Hi,
I ‘own’ a 1 bedroom townhouse in the suburb of Mt Nelson in Hobart. I bought the property for $165k in mid 2010 and currently owe $140k to the bank. When rented the property earns $210pw which just covers interest payments and holding costs (I pay the principle on top). I believe the property is probably worth somewhere between $180K and $195K at present (representing gross yields of 5.6% and 6.1% respectively).
I am now in the the last 6 months of PhD in Tasmania and upon completion I attend to move to Melbourne and secure a job earning above $70k.
My question is: Should I try and sell the property my self while I’m still living here, thus avoiding the agents cost which would really dent my capital gain, or should I thank my stars I have a positive geared property and hold it for the long term?
My partner and I would like to buy a Victorian property to live in within the next 3 years (circa $450k).
Any opinions would be appreciated.
Thanks
Hmm, depends on your goals are.
Here's a short story about my parents which has shaped the way I feel about it personally.
- 1992 Purchased PPOR (Blacktown, NSW) for $120k
- 2001 Paid off mortgage on PPOR (Blacktown, NSW)
- 2002 Sold PPOR (Blacktown, NSW) for $135k
- 2002 Purchased PPOR (Cherrybrook, NSW) for $300k
- 2007 Purchased IP (McGrath Hill, NSW) for $300k
- 2012 Current values:
– (Blacktown, NSW) $550k
– (Cherrybrook, NSW) $750k
– (McGrath Hill, NSW) $400k
If they had kept the first property (positive geared) they would have been better off by 300k (by first impressions).If they had structured their loan properly (off-set) and understood property investment, they could have leveraged and exponentially grown their portfolio (huge theoretical losses).However if they really needed the money at that time to purchase the second property (which they didn’t) it would have made sense. Do you need the money? Can you do without for sometime?
Thanks for the feedback NHG. The difference levels of growth experienced by the Blacktown house at different points in time were quite dramatic!
My goals are pretty standard I think: I’d like for my partner and I to own our own home, within say 15 years, while also having a diversified investment Portfolio. We are both in our early 30s hoping to start a family and retire around 60. Our earning potential is similar around $80K at present, although she will likely stop working for a while if we have kids.
Selling the unit now would mean we would have significantly larger deposit for our PPOR (and would therefore pay it off sooner), but would also delay the investment portfolio.
My thinking is that both selling and holding are reasonable options and that ‘fishing’ for a descent sale price while I live here and can orchestrate it myself, is probably the first best option, followed by renting it out again and sitting tight.
Does anyone have a strong opinion that holding would be the best option? If so why?
Cheers
Holding over a longer period of time means you will have a higher chance of hitting the booms, property is a long term investment.
If your property is positive cash-flow (is this through depreciation or is the rent itself covering all expenses?). Will the extra cash the property is making not be useful to help pay down your mortgage while still depreciating the interest repayments (if your directing income into your PPOR – talk to an accountant about that, theres rules against doing too much of that from what i've read)?
You may want to look at how to best structure your loan, interest and principal isn't (at least for me) the best way to utilise your cash.
My personal opinion is keep, especially since the market is at it's lowest (unless you can use the cash to best capitalise elsewhere). Then again, if you can get a great price for it… wouldn't hurt either :p
Oh, just make sure not to push yourself far beyond your means, stay within your comfort level. I recently met a lady who was retired at 30, by 35 she was broke when her husband started a new cash-flow consuming business and all their money was tied up in non-liquid assets.
They had to sell it all.
From $10,920 rent p.a (assuming full 52 weeks) the property covers:
Interest: $9120
Strata: $600
Land Tax: $170
Water: $400
Rates: $600
Insurance: $200Total Costs: $11090
Net position: -$179p.a (ok, so it doesn’t quite cover it!)
Have not factored any depreciation as I do not pay tax as a PhD student and the unit is 30 odd years old (I have spent maybe $4000 on improvements in the last 12 months though.)
Is this theoretical rent?
– what about rental agent fees? Usually 7-8%/week of rent.
– insurance of $200? does this include house and tenant insurance?
– what if tenant moves out, or repairs are required? that will be an extra weeks rent to the agent/repairs.
– how old is the building, once it is rented, you will be able to back-claim depreciation to 3 years (someone correct me if i'm wrong).I was renting the property at this price until i moved back in recently to undertake some renovations.
I managed the property privately while it was rented and had no problems, so would look to do so again.
The structural elements of the insurance are covered through the strata fees – the figure quoted for insurance is a recollection of what I was previously quoted for tenants insurance.
Yes – perhaps I’m being a bit optimistic about occupancy rate and repairs…What would you suggest I factor for this?
The building was constructed in 1974 – so 38yrs old.
The problem here is that property in Melbourne or Brisbane for that matter will rise a lot quicker than anything in Hobart. Rather than buy a house to live in I would rent and sell your property in Hobart and invest the money in either Melbourne or Brisbane which I believe is currently undervalued. This is a market that in my view will go up after the election of the Newman government in Queensland.
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
Email Me | Phone MeWe have just launched a new website join our membership today
You must be logged in to reply to this topic. If you don't have an account, you can register here.
