Hi All. Im in need of a through advice on a property i made years ago. I think it was a massive mistake and now that my fixed interest is coming to an end in the end of feb 2010, ive thought about selling. Here is the case, a few years ago I bought an overpriced unit in the middle of york street (unique building, above a church, brand new construction) and the property was priced at 533k plus 20k stamp Duty. Didnt really realise at the time that when it comes off the plan that the economy would go downhill and prices would flop to 420 as of 3 years ago. So i had to keep it and on my teacher's salary and the help of tennant have been able to keep afloat till now. I was on a 3 year fixed term of 7.21 with nab and now it will be about 6.49 from march onwards. What i dont know is whether to sell it asap or keep. This property is all costs. The strate fees are about 5-6k alone, not to mention that ive been out of pocket about 1620 per month just to cover the mortgage. On top of that 200 dollars per quarter coucil fees (which keep going up) and water bills of 150 (keep going up to). I have to pay for all that. What is a good decison to make if you were on contract work of a teacher's salary and with the interest rates going up constantly, having 430k left, Is it time to sell?
I look forward to your sound advice.
Regards, sharrahi Sharra
Its hard to decide these sorts of things. Sometimes it is worth keeping a bit longer in the hope of some gains, but it is costing you a fortune. Maybe you could work out what it will cost you over the next year and then estimate the gain over the next year, and see if the gain will be more than the cost. If not it may be better to sell.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Would the bank let you sell and be left with around $100k of uncollateralised loan – that is the first thing I would look at. Seeing as you can only borrow around 90% of the value of a house these days, what does that mean if you dont even have the house?
It is a very tough decision, it would take a lot to bounce back from that loss if you did sell it, however it sounds like you dont have any spare cash to enjoy life at the moment either. The market could go any way – could shoot up in value the way it has been, or there could be a world event or something else that triggers a fall in prices, putting you further in "it"
I seriously recommend you talk to a financial advisor for some professional advice – please don't base your life changing decisions on what I and others post on an internet forum
Hi Ktastrphe…Thanks for your comments here. Im not sure what is the meaning of uncollateraised loan. Do i need to ask the bank what that means? As for the market i think the prices are gonna go up and with my new variable rate, i would be paying less per month than what i used to before, however, thats only until the interest rates go up again and i think aust is heading towards more rate rises as i think we are gonna experience a late recession…i dont think we are actually out of the woods at all in terms of the WFC. That is a scary thing that the market could go worse and ill lose more again as i have waited 4 years to get the price back from 420 to an equilibrium at least. I must see an advisor for sure. when i think of all the strata fees, it kills me.
Hi Terry. Thanks for your comment also. This year with the new variable ill be saving about 9600 dollars. But as soon as the interest rate changes, ill be back to paying even more than what my rate was fixed on before and with the interest rates on the rise, i dont think its going to look good in the future even if the price goes up slightly, i dont think ill make enough at the end from the sale as i would have spent even more on it just for an extra 30k, in which i would have spent already on it in the next 15 months if i kept it. it almost feels like a double edged sword this situation.
hey lachinov
what I mean is if you sell the house, you wont have enough proceeds to pay out the loan in full (will you?). Therefore you will still have some portion of loan left, but no collateral behind that amount. Depending on the amount, I guess you could take out a personal loan to pay out the remainder of the "home loan".
Very tricky situation you are in, you have my sympathy!
Ktastrphe hi again…thank you for replying. I should be able to cover the mortgage if i sell about 560-580. Im still unsure of what is a an uncollateral loan.
I am confused about this topic, this is because the type of loan you mentioned is quite unsuccessful. Let me know about more. I am going to check about this matter in some other area. I will leave a post later.
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Fat Loss 4 Idiots TestimonialsHi Marx I got a loan for 480000 dollars which would be paid off in 29 years. Im not sure what type of a loan this is but i will call nab tomorrow and find out and post another note for you. thank you for helping me.
Hi Lachinov,
If I can add a couple of things, in addition to the excellent suggestion of Terrys about doing the budget for the next year and looking at that……
Firstly, how much do you think (not hope) you would realistically get for the property for a sale in a reasonable timeframe? If it is definately more than your amount owing on the mortgage (which I understand to be around $430k) that is a different scenario to if you can only sell for the $420k mark or less. If you can walk away with anything ovewr a few thousand dollars, it may be a good time to consider sellling, and starting again in antoher investment with your money. Dont let this put you off investing though……..youve had a go, and live to 'fight' another day. Also, bear in mind as it was an investment property, if you sell for less than you paid (inc purchasing costs) you will have a capital loss to offset against capital gains you make in the future – whether it be on other property you buy and sell, or even shares – make sure you use an accountant to assist you with this side.
To assist with your decision, it may also be best to invest a few dollars in a full property report for your area, so you can guage what the market is doing slaes wise, and talk to more than one agent about market value of your property – and ask them for any sales histroy they will have to support this – good ones will be happy to help.
IF you go the other way, and hang onto it, I would suggest changing your NAB loan to a 'CHoice Package Variable rate loan'. It is the cheapest NAB loan, and cheapest of the major banks at the moment too. It would be better for cashflowe if you could convert it to interest only, as it sounds like you are paying principal and interest. If you are not borrowing more money, and if the bank does not suspect the property has significantly lessend in value, they should do a straight 'product swap' for you from your current loan with a minimum of fuss.
After doing your budget for the next year, you may well decide you are over the worst of it and can hang on – if you believe from research prices may start to creep up. All the best with what ever you decide.
CheersDear V8ghia, thanks a million for all this advice. What im considering to be frank is, is it worth to keep a property youve bought for 553 almost and then keep it till you pay it off (on a teacher's salary) which should take exactly its loan life of 29 years, then once you are done with it, realise youve spent almost 1.2 million on it and its strata would have trippled by then (yet you are still a teacher and we know how much our salaries change…hardly ever), and the property would be 29 years old, meaning its value has actually diminished. Then as a pentioner, you are stuck with paying for such ridiculous strata fees and never actually really enjoying to move into this place if ever i decided to. This is a gorgeous brand new apartment in york street. as for what it will go for, ive looked at other sales in the building and the area, one room no garage one bath, goes for about 560 max.
Hi Sharra – fair enough too. I think you've answered your own question now. So what would you do with / invest in with the bit of change you have left over? I guess too, as you will have a bit of relief with the interest rates in the next couple of months, perhaps make sure you maximise the sale price you can get – rather than selling too cheaply or rushing into anything. Now, about this teachers wages bit………..
Cheers
im seeing a financial advisor on friday…but it seems that its heading that way…selling is the best thing to do at the moment. thanks for your advice…as for the teaching salary…i have to move to a remote area of aust, apparently they pay 6 figure salaries there.
It's a comparison from time starting now really, as I see it.
Compare leaving the investment as is, or what could you earn elsewhere if you sold it for "market price" now and used the funds elsewhere. The past is gone.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
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What you have not thought of, is what will properties like yours be worth in 29 years? Maybe somewherebetween double and triple your purchase price??? We don't have a crystal ball!
The question is, if you can sell and pay your loan out, can you find a better investment (or maybe buy a home for yourself if you haven't done so) instead of hanging on?
As an investor, I think you could! And I wouldn't want an investment property to force me to move outback (unless you'd like to try it). It would be nice for your future properties to be a bonus, not a financial drag.
All the best.
quickchick
hi quickchick, do you think this property would be worth 2 million one day? dont forget it will be 29 years old (if im still alive that is….) and would anyone in their right mind pay 2 million for a one bedder? can you imagine the strata by then? its scary. i think i have this emotional connection with the property cause its gorgeous and im in love with it and wish i had the money to live in it…but alas, its beyond my power…i must cut the emotional ties.
lachivov,
the theory on property value will double the price in 7-8 years might become 'a myth'While it applied to certain period of time during the timeline of the property, certainly the historical data does not support it.
yes hence spending 1.2 million on a property which you bought 29 years ago for 533 would sound almost insane as youd never get that price for it most likely…unless for some strange reason australian is so populated that there are no properties left and ou can sell at even a higher prices but i cant see anyone desperate to live in the middle of the city for that price. Besides, they'd have to be on a mad salary.
Got to buy investment property on the data, not love!
Good way to go broke, as we would all buy beautiful luxury places with terrible rental returns."One day" it may be worth $2million, but will you be alive to se it? Will that make it worth your pain now?
I avoid properties with strata titles when investing, just another expense to me.
The other thing is, newer properties will have been built which will make your modern apartment look dated, and you'll be competing against them to sell.But you have to do what suits you, and make your own choice. I can't say what's right for you.
Just food for thought.quickchick
im totally with you on this strata business…its wasted money….thanks for your advice. its fantastic.
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