Definitely Help Needed. I have learnt a lot, and respect the opinions in this forum and other books I’ve read, and feel myself and wife had just begun our real estate journey. But, have already hit a huge stumbling block. I’m going to be as open as I can and describe our situation in hope some expert advice can be offered.
Purchase/ Finance History:
In 2001 myself and wife moved to the UK from Australia. While renting in the UK in 2002 we put a deposit on an “off the plan” apartment in Southbank with a 6% rental guarantee, to be completed Dec 2004. Nov 2003 we moved back to Melbourne and after a brief stay with the parents, found a small unit in St Kilda with potential that we purchased for $235,000 and renovate to add value, and then occupied in early 2004. This worked out well. The end of 2004 came and we settled on the now completed, “off the plan” Southbank apartment as an IP for $450,000, made possible with a little cash and refinancing of our St Kilda property which was now valued at $310,000 due to the renovations. The Southbank IP currently returns 5% of purchase price. We thought our renovation exercise had gone well, so now (mid 2005) we decided to sell our current owner/occupy (St Kilda) and try to repeat the process. We put our place on the market, and in the mean time made an offer on another unrenovated small unit in St Kilda for $230,000. The offer was accepted with conditions of finance. During the process of financing, a valuation of the Southbank IP came back as $340,000! ($110,000 less than purchase price 6 months ago!) This meant finance for another place was not an option and our broker advised us to pull out of the deal, which is what we have decided to do, and have now communicated that to the selling agent. Our current St Kilda unit is still on the market for a fair price.My question is, what do I do now? (or what would you do now?) The IP seeming paper loss of over $100,000 has shaken me. I don’t want to even contemplate what would happen if my wife lost her steady job.
Do we take a big gulp, hold onto the IP for the long term, sell our current place and try to renovate another unit? Do I approach the Southbank developer and demand answers or take action against them? or do we drop all hopes of real estate success and go sell pineapples on an island?
Sorry for the long post, but thought it pertinent to receive any good measured advice.
Whenever you buy a new property you are paying developers profits. If you purchased through a marketing company then you were also paying $25,000 to $30,000 in commission. That said you should hang on. There isno point dropping $100,000. With the property in Southbank is there anything you could do to add value. Perhaps when the property is vacant you could offer white goods, air con whatever to increase the yields. In the medium to long term you will find the values will lift again. You stratagy for renos in Elwood and St Kilda is a good one.
Nigel Kibel
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I disagree with Nigel. I think the capital growth prospects for apartments in Melbourne city are bugger all and none for the foreseeable future (I’m talking many, many years here not 18 months.) Given the ongoing costs associated with holding this asset while it loses more value (in real terms, and perhaps even nominally), you may well be better off in the long term to be shot of it ASAP*.
Cheers, F.[cowboy2]
* This should be taken as general opinion, not specific advice. For qualified advice, speak to a qualified person.
Just curious, Rhett. Did you attend a seminar in London and buy that apartment? I know there was a group flogging Melbourne apartments at seminars over there. Quite a few expats bought them.
You’re probably as much a victim of the market as the developer. If the market was still booming, you may be sitting on a profit and be congratulating yourself on your cleverness. It’s no consolation, but we have lots of clients in a similar position to you. Some opt to hold, some are forced to sell. We had one client who had to settle on a few off the plan properties that were worth way less than the sale price. He had to sell his home. At least you aren’t being forced to sell.
Selling would mean you crystallize the loss, which is a bloody hard thing to do. At least the profit on the renovated flat will cover much of the loss. Which is great!
Holding it will be tough if you live in Melbourne because every time you see those buildings at Southback your stomach will churn. And they’re pretty hard to miss. More are being built, too, so supply is going to outweigh demand for some years.
Is moving back in with the parents for a while an option till you get back on your feet? The buy/renovate/sell strategy has worked for you, but be aware that it’s tougher to do it in the current market. Still worth a try, though. If you’ve done it once, you’ll know a few shortcuts.
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http://www.depreciator.com.auYes, I attended a seminar in London depreciator. Moving back in with the parents will only be a last resort after bankrupcy. I’m possibly thinking of completing another one or two renovations, consolidating, and then moving into the Southbank apartment. At least I’ll get to enjoy it while it’s not making any growth.
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