Hi Guys,
Well I made my first investment at the Peak if the property Boom back in September 2003 and have been in a heavily negativly geared situation since. Also with prices coming off the boil I was unfortunate enough to have purchased a property that has dropped in value by around 90 – 100 thousand dollars (OUCH!) I don’t have any intensions of selling at this stage but I am looking for ways to improve the situation. Should I hold for a shorter term (ie 2- 3 years and take a smaller loss) or continue on in the hope that I may see a gain within my lifetime??? The property was a new apartment on the fringe of the Melbourne CBD. Any ideas would be greatly appreciated![confused2]Definitely hold if you can afford to. You will one day look back, holding a substantial capital gain, and wonder what you were worried about. I bought a house in 1990 for $84,500 and it immediately began to fall in value. I thought it would never recover, let alone give me a capital gain. I would ask my agent every few months what it was worth. It got as low as $65,000, that’s about a 23% loss. Eventually, in 1999 it went above my purchase price and I quickly sold it for $90,000. I was elated. In 2005, it resold for about $220,000. I also sold a block of land in Rye for $30,000 in 2000 and its now worth about $150,000. Anyway, I now have 3 IPs bringing in great rent (and by the way rents are rising substantially), and I’m not going to make the mistake again about worrying about capital growth and thinking its never going to come.
It depends on how much it is costing you to hold. Is it a drain on your finances or are you getting a good rent return on it? There are better areas to invest if you are looking for capital growth but you are going to lose quite a bit of money by getting out and getting back in again. It would pay to carefully crunch the numbers on this one before making a decision.
Also take into account that three years is not a lot of time in the property cycle and it sounds like you just bought around the peak so if you can afford to wait it out you will probably reap good rewards once the cycle turns to the peak again. If you buy in the peak it just takes longer to get back to the peak again rather than if you bought at the bottom of the market or the start of the rise.
My first IP cost $85K. Ten years later I had it valued at $120K. I was disapointed that it had not doubled in value and I thought that I must have bought in the wrong area, so I sold it. Two years later the same property had tripled in value and was worth around $255K. I was really wishing I had held on to it then. But I counted it as a learning experience and have been able to create a great portfolio of buy and hold properties now because I am set up and prepared to ride the property cycle for the long term
Hope this helps..
Todd Burns
http://www.freepropertyhelp.com.auIf you mind me asking where abouts is the property? Dont have to be specific but town?
Hold on if you can. Should you decide to sell, think about the tax implications as well. It’s going to be a capital loss which can only be offset against a capital gains. That means it’s going to be years before you can recoup your losses. Seen in that context, you may be better off to continue to negative gear the property rather than selling it.
Property investment is long term. You’ve gone through a couple of years already. Looks like you’re doing ok so far. So hang in there.
trueblue
hi there, I know exactly how you feel, we did the same thing, and the property has dropped upto 20% in value, a real killer blow! We are not alone. We are unsure what option to take, although most opinions point towards the “hold” option, if you can afford to maintain the property. I am confident it will turn around, but in what timeframe? I think maybe a minimum 4-5 years…though who knows. Keeping a positive attitude is essential.
OK i’ll be different,
SELL now for as much as you can, give the property a face lift to get the max dollars back.
OK you have a tax loss which can be off set against a capitol gain.
Go find a decent investment for a bargin price, do a cosmetic renovation and sell for a profit.
Claim you previous loss against the profit and move on to the next deal.
Kerry Packer was the king of this, not all deals are winners so he took the loss and moved on, it’s just property and bad luck, its a game of life .
The secret of the rich is what they do when they do it, now you have some experience – welcome to our world, we have lost plenty of thimes its just that we win more is the reason why we are in front,
Good luck ….. D
Get rid of it and Invest here in Western Australia where you will make your money back quicker.
Greenhorn,
Hang in there. From experience I know how tough it is now, but in years to come you will look back and see that holding is the right move. As you can see from other forum contributors, the asset looked as if it would never improve, then suddenly takes off like a rocket. Rents are increasing, building costs continue to rise………
At this point in time, selling at a massive loss could create a dead weight of a debt ($100k ?) that could hold you back in the future.
What could you possibly gain by selling at a loss and retaining a debt?Perhaps the greatest profit you could possibly make is the learning/experience/knowledge from this investment.(I bet you know how to spot the peak of a property boom now !!)I know from my experience buying my 1st property, today I look back at it with great merriment. At the time it was bleak, but I learnt and I now know how to make every deal a winner and know how to look before I leap.
JTWHello Greenhorn
$100k ouch!! indeed. [glum]
They built so many appartments around Melb. CBD that the oversupply also helped to drop the price unfortunatly. However, I think there will come a time when these properties will experience good capital growth. It may take some time though.
Personally I would not sell but would look for ways to try to increase the income. I don’t know how many bedrooms it has or what you are getting as rental, but have you thought about turning it into student accommodation for example. There are plenty of overseas students studying in and around the city looking for furnished rooms I think. You could maybe also turn some of the living area into a bedroom or even 2 dependiong on the size. Also depends on how many bathrooms you have. I think 1 bathroom with seperate toilet is good for 3 rooms. Naturally a room with ensuite rents for more.
RMIT has a departments to help OS students find accommodation. Maybe talk to them and find out what the needs are and what the rental per room is etc.
Here is a link to RMIT to get your search started.
http://www.rmit.edu.au/browse;ID=wm0mg88wcg4y;STATUS=A?QRY=accommodation&STYPE=ENTIRE
The other end of the scale is OS executive accommodation but I belive only some buildings are popular for that and you are expected to have it furnished to a very high standard.
Good luck
Elka
OK Guys, Thanks for all your feedback Its great to hear I’m not alone. The property is located in West Melbourne and it’s a 2 Bedroom (1 & a study) Purchased for around $395000.00 I would discribe it as an executive style complex. We’re currenty getting about 325.00pw for it. (from what I can tell that seems to be pretty good for the current climate) The complex has about 58 apartments and includes a gym & lap pool.
We were unfortunate that when we purchased the property (off the plan) we found out that we we were also liable for stamp duty. another 18,000.00. (Agent had not told us about this, not sure if we could sue them for the mis information, however I chalked it up to buyer beware) so that’s why we’d be faced with the large loss if we chose to sell now. I am obviosly keen to hold for as long as I can and see what happens. my accountant feels the same way and we should watch closely tghe costs vs gains over the next few years. looks like it will take around 5 years to get back to where we started! If thats the case then I ok with waiting it out. I have spoken with a few “specialists” and they seem to thin I should be looking for another property within the next 12 months to help counter act the heavey loss.
Thanks again for all your help!!!
[blush2]
Drew
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