TRAPPED BY NEGATIVE GEARING

hey,

i was in a similar position myself, still kind of am actually, but you should hold on to it. Im assuming that if you sold, you would make a loss, plus selling is not a fun experience unless were in a boom!
Maybe if your certain that you wouldnt make a loss on one of them, just sell one of them to ease your burden. But only if your sure you wont make a loss. that loss could set back your goals much further.
As someone said to me when i asked for similar advice, property is a long term asset. If you can hold onto it, you will realise your gains eventually, and it wil be worth it.

Maybe to ease things up a bit, you should look at some creative investing. Speak to dr. x she will inform you about lease options or wrapping. Maybe do that to one of them, or try flipping some properties to make some cash to inject into the properties to ease the repayments.
I know its tough, but your much better holding onto them if you can.
Good luck

I’d recommend you sell at least one of them using a creative strategy like vendor finance, or a second mortgage carry back.

Selling a property is NOT a sin. Even selling at a loss is sometimes worthwhile. If you were running a business and it was going broke ’cause you didn’t have any cash-FLOW, you’d cut costs to increase cashflow. The same is true for individuals.

In this case, your negative equity is not very much, so you should be able to structure it so you don’t lose any money AND you actually turn your weekly losses into positive cashflow.

I’m in Sydney, but I can help you with some of this if someone closer to home doesn’t respond.

Send me an email (via my profile) and I’ll give you a call.

Good on you for actually asking for advice. It’s great to see someone getting that advice BEFORE they have problems!

Regards,

Craig.

_______________________________________
Ask me about Joint Ventures earning 15+% COCR.

Only you can answer that one James based on your cashflows. From where I sit, it looks pretty easy. Just compare yourself to the next chap down the road who is renting for $ 300 p.w. (you wouldn’t get a really flash house for that type of rent).

So, he’s sitting there paying that amount enjoying his “lifestyle”, with nothing to do and little responsibility. You on the other hand have heaps of responsibility, controlling $ 1.35 MM worth of dirt.

That dirt needs to go up by 15.6 / 1350 = 1.15% pa. for you to “break even”. Capital gain = negative cash flow.

As I said, from where I am sitting, the decision is simple. If your expectation of capital growth is more than 1.2% p.a. you should hold and reap the benefits of property ownership. This is in essence, how people get wealthy playing this game (i.e. crank the numbers up to a level where even a small appreciation rate pushes you forwards).

Frankly, if you bought in an area that over the next 10 years is expected to produce gains of less than 1.2% p.a., your due diligence methods need sharpening up.

If the portfolio goes up by a pretty measly…..say 4% p.a…..your capital growth is 54K, for an outlay of 15.6K…..not too shabby for a measly 4%. Sit and wait until you score a 15 or 20% year…..you only need one every once in a while for “life changing” numbers to start appearing.

James, I think you are onto a winner and should hold onto your entire portfolio if your cashflows allow it. Remember, the guy across the road can afford to pay his rent and gets nothing. You pay the same amount and get bucket loads back.

Speaking to older, wealthier and more grumpy property investors, once you’ve obtained a sizeable portfolio, apparently the best course of action is “do nothing”. Also take the most staid boring route…..it’s usually the best.

Good luck with your choices.

hi just sat through a pitch for a similar strategy this morning ,the guy?/really big company wants me to take ALL the equity out of my house buy a brand new renter (house not unit, so he gets one tick ) in another city(x) ,all the rent plus my current payments go into my house(paying it off in record time ) while i seem to borrow the intrest payments against the investment,and i seem to be doing this while it is being built ,he exclusivly monitors my figures and rings me when i can afford another property etc
my current investment property and strategy (i had three )were ignored
i really like my equity( to me owning the house i live in is the whole point of the exercise ) and after reading how you feel now
i am walking

if i was in your shoes id grit my teeth and hang on. have a garage sale, deliver pizzas for two months and build a buffer ,sounds like right now a few grand would make all the difference to your point of view, in five years it’ll be the change in your ash tray
good luck

Hi
I am not a hugely experienced property investor at all, but here is my take on your situation.
You said your aim (or the advisor you spoke to said, and you believed) was for the properties to double in value over about a 10 year period. Why have you thought about changing strategy??
If that is the strategy you went in with, and you thought about the strategy and you and your partner agreed it was sound, why try and bail after only 3 years? It is thinking like that that sends people to the cleaner in property investing – buying at the top of the market with a view to hold long term, then selling because in 3 years they havent acheived the results they were initially expecting in 10!!
If what you say is correct, and you are paying 300 per week for 3 investment properties AND your PPOR, I think you are on easy street! my PPOR mortgage repayment alone is higher than that!
What about the option (and you need to investigate if this is something you want to do) of getting a line of credit and funding say half of your weekly shortfall on the line of credit.
I am unsure what due diligence you did when you purchased the properties but if you are reasonably confident with your capital growth strategy, over the long term the growth you get from holding your properties will far outweigh that of the build up on the line of credit. Just an option.
Having said that you should have probably known what your cashflow situation was going to be like before you purchased the properties, and if you struggle to afford $300 per week for a PPOR + 3 rental properties, maybe you should look at your budgeting methods. Most people pay around $250 in rent anyway, so essentially i gather you are saying you hold approximately $1 million of property for $50 per week?
I think you are a pretty reasonable position, dont get so stressed about it, if you are worried about rate rises (which you should think about BEFORE you get your loan) then fix some of the variable amount now before another rise kicks in.
Just stick to your plan for the 10 years you planned to do so, and in 10 years you will laugh at an amount of $300 per week!
Hope this helps with a bit of perspective
All the best

James, what about getting a new job with a payrise which will help to fund the large amount of debt. Not sure what profession you are in, but moving jobs is an easy way to get a payrise quickly.

There will be another boom.

Will you look back and wish you had retained the properties and slogged away at the repayments?

Will you be pleased that you had freed up the capital to invest elsewhere?

Noone can answer this but you.

Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985

Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

By that logic, somebody buying in Melbourne in 1989 for $184k would have made money selling in 1999 for $243k (REIV medians) would have made money? $114k in rent (ABS 3br Melb), $216k in interest costs, plus rates, maintanance, insurance, PM fees…

Sorry but can’t help myself. When was the last time Australia had a 7 year property cycle.

Terry