Hi there,
Would like some advice if possible about how to get ahead in a situation that isnt going anywhere. I have a house on the Central Coast NSW, which i bought a few years ago for 525K and its worth possibky 580-600K now. I still owe 510K and only get $320 wk rent so you can see its not a good situation. I could probably get $350wk after July as most rent in the area has gone up, but still…Im heavily out of pocket each month. I have freed up some debt by selling our Unit recently but that will only knock 40K off the above loan.
I investigated sub-dividing as the house is on the bottom half of the block on close to the water and the rest of the block is just bush, but the block is too small, being 1100m/sq and needing 1600m/sq apparently because it is on a slope down to the water.
Looking for some ideas. I thought perhaps building something on the top half and strata the block, which would have very nice views, but i dont have much capital. Im leaning towards cutting my losses and selling up and starting again, as suggested in Steve’s presentation. Any ideas appreciated.
Thanks,
Steve
Hi steve,
With such high repayments and low rent you should be able to receive fairly high tax rebates for the cost of the house. See your accountant and make sure that this is all in place. Make sure they know what a quantity surveyor is and how they can be used. You can also apply to receive your tax refund weekly not anually. Again talk to your accountant. Unfortunately with houses with very low rental yeild it takes a long time for it not to cost a lot to hold the place. Also check the resale value of the home it may surprise you when you come to sell it.
Check with your real estate agent to see how the market for rent is and if raising it is an option. This seems very low for the value of the home. This will be a small help.Check the health of your loan – ie do you have a loan offset facility? If so, park the $40k in the offset to reduce the interest payable and repayments will have more effect against the principal it this is a P+I loan. You may then be able to redraw this money for other purposes.
If you don't have an offset, it may be worth refinancing to achieve this outcome.
Hi Steve,
Several tips for you.
1. The housing cycle in Sydney is at the bottom (I believe), so now is probably the worst time to sell, when in a years time, you may have a decent capital gain, if you wanted to sell then.
2. Make sure your loan is Interest Only – that will reduce your monthly repayments
3. If you don't have a mortgage offset account, see if you can set one up and have the rent paid into that.
4. You could also ask for the rent to be paid into your account weekly/fortnightly rather than monthly, this will reduce the interest you have to pay.
5. Get a Quantity surveyor to do a depreciation schedule for you. I believe that you can claim up to 4 years of depreciation in one go if you haven't been doing it in the past.
6. Download a form from the ATO website – (NAT 2036) "2008 PAYG income tax withholding variation application" – this will allow you to get your tax refunded monthly rather than a lump sum in July/August when you do your normal tax return.
7. The old Navy ship HMAS Adelaide is going to be sunk off Terrigal in 2008/early 2009 as a dive wreck, so this should bring a lot more tourism to the area, as well as potential buyers, and may help increase the value of your property.Hope those suggestions help.
cheers
mikemikeking wrote:Hi Steve,Several tips for you.
1. The housing cycle in Sydney is at the bottom (I believe), so now is probably the worst time to sell, when in a years time, you may have a decent capital gain, if you wanted to sell then.lol yeap things are only gunna get better from here…….inflation and increasing interest rates and the threat of a worldwide recession and garaunteed to boost up the prices…..
I appreciate all the advice. Thanks very much!!!
Yes we do have an offset account that we plonk our spare (not much) cash.
5. Get a Quantity surveyor to do a depreciation schedule for you. I believe that you can claim up to 4 years of depreciation in one go if you haven't been doing it in the past.How does this work?
How does this work? 'Depreciation schedule' ? It isnt a new building if that is what is suggested…???I guess its hard to see the big picture when I feel Im broke most weeks, and certainly cant investigate any other Real Estate investing ideas Ive learn't about since. Still….sound's like holding on for a year or two would be best.
Thanks again.
SteveHi Steve,
Property only has to be less than 20 years old to claim depreciation on the building. But for any property you can claim depreciation on items inside the property such as the water heater, curtains, blinds, carpet, oven, light fittings. The ATO has a list of over 1400 items that you can claim depreciation on.
I don't propose to be an expert, so its best to speak to a quantity surveyor, who can help you better than I can. The cost of the quantity surveyor is tax deductible too. I've received a flyer (which I now can't find), and the estimated cost was around $500.
cheers
mikeHi
the property doesnt have to be new to be able to claim depreciation. A quantity surveyor will establish the construction cost of the house in money of the day (note: for an established place this is not the purchase price). This cost is then spread over the nominal life of the structure (I think this is 40 years but not sure). You can then claim this annual amount as a deduction along with expenses. If you have done renovations or replacements to things like heaters/stove/aircon you can also add these and depreciate these at a faster rate. I beleive the ATO has a recommended depreciation rate published on their web site. Sounds from your questions that you really should talk with an accountant versed in real estate investment….may cost a few hundred but should make your life easier.
best of luck, another Steve
Hi Steve
Unless you are in a bad position re cashflow I'd hold on to this property. Sure, you probably bought it at the wrong time but I'm looking at Central Coast now and I am starting to get a bit more positive on the outlook for growth.
If you sell now you'll also burn a lot of cost on fees to agents etc – and lets face it who wants to feed those parasites.
Good luck
Its very interesting reading about this situation..
Maybe you should look at this property in line with your long term plan how is this property helping you grow your portfolio? If it isnt maybe you should get rid of it and use what you learnt to buy the next property.
OR
IS there something you can do to improve its rental yield that would make it either CF+ or CF neutral… I do not think relying on capital gains in coming years is the safest strategy.
Sean
You investigated subdivision, but would they allow adding a second house without subdivision, or a large extension hint hint
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