I have invested in three properties.
One of these properties was originally purchased as my primary residence but has since become a rental investment due to being unable to sell it.
Purchased for 800k approx three years ago, I am having trouble selling it at 750k now. It is currently rented at 450/wk with repayments of 1k/wk
The dilemma I am faced with is whether I should sell now for 100+k less than purchase or to hang onto it in the hope of a better price in years to come.
any ideas….
Hi Ducata,
There are always a number of factors to consider when looking to sell an investment property. It is no surprise that you are struggling to gain interest in a $700-800k property in the current market, as there are subsequently less investors in the market and less again of those looking to invest in that price range.
Selling or holding the property will come down to what your intention is, regarding your investment strategies, whether you are chasing capital growth – short or long term growth, cashflow or value adding.
Here are some questions to consider….
1. Can I afford to hold the property to capture growth in the coming years? (from history, property doubles every 7 – 10years)
2. What will I do if I see this property now? What are my next considerations?
3. What other options do I have?
4. How is my overall portfolio sitting?
5. Will selling conflict with my investing goals?
6. Will holding conflict with my investing goals?
7. If I sell, what other opportunities can I take to regain the loss quickly?
8. If I hold, will this rule out other possible opportunities available now?As you can see …. the question of selling or holding is dependant upon what you want to achieve overall. When you work that out … the answers will come to you and be obvious. Your choices should always be a match for what your goals are for the future.
Ask yourself the question. Did you invest to be in the property market for three years and expect to retire / be wealthy / or like. Your answer was probably NO! Did you know your own circumstances at the time and the financial situation you would be facing at the time! Your answer is Probably YES! Have they changed today??????? That is the dilemma, what is different today from three years ago? Forget about the $50k in property decline, as investing is a long term deal…… Why is the deal so bad today (apart from the return)? Why do you want to realise the loss…..
We need a lot more info to guide you through this one.
What is your loan structure? Is it IO or I and P. If you are paying an IP loan you have not got it structured correctly and may be required to pay significantly higher repayments. Have you got an offset account set up against the loan? is it possible to do this or do you have an offset account against a different loan? Is the current rental return in line with market conditions? I do not have metropolitan properties, however, this sounds like a very low rental return for a property valued at $750K.
The problem property was not originally purchased as an investment, and is I&P.
My circumstances have changed since buying the property. Originally it was purchased as my private residence in my own name, hence I incur more tax on the repayments due to distributing trust funds into my personal account.
Due to changing circumstances I now live in a different property. Which I purchased 12mths ago (and has my offset account attached), I intended to turn over the problem property when the new purchase was entered into. However I have not been able to sell it.
All the repayments together are approaching the limits of my cash flow. Especially with my company not performing as well in the previous 12mths.
I suppose the thing that concerns me is the unknown factor involved in the companies future, hence my ability to service the loans, I believe the company peaked 12mths ago, shrank quite quickly, but has stabilised in the last 6mths, as long as funding comes to the infrastructure industry then the company should continue successfully, and may indeed expand again.
So I debate within, whether to continue with the existing "poor" investment, or to sell it and reinvest in a more appropriately structured investment, or to get out of it all together and work on getting my other debts down with the extra cash flow.
1. Can I afford to hold the property to capture growth in the coming years? YES
2. What will I do if I see this property now? IGNORE IT
3. What other options do I have? REINVEST or DOWNSIZE
4. How is my overall portfolio sitting? QUITE WELL
5. Will selling conflict with my investing goals? NO
6. Will holding conflict with my investing goals? YES
7. If I sell, what other opportunities can I take to regain the loss quickly? …..
8. If I hold, will this rule out other possible opportunities available now? PROBABLY YESducata wrote:Purchased for 800k approx three years ago, I am having trouble selling it at 750k now.I agree with others' comments: it depends what your investment strategy is. Mine is capital growth over return, so I recently sold a property that had zero capital growth for the last three years (I mistakenly paid too much buying off the plan). I'm happy to make a small capital loss, free up funds to invest in a new property with solid capital growth and move on – the sooner the better!
*******************************
I DIY manage with Rentwise.If as you mentioned the cost of servicing the loan is holding you back, you could refinance and change it to a IO loan to free up some of your servicing abiltiy so you can look at other investments. This is only if you wish to hold out for the growth on this property. I guess you need to assess the likelyhood of getting the growth you are after on this prop long term vs the loss you would take now.
keep in mind that holding on to a non-performing investment may actually cost you more in missed opertunities. No one like to take a hit on an investment, but as mentioned above you need to work out if holding a neg geared prop fits in with your investing goals.
Ducata,
Based on your answers to my questions above…. I can hear that you are attached to selling, although are unable to sell. So, if you are committed to sell …. then you need to put your attention on what type of buyers are buying what you have, and where are they. Start teaching the real estate agents how to work with you …. they are hungry for the sale also, so maybe you can appoint a couple or even three agents and take away the exclusivity and make them work for the sale and their commission. In other words… have them committed to selling your property. Make it worth their while. Do your research.
A property is always saleable …. you just have to work out at what price, or who is your target market. You may need to fire-sale it. Many smart builders and developers today are having fire-sale prices in mind ( basing feasibility on worse case ) when taking on their projects. I'm sure you agree… it's a learning curve …. you've gained some valuable experience on what not to do and the homework you need to do next time.
Alternatively, you could access a totally diferent buyer market …. eg rent to buy? Investors looking to flip the property by purchasing it at a discounted value and passing it on to another buyer that they find at a margin for themselves. Often extended settlement terms will be very attractive to this type of buyer. Get familiar with, and promote the benefits and selling points of your property… what does it have going for it over other properties? Why shoudl someone buy your and not the one down the road?Once you work out the above things will be much clearer.
The next thing to consider is … why and how could you hold the property. The first thing you would need to do is restructure you finances. As you pointed out, the current structure of P&I was suitable for personal owner occupied debt, but is simply not suitable nor viable as an investment property for many reasons. eg Little or No tax benefits available from the current structure. I'm not an accountant so I cant advise you on that area. Your repayments are too high, causing strain on your cashflow … hence why it needs to be an interest only loan (also for tax benefit reasons) and taking the term back out to full 30yr term wil also further lower your repayments and inprove your cashflow. This could also be in some ways applied to your other properties and further improve your cashflow to take the imediate pressure off your finances.
The next thing to look at, now that we have touched on your outgoings, is to look at the flip-side and assess whether you can impact your income … eg rent. Can the property gain higher rent? simply as an example … can it be subleased to students, is it suitable for executive housing with multi-national companies looking to provide housing/rental packages to their senior staff, Can you value add to your property to put it into a higher rent range?
I hope this helpsand opens your eyes to what is possible…. that's where your answer lies …
Hi ducata
We have a strategy we use for this type of situation, we call "negative2positive". It involves selling the property with vendor (seller) finance to an owner occupier. We have always found that, if you make a property easy to buy, you also make it easy to sell.
Many buyers will pay a premium price for their PPOR if they are unable to get a traditional home loan and a property is offered to them with vendor (seller) financing.
We normally find this type of transaction generates cash flow at three points, i.e. the deposit the new buyers pay, the positive monthly cash flow and the "back end" profit when the new buyers refinance into a traditional home loan.
Of course, you are selling the property, so this strategy only works if selling the property is something that fits into your plans.Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
thanks guys
I have restructured the loans to IO and decided to stick it out for the long term
was amazed at the drop in repayments
cheers
Mitch
You must be logged in to reply to this topic. If you don't have an account, you can register here.
