Bought the property 2-3 years ago for $215 and rented for $260 pw. At the time with transport improvements I was thinking there’d be more people moving to Ballarat for the lifestyle while commuting to Melbourne, and thought that would result in rising rents, so the hope (plan) was that rents would quickly increase to offset the losses initially. Instead it seems like whats happened is that Ballarats affordability has attracted a lot of Melbourne investors, resulting in property valuations going up, but the rental market becoming very soft and recently after a fairly long vacancy was lucky to even get $250 pw from new tenant.
Property is owned in a discretionary trust, so losses can’t be offset against income (as I say, the hope was that although negatively geared initially it would move away from that fairly promptly). Affordability isn’t really an issue, it’s just that I can’t see it being anything other than a loss maker for a fair while, and I just have a feeling that markets might be peaking.
I bought it with a plan of long term buy and hold, but right now I’m thinking that’s not a great plan any longer.
Any thoughts or comments?
I suppose it depends on what you can afford to buy. However if you are losing money and you can get out that would be a good idea. Look at areas that will at least provide you with growth. keep in mind that interest rates are at record lows who knows maybe they will drop again however it is only a mater of time before they go up.
At that point there is a danger that values could fall plus your mortgage could increase so invest where the growth will at least off set those things.
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This reply was modified 10 years, 3 months ago by
Nigel Kibel.
Nigel Kibel | Property Know How
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Is it a Principal & Interest loan or interest only?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Line of credit. Interest only for the first 15 years.
Have you thought about what you paid in stamp duty and buying costs, and what you’d pay in selling fees in order to offload the asset?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Yeah, I’m getting a valuation done by the agency that handles the renting so I have a better idea of where I stand. My hope was that even taking those costs, and losses during ownership, to make a small profit, but I think we might be looking at a small loss instead, which could make for a more interesting decision.
bjsaust,
The decision is easier than you might think. When you compare the opportunity cost of hold it as it stands, and then compare the investing out come to other property in the market.
Look at this very simple example, based on a $500,000 property held for 20 years. If this investment achieves 6% capital growth per annum and $500 per week in rent, the property will be worth $1.6M and have returned $575,000 in rent after 20 years.
But what if you picked a property that returned an extra 0.75%pa in capital growth and $50 per week in rent? You’d be better off by over $300,000 (combined capital growth and rent), before you even consider finance and tax benefits. The right property will make a big difference to your long-term return.
Modernity Investing
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