TRAPPED BY NEGATIVE GEARING

It all depends on how long you want to wait. I purchased a house in 1995 in Cranbourne $76,000 it is worth approx $170,000 today. I purchased another one in Cranbourne in 2000 for $100,000 and sold it in 2004 for $170,000 but the market was really hot then. Both started out negative geared. one of the properties is positively geared and the other was sold as I had a period of 6 years without income due to two infants and a university degree. So I worked out I could not afford the $100,000 loan and paid it out via sale and reduced the debt on the lower loan.
Once the growth suburb fills with more houses the price will slowly increase over time. But one thing to think about is East Link changing the infrastructure of the area as the traffic at the moment is really heavy into Cranbourne and the S.E. growth suburbs.The problem is that while similar new houses are created in the suburb you have to compete with the new houses. Scarcity creates the price increase. In 1995 the honey moon rate was 7.6% and my interest rate went to 10.5% in 1996 and I couldn't increase the rent. Only recently has the rent increased by 69% compared with what I could rent it at in 1996.
What I have noticed is the property values roughly grow at 7% p.a. Now what happens is the price flattens out for 3 to 4 years and then the price rises in year 5, year 6 & year 7 by more than 7% to rates of 33% in some suburbs. But it averages out over ten years to the rate average of 7% p/a.
.So when the market is hot the rates of growth are amazing but when it slows like it has at the moment the growth looks non existent over the short term 0- 4 years.
So your third property is worth 40,000 more than the debt so if you sold it you would make at least $20,000 depends on selling cost / commission then if owed more than 12 months you 1/2 the gain taxable so $10,000 will be taxed so $4000 lost in tax based on 40% marginal tax rate.
So you have $16,000 that you could use to drop the debt on the first loan plus an additional $120 a week to put in as an extra payment on the first loan or to put in an offset account linked to the first loan due to you no longer having to fund the third negative property. Plus some breathing space.

When you have a low growth environment a debt reducing strategy is prudent with the goal of getting the debt down to a level where you create a cash flow neutral or cash flow positive investment. Then the positively gear property helps you pay for the negatively geared property and the equity helps secure a future loan when the market changes. (this technique is in Steve's book called Pin wheeling)

While you have a high growth environment & low interest environment you can use a high debt, interest only & high negative gearing strategy more effectively.

Yes, this happened to me as well.  I had a property that did not go up in value for over 5 years so had to fund a reasonable shortfall during this time.  In fact, my rents also went down during that period so was stressed out constantly during that time.  I tried to sell but would have got $10,000 less than what I paid.  I decided to hang in by cutting back expenses and increasing my income.   It paid off and now after 15 years it has gone up by 250%. 

If you sell now you are going to incur a lot of fees.  Eventually the property cycle will turn, so if you can somehow hang in, it's going to be worth it. 

hey any chance you can increase the rent ?
that could ease the pressure a bit

Sounds like your'e headed for big trouble. I would suggest you get rid of one or all before the market slumps.
You can always buy back cheaper in a few years if we hit another recession.

Hi, James, look at Dazzling's dazzling analysis. Wonderful application of numbers.

However, your 2003 purchase should have gone up 30% already. If you're worried sick, maybe sell one.

The numbers you quote [around $5000] per property are VERY NORMAL. Even way back in 1998, I needed about $4ooo to support each house until the last one I bought, the cheapest, that's slightly +ve gearing.

No growth in 2003-2008 means the original purchase was not fantastic. BUT MOST OF US MAKE HORRIBLE 1st purchases.
I myself am living walking proof of that. We learn & improve.

Good luck,
KY

Hi James, this is the first time ive replied and i guess that we have had similar feelings over the last 23 yrs we started buying in 1985 for 34,000 and kept house and moved in 1989 bought land for 26,000 built house for 102,000 sold 34,000 first place for 86,000 [kicking ourselves now "the imagine if we still had it, its worth now 250+] though at the time int rates were 15% at that time and we coulnt hold both and then sold new house and land in 1993 for 187,000 purchased land for 60,000 built house for 145,000 bought another house in 1995 for 36,000[ rent 165 ] sold new house and land in1997 for 284,000 and with 40,000 deposit purchased 180,000 10 ac block built a shed that is now our characteristic house for 15,000 its now worth 650,000 and we sold 36,000 home for 84,000 to buy 2 properties both cost 165,000 each to renovate  well one we spent 110,000 and the other 40,000 we sold ithe expensive reno in 2006 as it was costing us 9,500pa to hold as market was in decline we sold for 304,000 and made only 20,000 so then i looked for a better deal found house for 195,000 spent 8,000 [155rent]and was asked by people who i met while looking for this property could i buy house for them to rent and this was a commercial lease so knew of property that might siute paid 380,000 and rent 560pw on 3×3 lease now at this point we pay 200 pw to keep 3 ip's [950,000 value] and own our own property so we do have a loan maturing soon and we will do what we have always instinctivly done when needed needless to say we do regret selling but we always keep persisting to buy later when we can and hold as long as possible in our journey to wealth and knowledge

sooo well im first timer and ill try a full stop some where. in.the.future.thanks. for.the.encouragement…

The gist has always been purchase for CAPITAL GROWTH {Preferable} and secondary RETURN { yes its one or the other, The trade off } then to find both is okay, Our Ip"s FOUNDATIONS…….SOLID, "Its Totally CAPITOL" [ next time I must pay more attention with my punctuation after Midnight] Hmmmm!!!