experience.
And do you think you could possibly buy the same property in 12 months time for 10-20%less whilst saving a bigger deposit?
mel
we purchased the property with 100% plus costs using my mum as guarantor, meaning it cost $180,000 all up ($172,000 for the house + $8,000 for the purchase costs).
being that the loan is for $180,000 at 6.95%, the mortgage repayments alone are $295/week. on top of that, iwe put in an extra $60/week to cover insurance, rates, property management and repairs/maintenance.
as the house is in south australia, we cannot do a wrap (as it is illegal in sth oz), but could look at doing a lease option. the current tenant of 3 1/2 years is paying $165/week in rent, meaning we need to come up with$190/week to pick up the shortfall. after tax deductions have been taken into account, the house costs us approx. $100/week. expensive.
with a lease option, i was looking at an option deposit of $4500 (2.5%) with a price of $230,000 to be exercised within 25 years, and increasing the “rent” to approx. $330/week. as this is a big step up from $165/week, i am not sure if the current tenant would be interested. although, they have indicated to us that the reason why they are on a periodic lease (month by month) is because they are waiting on an insurance payout-of what size i do not know-and would be looking to buy their own house from this payout). maybe this is my ticket in? don’t know, haven’t asked. reading some of the other forumtopics, i se thast some investors are getting these kinds of weekly rent returns, so maybe it is quite feasable.
additionally, this would then only bring us up to nearly even on a weekly basis, so as not to produce a cash flow positive situation and relieve the weekly financial burden on ourselves! bummer!
as for the books, steve’s book is one of many different books i have read regarding proiperty investing, including Margaret Lomas, Anita Bell, Dolf De Roos, all having different methods of investing. but i guess it is up to the individual investor to make their own style of investing.
if you have any thoughts on my scenario above , then please do tell.
thanks,
nathan [happy3]hi, a lot of tenants faced with $165/wk vs $330/wk will stick with $165/wk as it will only take them 53 weeks to save a 5% deposit of $175 000 ($230k????)(given the blatant rip off as described) and therefore purchase the property themselves thru a normal bank at normal rates for a purchase price representative of true market value, thus saving themselves significant monies this year, and the many thereafter.
cheers brahms
Drink coffee with the smart ones…
your post was titled ‘what do you do?
if you have purchased this a an investment then sit and hold.
does zoning support dual occupancy or is this something to ask Santi about in 6mths time?
can you see the beach? what was it about this property that made you buy it? if the answers are substantial, keep it, if not, sell it and surf.
Cheers brahms
Hi Nathan,
In addition to Mel’s suggestion about a Depreciation report have you considered completing a PAYG Income TAx Variation (if appropriate) as a means of reducing the impact of the cashflow situation?
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
As others have already stated you heven’t necessarily bought a lemon so why sell? The real gains in property are from the long term investment in quality assets. If I were in your situation I would try to maximise my present situation as much as possible witn the aim of 1. Incresing my cashflow, and 2. Increasing my equity.
Increasing cashflow may be achieved by:
– changing the loan to interest only (this would save you about $50 per week)
– increasing your rent. Are the tenants paying market rent? What are comparable properties renting for? You said that they are on a periodic tenancy. Maybe you could (depending on rental demand in this area) remove the tenants (or leave them in place) and do some minor renovations, ie. paint, gardening, general tidying etc. This alone may increase the rent by $ 20 to $50 per week.
Increasing your equity may be achieved by:
-pumping in more money to pay down the loan
-renovating/improving the property (will result also in an increase in rent)
– developing the property. Why wait to develop? It seems that you have a number of options. You could have plans drawn up (and approved)for an additional dwelling and the subdivision completed. You could then sell the back land with plans pay and down your loan.Then your house maybe CF+. You could even do it the other way around. Many other issues will obviously become important here also.The most efficient thing to would be to do all of the above, ie interst only loan, renovate the front house, have plans drawn up (& approved) for the back etc,etc….. Actually it sounds like you are sitting on a gold mine.
Your situation reminds me of myself many years ago(mid 1990’s) when I bought my first property. It was a studio apartment in an inner Melbourne. At the time I had no clues as to what I was doing except that it was a good idea at the time.It cost $70,000. It was just refurbished (the block and the apartment). It rented for $130 per week. It produced + cf of about $20 per month. Then I went to a seminar and the speaker advised that studio apartments were bad investments…”they were too small and produced no CG”…so I sold it ….for $70,000. ie at a loss due to costs etc.
About 5 years later the same studio sold for $140,000 (rented at $140pw). I felt like a bit of a goose. The moral of the story is……..TIMING
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