To Sell or hold on to your last property??? HELP!
My life for the last 5 years have been a roller coaster ride.
We have sold our last 2 properties not earning much in melb.
Went into a business 3 years ago, lost money and closed the business.
In debt and nearly went bankrupt, thank God that we were able to find
this debt management company who helped us negotiate with the banks
made the banks stop harassing us by letters and phone calls.
So right now we are able to cope up with paying the banks with their help!
We turned our home into a rental property two years ago except we kept getting bad paying tenants who are always late in paying so we end up late fees $150 and default letters in most cases.I was holding on to the property hoping that we can get good paying tenants like us –
We always pay the realestate fortnightly promptly so we can get a good paying history in case we need to move on to another property.
Our real estate agent presented 4 type of candidates for the rental of our property
June 2010, but we shortlist to select from 2 candidates:
1st candidate has a commercial business (self employed), earns more than $15K a month from his business, just sold their massive house meaning they got a big chunk of money sitting in their bank account and has 2 young kids. This family wants to lease the house 3 years lease while they are building a massive house in the area.
2nd candidate – has 4 kids, wife studying, only the husband in a good paying job and willing to pay in advance 7 month rent. Wants to leasethe house 1.5 year lease.
Who would you choose?
We chose the 1st candidate, thinking that since this family has a good financial backing, they will do the right thing and pay the rent on time. We were wrong!
They are always late paying the real estate, we get all the penalties in our mortgage
And I always have to harass our account manager to keep calling them every single month for payment.
My husband and I are both working in a 9-5 jobs (good paying managerial level jobs) except all of our monies goes to services all debts, plus this house plus the penalties and defaults.
Not only are we stressed out in servicing all our debts but always stressed out with these tenants of not paying on time. Every month I have to make a phone call to remind the real estate of the rent payments.We spoke to the real estate sales manager and she said that our house will only
Sell between $460-$490K. We still owe the bank $520K. The house is 5 years old,
Double storey, 42 squares, beautiful Domaine house, open plan.
If you ask my husband, he would rather sell it off even with a shortfall to trade
Peace of mind and to live a normal life.
I was actually thinking to hold on to it and maybe next year would be a better
Year for us, maybe things will change or maybe I can find a 2nd or 3rd job to keep this house. Or if we can hold on to it as a rental property maybe the next 5 years this house can be sold more or atleast maybe we can earn atleast $20K if we are lucky compared today, if we sell this off at $490K, we maybe $30K or more in debt left + no house + no income from the sale at all. Of course the only winners is the real estate.
If you were in my shoes, what would you do?
For those who may be in similar situation, how long did it took you to be able to
buy your own home?
Or did you just want to stay renting a property instead?
Would you still consider buying your own home?
We need your advise on what is the best way to do for our property. HELP!Appreciate your time reading this.
May
Hi May,
Before making this sell or hold on decision, I think it would help to do a thorough calculation to analyse your financial situation.
Firstly, it seems your house is heavily negatively geared. How much money do you have to put out of pocket each week to support the loan? If say you have to pay 300pw out of pocket to support it, each year you have to pay roughly 15k. So if you hold on to the property for 2 years, that's 30k cash out. It means the property value have to increase by at least 30k for you to break even. How certain are you about the capital gain in the next 2 years? is it likely to increase more than 30k?
If the answer is no, then selling it now is a better idea, as you will be able to get rid of some bad debt and start all over again.
cheers.viv
Two obvious mistakes come to mind with this series of transactions. First .. if you have an itinerant tenant someone who is slow or late on paying rent .. he should be affecting the balance in your bank account and not the draw against for the loan. Remember the loan remains your responsibility and any penalties you are incurring is because you havent structured your payment system right.
If you run an investment property .. allow for at least 2 payments excess (two months equivalent) to be in the drawing account at ALL times ! This allows you to absorb late payers and emergencies without running into crisis. You've been accepting that running into crisis is HIS fault. The bank doesnt care .. all they want is to get paid. And his not paying is costing you your credit worthiness for the longer term. It may not affect you directly now aside from penalties .. but for your long term borrowing status it never looks good.
Second is gearing to a maximum for your investment/ home property. I'm sure before the investment went into penalties and such you were very highly geared to start with. Its cool if you have asset backing to start with. Or you plan on a fast moving market (if its boom times). Otherwise its just a pain to deal with, its major stress for everyone and it makes you age faster than you need to.
The path to financial freedom is realising that if you persist now you will end up with equity in the long term .. beyond the term of the lease agreement. Once that tenant leaves, the rental levels will have improved and both the debt and the equity situations will have changed. To sellout now lands you with a 30k debt .. no house .. and a continual repayment until the 30k is covered. It does mean a little pain and stress. But if your property moves steadily .. the debt you have now still will seem miniscule in proportion to the asset. REMEMBER .. your monetary incomes will change with inflation and the debt will not seem as bad. And you have by law seven years to move back in and it still remains capital gains tax free (as principal place of residence) So whatever you end up earning on the house .. will be ALL yours. Its a tough equation to weigh up. But as long as the trend of houses moving upwards .. it doesnt make sense to dismiss a deal that will STILL work for you long term.
You dont need to be paying penalties. Shore up your payment account so that you arent totally reliant on the one monthly payment (or fortnightly) to satisfy the bank. With current stated debt levels you cant refinance with anyone so the correct approach is to just soldier through realising that it will be a little tough but a lot rewarding.
I'm an ex realestate salesperson. The most common thing i heard from people who sold is the IF ONLY as prices go up around them. You are in the market and with a 42 SQ house .. with a good asset at that. Weigh up the stress on your lives and the financial concerns to you. Starting again is always a possibility. But .. how long would it take you to save a deposit?
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