I bought an IP north of Brisbane in 2008 and there has been little growth in the suburb since then. At the time of purchase I was running my own business and the incentive was to reduce my tax and this property is now returning a loss for 2011-2012 of approximately $11,000. There has also been little increase in rent in this suburb and my property and there's little I can do to the property to improve the rental income.
This financial year my working circumstances have changed which means I am unlikely to earn above $30,000 income. As I no longer have the large salary that will benefit from the IP and I will be looking at a loss of at least $11,000 if not more, it feels like I should seriously consider selling and I would appreciate the advice of others. I'm also going to meet with my financial planner and chat with my accountant to discuss the investment property.
Hi there
It sounds like you've answered your own question – if you can't afford to hold it then selling it is a sensible option. Better than going bankrupt.
Will you make a profit from the sale?
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
On $30K / annum make sure your Financial Planner doesn't charge more than 1% of your Annual income in consultancy fees.
Don't know which suburb you are talking about but have you considered wrapping it under a Vendor Finance arrangement.
Might at least claw some of your cash flow and turn it from negative into a positive holding asset.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Jamie,
Since I purchased the house in 2008, the market commenced dropping and the last year has been the worst by far as the growth is now in the negative.
If I sell the house for the same figure I purchased it at, when I repay the loan and pay the agent fee I will be facing a loss of at least $33,000.
I have enough funds to keep the property though with the growth going backwards, I'm finding it difficult to find reasons why I want to keep pouring money into it. I wanted to post to make sure I'm not missing something as the advice offered here has always been good.
Cheers
Lisa
lisainmelbourne29064 wrote:Hi Jamie,Since I purchased the house in 2008, the market commenced dropping and the last year has been the worst by far as the growth is now in the negative.
If I sell the house for the same figure I purchased it at, when I repay the loan and pay the agent fee I will be facing a loss of at least $33,000.
I have enough funds to keep the property though with the growth going backwards, I'm finding it difficult to find reasons why I want to keep pouring money into it. I wanted to post to make sure I'm not missing something as the advice offered here has always been good.
Cheers
Lisa
You have to make 3 assessments.
1. Is it going to increase in value? If not then there is no reason to keep holding.
If it is then,
2. Can you afford to keep holding and/or
3. could you sell and make more money elsewhere?
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 Lisa,
Certainly investigate Richard's suggestion.
Reading between the lines it sounds like there is a fair bit of 'hope' in your thinking process.
If you cannot vendor finance then I think I would be biting the bullet and selling while you have some funds available so you can refuse 'low-ball' offers.
PS It is OK to sell.
I wouldn't take the capital loss and take the punt that the rent and the value will increase in the next three years.
Hi LIsa,
$11K of a property worth ??????????
Convert the 11% to a percentage of the current value and you'll know how much the property has to grow for you to be in front.
PS You'll need rental increases of around $200/week to get to cashflow neutral. What are the chances of this happening?
Hi Lisa,
As other have said first and foremost, if you can't afford it or don't see it ever going up whilst you own it, then get rid of it, you wouldn't keep a car that ran through $200 of fuel and oils a week when it should be using $50.
But, true investing is for the long term, anyone who says they buy and sell properties are not investors they are speculators, sure someone who buys with an open end to sell is an investor, but buying and saying you are going to sell in 3 years for a profit is just speculating. Sure some people can read the market well, but no one is 100% accurate. My point is, eventually property prices with rise again, this could be 6 months or 6 years.
If you sold the property today and it went up by 50-100% in 6 months time would you care? How about if it would go up by 50-100% in the next 6 years, would you sell it or hold it? Unless you want to sell it to invest in a property that is more likely to go up (perhaps you found a good value property that is undervalued closer to the city in a blue chip area that is certain to rise by 75-200% when your other property would only rise by 50-100%) I would suggest you take the same action for 6 years as you would for 6 months.
Finally, you might want to see a financial expert who is good with IPs, . Make sure you are looking at your losses from an investors point of view, if you have a principle and interest loan (P&I), then the principle is not a loss, you should look at taking out an interest only loan(IO) which could save you thousands of dollars up front that you don't have to pay today, and check you have a competitive interest rate. Also make sure you have a depreciation schedule and are claiming correctly as this can help with offsetting your loses substantially as well. Get in touch with someone like Richard (QLD007) in the above post who runs this type of business in Brisbane, perhaps they can help.
One last bit of advice, you said "If I sell the house for the same figure I purchased it at", ask your self honestly is it worth that now, if you even attempt to sell it for more than it is worth you will fail before you begin. A REA will want to get you the best price, but if you push for more they will reluctantly list it at that, but do little to sell it as it is overpriced. Make sure you detach the emotions of it and sell appropriately. If it were me I would hold it until the market is on the up, property is the flavour of the month and get the best price I can, or hold it forever.
John
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