HI thereI wonder if you are able to help….
I have the privilege of owning a negatively geared investment property;)
I bought the investment property 3 years ago for $260k and its current value is about $320k, great you say, however I have a 5 year fix rate at 6.64% with a $13k early exist penalty fee….I would like to sell this negatively geared property now…..while there is still a government grant for first home buyers but is it worth selling if I will only get about $12000 in my pocket after the dust has settled???Or should I rather bite the bullet and leave it for another 2 years and borrow the +- $50k equity in the property when I want to invest again??If I do a vendor rap, do I keep the mortgage in my name?? and would that get me out of paying the early existing fee??
TC
what is it costing your per year and do you think it is growing more than that?
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terry
Thanks for the reply…I’m making +-3k-4k cash loss per year however after depreciation and tax I get that back so it’s breaking about even. So I’m not really losing anything at the moment.I think the capital growth is probably driven by the 1st home buyers grant and listening to commentary it looks like that market will correct next year. The property is in outer Melbourne among other new developments and I don’t think that there will be much scope for growth for a few years to come….who knows….
My strategy is to become an active property developer and I’m only now learning that negative gearing isn’t such a clever idea after all. $12k in my pocket doesn't really make much of a difference either…
Regards
TCNegative gearing is a good strategy if there is capital growth higher than the cost. Yours is not costing you anything, and $12k isn't much is it? What can you do with the $12k. If you bought another property it would cost you more in stamp duty. Increase the rent on your place and you may be even making a profit soon too.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hold onto it, the benefits of holding in the long term far out weigh the positives of banking now (in my opinion)
However I dont no your personal situation, if its to stressful get rid of it, life to short yeah:)
Goodluck
I agree with Lockymac. I also think by holding the property you will be more befitted. I am not an expert. It is my personal opinion.
HI All
Thanx for the comments…..
Once I wrote down the problem in black and white, it made more sense and there wouldn't be much advantage in selling and only realising a small "profit". I guess the mistake to avoid is to buy well in the first instance and having a clear investment plan to structure the finance accordingly.Regards
TC
Your 5 year fixed rate is actually great. They are currently sitting just under 8%.
Mortgage brokers, is there any way to sell the property with the mortgage attached at 5 yearsfixed for 6.64%? Then you could get a good price and the buyer will feel they are getting a great deal.
Alternatively you could look for a buyer that wants to do a wrap deal on a fixed interest rate for the next 5 years.
If the property is worth $320k you could sell it to them at $340k on low deposit (i.e. just the FHOG) even if they have no savings (in which case a bank won’t touch them). Provide them the finance at 5 years fixed at the current bank rate around 8%.
Key advantages for the borrower
1. by borrowing through you there is no LMI (likely to be 5-10k on this property) and
2. no stamp duty until they settle their loan with you
3. wouldn’t have been able to finance through a bank and are actually getting the same interest rate for the first 5 yearsAdvantages for you include:
1. They pay the rates, insurance etc
2. you get the sale and a now positively geared property
3. you can still claim the depreciation
4. you dont have to pay land tax
5. you are getting 20k more than the property is worth today and the interest rate differential on the extra 20kIf using this strategy you should draw down on the additional equity in the property before onselling. (You may even be able to demonstrate that it is actually worth $340k as you have been offered a contract at that price)
Sounds like it could work well in your position
Cheers,
MattIf current fixed interest rates are above your fixed rate, the bank would be paying you an incentive to refinance as they have more lucrative products on the market (ie at higher rates). How long ago did you get them to quote your exit fee?
HI there
I got the exit fee quote in June this year ……$13 000 and I have 2 yrs left.
The only way to avoid paying the exit fees is if I bought another property and changed the security of the loan from the investment property to the new property.
Even if I wanted to change the payment period, ie: annual to monthly payments the banks would still slug me with the penalty…**#$^**. I can't complain too much because I fixed the rate just before the interest rate shot up-to 9% so I have had a good run. The banks just want their money back.The wrap sounds interesting and I would need to investigate this further….not sure how to set that up (it sounds complicated)
Thanx Guys
TC
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