I own a Negative Geared property, what now?

JB wrote:

Good afternoon all,
Thank you for taking your time to read this post.
A bit of background before I begin. I am 22 years old I have a partner and as the title states I own a Negatively Geared property. It is on an Interest only loan. The house was built 2 years ago and has not yet built equity. Foolishly my down payment was 5% and I was whacked with LMI upon purchase and now the realization of paying off nothing but the interest on the loan is bugging me to say the least. After reading Steve’s book I am kicking myself that I did not wait until I had a little more knowledge under my belt.
My goal is:Acquire a positively geared property portfolio and create enough wealth to retire comfortably with my partner by the age of 50.
The question I have is, what is the best way to deal with this property?
My current plan is to place every spare cent I have into my offset account until I can pay P&I on the loan and have the property still be positively geared. Then to save up a 20% down payment prior to purchasing the next property and continue to do so.The property is also in my name, long term would it be worth looking at creating a trust?
Thank you.

Hey mate,

Well done for starting so early and thinking so ahead! 👍😎

If 5% was all you had to put into the house, why are you kicking yourself over LMI (which is 2-3% of the purchase price)?

Ideally one would buy a property that has manufactured growth potential instead of the good old ‘buy and hope’ but guess that’s not the case with this one?

What is the shortfall from paying the IO?

When we are talking about CF+, we mean that the income is greater than 100% of the purchase price (as IO loan) because any funds that are placed as a deposit are actually taken from an offset of a different property 😉

What’s the plan with this property? Maybe best to sell it and redeploy the funds elsewhere?

Yes, learning (all the time) is important. It never ends. Experience is one of the greatest ways to learn. No point kicking yourself if you ask me 😊

Trusts have pros and cons. Not sure a trust would be the best way forward?

Hope this helps?

Cheers,
Ethan

Selling the property now is terrible advice.

You will just end up paying entry and exit costs twice.

Firstly, are you getting market rent?
Secondly, are there any small and cheap renovations you can to do the property to increase the rent? (dishwasher/new paint etc)
Thirdly, if I knew what you know now at 22……I’d be ecstatic, you are way way way ahead of the curve, chill and bask in the knowledge that you are on your way and way way ahead of your peers. In 20 to 30 years from now you’ll look back and realize this was a smart move.

What you are doing about offset etc is smart, so keep doing it and wait patiently until you can afford your next place.

DeanCollins wrote:

Selling the property now is terrible advice.
You will just end up paying entry and exit costs twice.

Did anyone give him such an advice? I know it’s wasn’t me 😂😂

If you were indeed referring to my comment, then yes, examining all options is prudent IMHO and selling a lemon (for example) may be a best way forward in some cases, if can’t turn it into lemonade of course 😉

Hey I am using these forums as part of my learning, I am reading your post what mistake did you make exactly? I can’t spot it. Is it the negative gearing? I see you wrote down paying the interest on the loan is bugging you I don’t see what is the mistake?

I think there is a lot of mixed/different information, I hope below is a fair and respectful overview

-was the property purchase a good idea-ANSWER; depends on what the goal was. but if you get a deal on the purchase price (below value) and also have a high rental yeild in a possible growth area, your ahead of the curb

-should I sell or keep or restructure-ANSWER: the easiest way to work this out is, what is the benefit and cons of each option, selling incures various fees (bank/loan, Real estate agent/captial gains/etc,etc)
keeping the loan/property as is means youve learnt changed nothing, unless you know where your heading, which can be the best option under the right circumstance
Restructure-this could also be good if your saving more money due to the various rates, this likely in your case may not be overly useful as it can incure fees and seems you may not have built a large amount of equity.

I would like to end by saying Corey, Ethan, Terry, Dean, Tony all have points that bear a level of reasoning that make sense in their own way.
but if you know each of their points and the value in each of their points, then that should mean you will understand which option fits you.

I wish you all the best

Jay,

that may be the best option what you just stated above, or it may have a lot of sense to hold onto it and use the equity to build a larger portfolio than selling and buying.

Remember there is fees (as noted above) every time you buy and sell, and if you gain profit generally the government wants a cut.