Hi,
I bought an investment property 2.5 years ago that required a loan of $310k which i pay back as interest only. The previous owners stayed in it and rented it back but once they left i realised it needed some work so i had to loan another 12k to re-paint the entire house and re-carpet it all. So now a 322k loan.
Because prices have dropped here (south west of western australia) The house is probably only worth about 320k 2.5 years on.
After rent and tax savings i am probably outlaying 10k a year on it to make up the interest repayment difference.
So i have spent 20k of my own money and now have a house worth nothing more than the loan for it and real estates want 14k to sell it so i would be down 35k!. I dont know what to do, house rises in WA are predicited to be only 3% a year for the next 3 years.
Any advice would be very appreciated.Thanks,
Real Estate is a long term investment. But if your position has changed since purchase – then the only out maybe to sell at a loss sadly?
Have you considered a rent to buy option?
Regards,
MareeWhat is a rent to buy option?.
I know its long term but at 3% rise for the next 3 years it means i will have a house worth around$340k 5 years after i bought it up with loan for it of 322k, 15k for a real estate to sell it and i will have put 40-50k into it buy then.Hi there,
Can I ask what numbers did you crunch when you boughtthe investment, and what has changed for it to be a bad one? Had you factored on higher capital gains? How long had you planned to hold for?
As for what to do…well IMHO things are gunna get a whooooole lot worse before theyu get better. Talk of petrol being $2-just imagine the impact that alone will have yikes!!! Batten down that hatches shes gunna get bumpy. Sooo if you cant ride out 3-5 years of potential recessionary times sell now a minimise your losses…
I think the answer is simple. If you can afford to hold onto it then you should. There would be little point in selling it and then buying a new place as the transaction costs would be too high. But on the other hand if you will struggle to hold onto the property then you should consider selling. But Property should always be looked at in the 'long term' therefore I would definitely try to hold onto the property if possible.
Best of luck
Cheers
Banjo Smyth
Hi Chat2Howie,
I dont know where exactly you bought, but if you bought in the height of the WA boom, the you are basically gonna lose money whether you sell or keep it.
Dont worry though, you're not alone. Everyone who bought in other places (melb, bris etc) during the height of their respective booms are in the same boat.
Very interesting times are a comin'.What were your reasons to buy that IP ? What maths did you do , how did you intend to make money on the property if your rent is less than your payments ?
The idea was to pay interest only loan, rent would eventually go up to equal the interest payments (with the tax deductions) and the money would be made on the capital growth..assuming the average of around 8% capital growth was occuring, but im estimating it will be 8% capital growth total for about a 5-6 year period.
So yeah i can hold for long term, but are the losses that are being incurred now worth me doing so is the problem.
Thanks for the replies too.Hey there Howie. Lets not get too hasty about selling up. Interest only loan indicates that you have set up things for tax reasons. Have you had the property you bought assessed by an investment property depreciation specialist. I am not talking about negative gearing etc, but depreciation specialist. Let me know, regards Gerry
Hi, I am noooo expert on rent to buy – but it maybe a way to bring your property up to positive rather than negative.
Essentially, you can offer rent to buy to your existing tenant or advertise for one. The tenant pays above market rent to ensure their option to buy the property at x date in the future at a predetermined value. In addition to paying a higher rent an extra amount is also paid to start building up their deposit for the proposed settlement date. I believe rates and insurance is still the owners responsibility but all other expenses are borne by the occupant.
The occupant will start to improve the property and in turn this coupled with normal inflation will increase the property's worth.
Regards,
MareeGerryG wrote:Hey there Howie. Lets not get too hasty about selling up. Interest only loan indicates that you have set up things for tax reasons. Have you had the property you bought assessed by an investment property depreciation specialist. I am not talking about negative gearing etc, but depreciation specialist. Let me know, regards GerryHi Gerry,
The house is about 20 years old so not really worth depreciating.
I work for the dept of health here which has special salary packaging benefits for employees so i can salary package the entire amount of investment loan interest (rather than negative gear) so if investment loan interest is 20K for the year i basically get 20k tax free from my income, its a handy perk:) (but still leaves me paying out about $150-175 a week after costs)chat2howie
I have a 80yr old 60yr old and 120yr properties and i still get back substancial tax on depreciation, you cant generalise that its not worth depreciating becuase its 20yrs old, there is cutains, flooring, appliances any building work relating to maintainance, plant, fittings fixtures etc etc, you would be suprised what you can dig up for about $500 you can get a profession depreciation expert (rather than an accountant) to asess the property on site and this of course is tax deductable and if they cant find $500 in deductions then you dont pay, highly recommended.
Hi Howie.
Sorry your investment is not going as well as you'd like. Not always easy.
If you can find a better investment that will make money, rather than lose money, may be well advised to cut your losses and sell. We have a negatively geared property that we are selling at the moment, because it loses us money every year, and the sales price has gone back $50,000 in the last few years (Western Sydney).
Some other posts have been knocking the concept of paying for education in the property investing field. We have paid all up, maybe $15,000 so far. Ripped off? No, far from it. We made $176,000 profit last October from a property that we owned for 18 months. And it gave us $100 income per week, after paying the interest on 105% mortgage, while we owned it.
I would never have stumbled across this property without the education. I'm not that bright! I consider it money well spent.
The income from our positive cash flow properties saved me from having to work while my mother was dying.
I'm so glad we'd gone down the investing road before then.There's nothing wrong with learning from your mistakes, we have.
Next time you buy a property, have goals in mind first, and don't just anticipate that the property market will keep going ahead. It doesn't always.
Don't give up, though. You can become successful in your investment. Put in the time and effort, and (gulp) money to learn first.Quickchick.
Hi howie, Event Horizon is spot on. Not sure if your currently doing it, because it is amazing how many accountants to advise there clients to get on board and have there properties surveyed for depreciation. The way it works is you have an assessor come in and value the property, things like curtains, floor boards etc etc. they then set up a schedule of depreciation for you, for seven years. You will get a minimum of 3k back every year without putting your hand in your pocket. I understand about your tax breaks with salary sacrificing through health industry and you are correct, a great lurk. The depreciation specialist will charge you no more that $500 to $700 and for that you will get min 3K back every year. It is totally legal and if your accountant doesnt know about it, find a new one. We used a company in Geelong called Just Depreciation quantity surveyors. ph 1300 364 683. They were great to deal with and organised both our properties in QLD and Victoria and were reasonably priced. It sounds like you are not doing this yet and you are throwing away money, it is amazing how many people dont do it and they are losing out on money for jam. Good luck and hope everything works out for you.
Event Horizon wrote:chat2howieI have a 80yr old 60yr old and 120yr properties and i still get back substancial tax on depreciation, you cant generalise that its not worth depreciating becuase its 20yrs old, there is cutains, flooring, appliances any building work relating to maintainance, plant, fittings fixtures etc etc, you would be suprised what you can dig up for about $500 you can get a profession depreciation expert (rather than an accountant) to asess the property on site and this of course is tax deductable and if they cant find $500 in deductions then you dont pay, highly recommended.
I think the ATO may come looking for you
Our property is 60years old and we are claiming depreciation via a quantity surveyor and are claiming the same.
Im not sure how you depreciate on a 60 year old house. My understanding was that you can depreciate it at (usually)2.5% p.a. so it will depreciate it off over 40 years.
Unless you are just talking about the costs of a re fitout of the house or something.As the fittings and fixtures have certainly been updated (not 60, 80 or 120 years old) I can easily see why there would be a need to get a depreciation schedule! If it is carried out by an appropriately certified individual, why would the ATO have a problem? It is done at their request.
yeah you tell em newbi……imagine if i still had the old dunny out near the backlane, cooked on the an original wood burning stovel stove, and wrote this email for the internet while peddling a bicycle to power my computer…chris is a goose…..
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