We have an investment property in Perth which costs about $45000 a year to hold and brings in about $25000 in rent and tax deductions. The values in the area have dropped by about 15% in the last 18 months. My feeling is maybe we should cut our losses and offload this property as it is beoming a financial drain and we are starting to feel as though we are funding the lifestyle of our tenants.
My logic is this — if we are losing 15 to twenty thousand a year in cash over the last 2 years and probably at least another 20 thousand this year as well as capital losses which will take about 3 years at least to recover if there is modest growth before we can even look at making any money wouldn't we better off saving the 45 000 (overall cost of holding costs) over the next 12 months and when the market looks a little better reinvest.
Does this make any sense I have this running around and around in my head, I originally subscribed to the buy and hold strategy but surely there comes a time to cut losses.
We also have another property in Regional WA which has had modest growth over the last 12 months and will be rented out at the end of next year and net holding costs will be far lower around 6-10000 a year.
Am I just buying ito the media hype about how bad things are or is there some merit to my logic.
Nat
The best advice I can give somebody in your situation is to panic.
You have on one side a guaranteed:
- depreciating asset
- negative cashflow
on the other side:
- hope/prayer for capital gains in an economic climate that is worse outlook-wise than any time in the last 70 years.
Sorry. I'm just not seeing the silver lining in the cloud.
F. [cowboy2]
Macnatt,
Are you utilizing all your claims? Do you have a depreciation schedule, etc, do you work and have an income to claim your losses against, are you claiming your holding costs etc?You haven't given enough information for us to check your situation, but if all is as you say, then unfornunately, your best option may be to sell and maybe you can claim against a capital gain to offset your losses.
Most people expect house prices to fall and keep falling for a while yet.
How much do you owe? How much could you sell it for (be realistic and price to sell) ?
What is your income or more specifically, how much do you give to the ATO every month if you get rid of the one property?
Since you only have one property, it is likely that you can hold it if you are negative gearing. The rural house isn't killing you by the sounds of things.
Negative gearing is a long term investment. The ridiculous growth in values over the last 5 years was never going to continue.
Interest rates are on the way down. Put the rent up.
It depends on how you are coping emotionally. If you are covering your debts and the ATO is paying for your investment property, hold and dig in. If it is killing you, sell and take a hitHI,
Thanks for the feedback. We owe 530 000 realistically at the moment we could expect between between 550 000 and 570 000 to sell but whether it would sell is a problem as it is at the top end of the market for the area and there are not alot of buyers around a the moment. The house was originally our ppor so it was never bought with investment in mind it just turned out that way. At the height of the boom the value was 700 000.
I couldn't say we even come close to covering the debt of the property outgoings per month are about $5000 and incomings about $2500 (taking into account the tax deductions and depreciaiton as well as rent)which is a pretty significant shorfall.
We have a depreciation schedule which gives alot of deductions as the house is only 6 years old. My husband works in the mining industry and has a high income so the negative gearing is ok although unfortunately the house is in joint name so we don't get the full benefits. We are covering the costs fairly comfortably at the moment but there is no room to move. I just don't see any up side for at least three years and then it will be a couple of years after that before there is any real gains.
Thanks
NatalieSell if you still can. Put it up for sale for 450.000 ( you say you think you can sell it at 560.000 which is clearly not true market value ). Take the loss and see this as an expensive lesson.
You were suckered into a property bubble that will keep declining for years to come. In the meantime you are losing capital on this house while getting nothing back. Your loss will be 100's of thousands of dollars which you could have SAVED and then bought a house cash now ( with the 15% rebate ).
When ( not if ) your husband loses his job ( yes, recession is coming, and mining will be affected most ) you will not have choices anymore, you will end up on the streets without a home.This is reality, not the fairytale propertyinvesting.com website with amateur investors.
Get out, and stay out of property until prices dropped 50%.And this is exactly the kind of thing I have been talking about and warning people of, This so called "Investment" (Money that is invested with an expectation of profit) is draining your capital and its obviously taking a strain, wait untill you have to start repairing and replacing things in your rental house.
If this was not a big drain on your budget and you where confident you could continue paying it off untill the lifetime of the loan I would say keep it, But from the sound of things this is not the case. You don't want to struggle paying this liability off for another 2 years and then have the house repossessed by the bank and loose everything you have put into it. Remember if things go according to my predictions then you won't have bundles of equity to renegotiate or consolidate, Take this into consideration.
There will be people who will flame me and try and suggest you should continue to tread water because property doubles every 7 years and we live in a magical land of endless booms where the cost of infinite price increases of property is something that is sustainable untill the end of time.
Don't listen to utter illogic, The only reason property should increase in price is to adjust for the lost purchasing power of our currency through inflation tax, Houses where ment to be lived in, not to make people rich.
You should learn a costly lesson from this experience, The only way to become rich is through the accumulation of wealth, there is no other quick fix solution, It's something that comes slowly.
Good luck in the future and I hope you make the right decision.
Scamp wrote:Get out, and stay out of property until prices dropped 50%.Even I am not waiting on drops that high… still, Scamp, you have brightened my day.
If you think the property is realistically worth $550-570K in the current market and you owe $530, try selling for for $545. That will help you cover real estate fees at sale and you may break even. If it's hurting you, get rid of it. Save the cash and look for a better investment where you can fully gear your husbands income. It sounds like you're losing money. If the property was in your husbands name you could go interest only and fully gear it. No loss at all. Put it on the market at $545. Reduce it a bit if you don't sell in a fortnight. Properties are selling if they are priced realistically. The days of greed are temporarily over. It's a cycle. The wheel goes around. People are always looking for houses and if they perceive good value they buy it. Growing families need bigger houses, people are moving to Perth in droves and need somewhere to live. The house wasn't an investment property and hasn't been set up to make the most of negative gearing. You're haemorrhaging cash. Sell it immediately.
Please let us know what you sold your house for ( if you can even sell it in this climate ).
My guess : You will put it on the market for 570 now.. In 4 months you will drop to 550, in 9 months you will be without a job and you will put the house on the market for 450, and in 15 months you will be bankrupt and the house is sold on Auction for it's real value of 250 ( and it will probably still keep declining for 5+ years )Please keep me updated.
Scamp wrote:Please let us know what you sold your house for ( if you can even sell it in this climate ).
My guess : You will put it on the market for 570 now.. In 4 months you will drop to 550, in 9 months you will be without a job and you will put the house on the market for 450, and in 15 months you will be bankrupt and the house is sold on Auction for it's real value of 250 ( and it will probably still keep declining for 5+ years )Please keep me updated.
And how did your crystal ball work out about the job loss. Some of the things you say have some degree and credibility. Posts like this one just dont do much at all, unless people are looking for a laugh. You say to put it on the market at 450 as thats all its worth. A property is worth what just 1 person is willing to pay for it. If someone is willing to pay 570 why put it on the market at 450?
gibbo1 wrote:Scamp wrote:Please let us know what you sold your house for ( if you can even sell it in this climate ).
My guess : You will put it on the market for 570 now.. In 4 months you will drop to 550, in 9 months you will be without a job and you will put the house on the market for 450, and in 15 months you will be bankrupt and the house is sold on Auction for it's real value of 250 ( and it will probably still keep declining for 5+ years )Please keep me updated.
And how did your crystal ball work out about the job loss. Some of the things you say have some degree and credibility. Posts like this one just dont do much at all, unless people are looking for a laugh. You say to put it on the market at 450 as thats all its worth. A property is worth what just 1 person is willing to pay for it. If someone is willing to pay 570 why put it on the market at 450?
Who said I was willing to pay 450 for it ? I am willing to pay today for it the REAL value of 250, which I posted earlier. So if she wants to sell for 250 I might be interested. She won't because she thinks it's worth more ( without knowing why.. probably the closest she gets is "erh.. because I bought it for blabla". ).
You need to be incredibly blind to NOT see unemployment going up in the near future. Even my dog knows that recession is coming. Have you been using the recessionblocker or are you just sticking your head into the sand ? ( http://www.recessionblocker.com/results.php?uri=www.news.com.au )
Wake up , there's a global market crisis which WILL affect Australia and which WILL cause a housing crash in Australia and which WILL cause massive unemployment. There's no doubt about it , just blind people choosing to put their heads in the sand and hope it all goes away.
We're talking DEPRESSION here, not recession. Just google 1930's depression to get a hint of what's coming your way.
The DotCom recession is PEANUTS compared to this HUGE MONSTER OF A DEPRESSION.
Please put that in your head, recession + depression is coming to your doorstep.You will lose your job… so get out of debt before you are put on the streets. If you need explanations on what a recession is , please google it.
Oh yes, and people won't be paying rents either. Property investors are in for double trouble.
How much tax returns will you get when you don't have work ?
oooh that's right, 0. A triple whammy.Can someone pass scamp his medication!!
Macnath : It is you that need medication for your nerves, not me.
Macnatt wrote:Can someone pass scamp his medication!!A bit late for that, grab the jumper leads and we'll give him an ECT.
Scamp wrote:Sell if you still can. Put it up for sale for 450.000 ( you say you think you can sell it at 560.000 which is clearly not true market value ). Take the loss and see this as an expensive lesson.You were suckered into a property bubble that will keep declining for years to come. In the meantime you are losing capital on this house while getting nothing back. Your loss will be 100's of thousands of dollars which you could have SAVED and then bought a house cash now ( with the 15% rebate ).
When ( not if ) your husband loses his job ( yes, recession is coming, and mining will be affected most ) you will not have choices anymore, you will end up on the streets without a home.This is reality, not the fairytale propertyinvesting.com website with amateur investors.
Get out, and stay out of property until prices dropped 50%.Can you please look into your crystal ball and tell me what i am having for dinner tomorrow so i can take it out of the freezer tonight. You are a complete loon. You actually have some good information to share and then you get caught up in your own preachings and start rattling crap off like it is a 100% certain outcome.
NOTE TO ALL PEOPLE READING THIS
Scamp wants to buy into the Australian market and therefore is trying his hardest to drive the market down so he can buy in cheaper. He has stated this on many forums. If this is not bottom feeding i dont know what is.Much of what he says is true but a lot of it is what he personally wants to happen.
scamp,
lets say 6 people look at this property, the price they offer is 500, 525, 560, 560, 570, 575 and of course scamp with his offer of 250. this property is worth 575. Even if there were a million "scamps" (god help us) the property is still worth 575 as you have one person willing to pay that price.On the issue of job losses, yes there will be different job losses in the economy. Some jobs are recission proof others want be so lucky. YOu have no idea of the type of job macnatt has, yet you make these predicitions about them.
by the way scamp, do you have any idea about where this house is located in perth, do you know where perth is, do you know the demographics of the different suburbs in perth, do you know the median house price of a property in perth, the median house price of the suburb in question, do you know which areas of perth have high rental demands outstripping vacany, do you know the facilities in this house, what services are in the suburb, is the house one or two stories, how big is the block, what is happening in adjoining suburbs, with the change of government – is there going to be any shift in policy that may effect value eg new infrastucture, does the house face north, is it double brick, does it have a tiled roof or metal? If you dont know any of this infomation you just show how stupid you are in being able to "value" a property without these pieces of information. The reason most people loose money in RE is cause they make decissions without knowing all of this sort of information and buy using there heart
gibbo1 wrote:by the way scamp, do you have any idea about where this house is located in perth, do you know where perth is, do you know the demographics of the different suburbs in perth, do you know the median house price of a property in perth, the median house price of the suburb in question, do you know which areas of perth have high rental demands outstripping vacany, do you know the facilities in this house, what services are in the suburb, is the house one or two stories, how big is the block, what is happening in adjoining suburbs, with the change of government – is there going to be any shift in policy that may effect value eg new infrastucture, does the house face north, is it double brick, does it have a tiled roof or metal? If you dont know any of this infomation you just show how stupid you are in being able to "value" a property without these pieces of information. The reason most people loose money in RE is cause they make decissions without knowing all of this sort of information and buy using there heartIm sure he has a graph or a statistic and im sure he has some cut and paste articals aswell. Just the usual stuff we keep getting ramed down our gobs.
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