I am relatively new to the property investing game. I read Steve’s book and it has totally changed my perspective on property investing. You could even say it is starting to change my life with me spending more time looking for +ve CF properties.
However, I already own a -ve geared IP that I bought about 6 months ago. Its an apartment in Sth Yarra (MEL) and it is bleeding me of a few hundred dollars a month.
Given the current sad state of the Melbourne RE market, should I bite the bullet and sell it at a loss ?
Or should I keep it, fork out the extra dough every month and pray for capital gains to cover my losses in the long run ?
Thanks for the help gurus !
Hi bennido,
Many may disagree with me, but what the heck!!!
My opinion: HOLD
I know the Melbourne RE market only too well at the moment, I live in it too!! [glum2] But South Yarra is an affluent area and will always be worth a bit, and in better times it will pay off.
Jo
I too would hold.
You should always hold property for a min of 5 years.
If your earning other income and on a hig tax rate the loss is only half.
You have to start somewhere, and I would rather have a unit in Sth Yarra that is costing me a few $100 a month than a house in Moe giving me $1000 a year.
In my opinion in the longer run you are better off buying quality properties like the stuff in Sth Yarra than in regional/rural towns.
I would hold.
If you contemplate selling and buying a pos cashflow property you must factor in the selling costs, CGT and the buying costs + the time spent doing this.
Add these figures to the cost of the pos geared property and it will make it negative I bet!!
By all means look for another property to add to your portfolio – perhaps overall you will be neutrally or even pos geared.
All the best,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi Bennido,
Nonetheless I am in the hold camp too provided that you do have the capacity to service the shortfall long term – if you don’t then I would only consider selling after the 1 year and a day time line for the 50% CGT discount has elapsed.
In the interim you may want to consider (if you haven’t already done so) the following strategies to maximise your cashflow; convert loan to interest only, ensure you have a depreciation report done by a quantity surveyor and submit a section 15.15 PAYG tax withholding variation to reduce your pay period taxation.
Collectively these three strategies could make significant inroads into that shortfall.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
bennido,
Most new or newish apartments will be negatively geared, but you would have known that when you bought it, right? As long as the area you’ve bought in is not over-supplied, you should be ok. Depends on how much you bought it for, I guess. I think hugely exxy apartments that are indistinguishable from the many others in the building re not a good investment, personally. But you’ll no doubt lose more mnoney if you sell now than if you keep it, so keeping it is really the only option.
bennido, I’m wondering why you bought a place 6 months ago, and are already thinking about selling. Were you told you could flip the property for CG? Generally, RE is a long-term affair. You can’t buy an expensive property 6 months ago and sell it now for great CG- and the tax laws ensure that anyway.
If your property is in a small block, has a view, if the area hasn’t been over-developed, if your apartment has outstanding features, then you’ll probably do well. Otherwise, just use it to tax advantage as Derek has suggested, and chuck money into it to increase equity. You might want to also get an independent valuation of it, or check out what others like it are resaling for, to get a true idea of your financial situation.
kay henry
Hi Bennido,
I was under the impression that you were “new” not the apartment. I’m curious to know, is it a new or newish apartment? South Yarra is a relatively well established area and I didn’t think that there were any “new” sites being constructed. However, times have changed, and if this is the case, and it is new(ish), then all the more reason to “hold” it for a bit longer as the area is always under great demand, and especially newer (assumingly) more modern buildings will attract a better/larger market in the future (or even the present depending on other criteria)!!
Jo
Wow ! Thanks everyone for the quick responses !
The apartment is not new by any means. My guess is that it was built in the 70s or early 80s (I think). I have been trying to get hold of documents relating to the cost of contructing the building so I can claim my share of the building depreciation. But so far no luck.
I bought the apartment before I read Steve’s book so I guess I was “suckered” and went with the crowd on the -ve gearing hype. Thankfully, I have a very stable tenant thus far.
The reason I raised this topic is because I was wondering would I be better off selling the apartment and using that few hundred dollars towards a +ve cashflow property instead.
Again thanks for everyone’s advice !
Originally posted by bennido:The apartment is not new by any means. My guess is that it was built in the 70s or early 80s (I think). I have been trying to get hold of documents relating to the cost of contructing the building so I can claim my share of the building depreciation. But so far no luck.
Hi Bennido,
Given the property is built before 18th July 1985 you will not have any building depreciation available to you apart from any major renovations done post 1992.
You will however have available some depreciable claims for plant and equipment which could still be sizable depending upon the individual property.
Ultimately buy or sell has got to be your decision. To me a sale after 6 months will see you lose too much in selling and tax – and if selling is right wait the 12 months to minimise CGT.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
As far as I know, bennido, one can only claim building depreciation for properties built post 1985.
Having a depreciation schedule done might still be worth it if there have been renovations done recently.
Celivia
Originally posted by bennido:I bought the apartment before I read Steve’s book so I guess I was “suckered” and went with the crowd on the -ve gearing hype. Thankfully, I have a very stable tenant thus far.
Bennido,
I don’t think Steve or anyone here would agree that you were “suckered” into the wrong way of investing. There are advantages and disadvantages on both sides of the poz/neg gearing fence.
The key is in getting to where you want to go, and judging by the fact that you have purchased in a very valuable area, and have a “stable tenant” how can all this be a bad thing?? The only way I can see it, is if you borrowed beyond your means, but then that isn’t about they type of property investing, it’s plainly about servicability!!
Furthermore, whether you hold or sell is your decision, but if you sell prior to owning the IP for at least a year, you will have to foot the full 100% CGT bill; and with all this combined, I’d imagine, property investing will not appeal in future. Think carefully before you act!!
Personally, I’d have bought the one apartment in South Yarra over numerous +CF IPs in regional / rural Vic anyday!!! Of course it would have been neg geared, anyone who thinks they can buy a +CF IP in Sth Yarra (unless they have a couple of spare hundred thousand lying about idle) is IMO dellusion!!!
I total agree with holding on at least the 1 yr to minimise CGT and if I do sell the apmt it will be after that period has elapsed.
I guess I’m a bit demoralised by how -ve geared it is and the effort that it will take to convert it to +ve geared.
I did some quick calcs and I would need to pump about $100K into the investment loan before the apmt becomes +ve geared ! In addition capital gains for apartments in Sth Yarra over the past 5 years have only gone up around 10%-20% I think.
I think my situation is quite common to many people who have picked up Steve’s book. Hope this topic helps people who have bought a couple of properties -vely geared, and are wondering how to restructure their portfolio to +ve geared.
Meriton has built a number of new unit blocks in south yarra- oh dear.
Bennido, a 70’s or 80’s block can have their own difficulties. Not quite art deco, and not quite euro appliances. The 70’s-80’s apartment blocks can suffer post-boom- there’s quite a goo9d article in a fairly recent API about these, and there’s been some articles you can look up in google.com.au about them too.
I wouldn’t worry too much about it- just keep it, and relax, and if you want to go the pozz gearing route, then adjust your finances accordingly. Many positive gearers on this board have a neg geared property or two in their portfolio.
kay henry
Originally posted by kay henry:Meriton has built a number of new unit blocks in south yarra- oh dear.
Oh dear, I think you’re mistaken there – No, THEY didn’t!!!
Nonetheless, Bennido has clarified it’s not new, but the real issue of concern for him is the CG in the area and his financial standing, not the age of the building. Aside from his querying the probability of some depreciation, the reason I queried the apartment’s age was because if it was new, then it would hold greater value.
Hi all,
Most of you know that we are Steve & Dave’s converted “ony ever buy pos. cashflow property” types…[baaa]
Well Bennido, if I were you, I would definately hang on to this property. (as long as you are not getting into financial difficulty over it)…
The stamp duty & loan costs, added with agent’s selling costs etc. will be a hefty loss. Especially to sell before the 12 months.
Hang on to it for a while, otherwise it’s a costly lesson.
Good luck,
Del
Buying a pos + cash flow property should be of no further burden to you as it is positive cash flow.
So hold on to the 1 you have and start looking for the pos property. Even more so now buyers are more motivated to sell.Hi Bennido,
Just my $0.02, I agree with the comments made, mostly. Especially the strategies given to minimise the weekly cash drain.
We don’t know your investment strategy so it’s a little hard to tell what your goal was when you bought the flat but I gather (since it was pre-Steve) that you thought the negative cashflow would somehow be paid off in the future with a rise in the apartment’s value.
If this was the reason, guess what, that’s exactly what my first IP investment was based on so you’re not on your own there. It was before I read Steve’s books and educated myself more.
The first year our apartment was positvely geared (ie it put money into our pocket after tax) but now it is neutral-geared and will head into negative geared next year as the depreciation claims reduce.
Once I realised that forking out money every week may not be a good strategy and any possible capital gains was:
1. entirely speculative (even though there are many factors I identified in my research pre-sale to support excellent capital growth in this area)and
2. eroded by the amount of negative cash flow I’d have to sustain over the years and
3. you can’t re-invest negative cash flow and you can’t pay your bills with a paper capital gain, IF it happensthen I decided to lease-option it early next year just before it goes negative CF. This will put it back into positive cash flow and secure the potential for capital gain at the same time.
It’s one option you might like to research to see if it suits you.
I wouldn’t hold on to your flat and do nothing. The “buy, hold and pray” strategy is too risky and you could find your situation getting worse and worse over item if the falt’s value goes nowhere. But like me and everyone else, you don’t want to sell and take a loss – who would? So that’s why I am lease-optioning ours – I’ll make a profit.
Decide what’s right for you.
Cheers
skippygirl
)Skippygirl, your assumptions are spot on and its nice to know of someone who have started the same way I have (though mine is -ve geared from day 1).
Yes I am considering the lease-option strategy as depicted in Steve’s book. I am in the process of doing research on it as it seems to be simpler than wraps. Its still a big step to me as I am a simple investor and I’ll probably need to find a solicitor who can draw up good lease option contracts.
I am a simple man who is just embarking on a long journey as a serious property investor. I am learning a lot of things on the way especially from books like Steve’s and through active forums with amazing people.
Thanks again for the feedback everyone !
Bennido
I think you’ll find many of us are just simple folk, trying to learn as much as we can too. I’ve been on the Forum for 9 months, but I make sure I read as many posts as I can- even if they don’t seem relevant to me today- they may tomorrow.
Best of luck with it all, and I don’t know the figures, but you can bet a lot of us started off with neg properties, and we’re doing ok- whether we decidec to stay neg, or go for positively geared properties
RE is a game of patience really. but it’s fun kay henry
If it is an older flat, could you get in there and renovate.? You may increase the rent you can get and also build some equity to jump-start some pos cash props.
Best of luck.[cowboy2]
lifexperience
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