should i hold or sell with loss??

[RichardC]

Point taken Seechange. I have PMed George.

It contained in part: "I hope the post that Seechange objected to did not upset you. It was meant as a general criticism of the cavallier attitude of many towards debt and advising others to be the same. I did not make this clear and apologise sincerely for failing to do so.

Beyond this I can only give the same general advice I would to a share trader. "If a position goes bad, get out and live to fight another day".

But that is a very general statement of my own opinion."

 

[WillG]

Enquire about the cost of converting your P&I loan to Interest only. This will reduce your monthly repayments and the whole amount will be a tax deduction (I take it that your current loan is P&I from what you infer above)

Check council regulations for building an attached dwelling (granny flat) that could be rented out separately. Some councils allow you to park a mobile home in a back yard, as long as you pay a holding bond to guarantee you will remove the home within 5 years. Renting both out will obviously improve your yield if you can get more rent than the cost of interest to acquire the second dwelling.

Consider dumping the property manager and doing the management yourself. This will save expenses. If it is close to a university, consider renting it to groups of students from overseas. You can often get better yields with student accomodation.

If it has a sizeable secure garage, consider advertising the garage as commercial storage space. Some small businesses and private individuals are always looking to store stuff on a long term basis. (people going on extended OS holidays who don't want to pay rent when away) Be sure to come to an arrangement with the current tenants though re regularity of access.

Lastly, look at the opportunity costs of continuing to hold until the market moves. A third of your wage can service a lot of debt that could be put into managed funds. Many here tout the Navra Fund and its performance has been good for the 2 short years of its life.

Great advice TheFirstBruce; maximising cashflow in the short term while you think about strategies is important

I would consider capitalising other expenses (such as rates etc) to increase cashflow (a good accountant can advise further on this).

What are the costs of selling now (including taking a personal loan to help pay out the loan, selling fees, legals) compared with holding onto the investment.

What are your total losses after tax each year if you hold the property ? ($10k capital + $10k expenses)

Future Projections:
It may help to model several scenarios, for example :
1. 5% capital drop for next 5 years followed by 5% capital gain for 5 years
2. 3% capital loss for 7 years
3. 0% gain over 5 years, 5% gain over 5 years, 10% gain over 3 years
4. ...

You should calculate holding costs for each of these scenarios.

When you are armed with these figures you will be able to make the decision to sell or hold.

At least if you sell you won't be hit with the NSW vendors tax.

Hope this helps !

 

[tigerGT]

George, does the property serve a higher purpose. ie is it able to be considered a development site. This could give it more value either to yourself or a prospective buyer. Are you able to let it out by the room to achieve a higher yield. (This does come with its own set of risks, but might make it more worthwhile for you to hold on to)

Hi Skater, No I have exhausted all corridors here but unfortunatly no good.

Enquire about the cost of converting your P&I loan to Interest only. This will reduce your monthly repayments and the whole amount will be a tax deduction (I take it that your current loan is P&I from what you infer above)

Check council regulations for building an attached dwelling (granny flat) that could be rented out separately. Some councils allow you to park a mobile home in a back yard, as long as you pay a holding bond to guarantee you will remove the home within 5 years. Renting both out will obviously improve your yield if you can get more rent than the cost of interest to acquire the second dwelling.

The bulk of my loan (76%) is interest only and I negatively gear everything. In regards to attachign a granny this has been suggested to me and I think considering they return an extra 150 a week then this would surely be a positive. I would have to do some sums ofcourse and see how worthwile it is but defintly something worht looking at... Thanks

Lastly, look at the opportunity costs of continuing to hold until the market moves. A third of your wage can service a lot of debt that could be put into managed funds. Many here tout the Navra Fund and its performance has been good for the 2 short years of its life.

Managed funds, not my cup of tea at this stage of my investement career. Id like to have a couple of houses before looking at funds. Reason being is Just about to get married next year and need to buy lots of things and pay for lots of things... im sure many here can understand that the cost of the wedding / marriage is actually a 10% deposit on a nice 500k property... But it must be done

It contained in part: "I hope the post that Seechange objected to did not upset you. It was meant as a general criticism of the cavallier attitude of many towards debt and advising others to be the same. I did not make this clear and apologise sincerely for failing to do so.

no offence taken, I hope other begginers actually read it and learn from it.. I sometimes laugh when i hear those adds on the radio about borrowing 100%. I feel like saying NOOOO!! cant believe ppl are doing it and even in this market.


WILLG,

from my understanding the vendor duty was only payabel if you sold for more than 12% of what you paid and i dont think that would have happened in my case .. no way! so i was exempt anyway!!!

I am going to have to sit down and do some furture projections as you suggested!!! Im sure this will help a great deal!!!

Can anyone point me to some good scenario building forums for future projections.. ie formuals etc??? I can use my own methods but if there is a more accurate calcluator/template out there would be good.

Thanks heaps to all,
very benneficial

 

[Panic]

GeorgesA,

If I were you, I would stop at this moment at throwing any more money into this asset. It has proven to be a bad investment and any additional money thrown into it is waste. It is like puting 750$ alloy weels on 1997 Daewoo Cielo (the car that I own trying to push up the resale value by 500$.
Cut your losses!... and there will be time when you will be riding your winners!

Thx
V

 

[lizzie]

Well I have a HECS debt as i only finished uni several years ago and this as well as the second highest tax bracket i find myself paying over 50% tax. Theo only positive of this property is that it is so negativly geared that it returned me 11k tax return. 5.5k of which went to hecs. Do you think it would be better to fill in the relevant tax forms and have witholding tax paid everyfortnight or just wait for the end of financial year???

a couple of things before you consider selling. do some calculations on having the loan fully interest free as there is no point in paying principal as it is not tax deductable. then, add back the tax refund you get for owing the property - at 11k year that totals 212/wk. 212+215 (rent) = 426/wk income from the property - not a bad return for nowadays - consider putting in a paye amendment for 5.5k of this to come to you in your pay each payday. the remainder 5.5k can be held aside for hecs bill, which is payable whether you have a property or not, so you have to find 5.5k each year if you didn't own the property. even at 5.5k refund, that would still be an income of 321/wk from the property and your hecs paid for - what would then be your shortfall each week once expenses are met?

room by room rental is a good idea but would probably require further reno to provide fridge/tv/internet/washbasin in each room, but may be worth the extra expenses - depending on what is in the area.

i too have bailed out from a loss, but that was shares only where i had no control over the final outcome or control in increasing my revenue from such - i wouldn't bail on this until every avenue had been explored, and the above might be a few starters to lessen what it is costing you.

lizzie
all comments are my opinion only

 

[Mike F]

the remainder 5.5k can be held aside for hecs bill, which is payable whether you have a property or not, so you have to find 5.5k each year if you didn't own the property.

true, because remember that you have to pay hecs on rental losses, eventhough your taxable income is reduced. Some people get caught thinking that as their taxable income is reduced they have to pay less hecs.

(I got stuck with a unexpected big hecs bill a few years ago )

Mike F

 

[karina]

A loss is not a loss unless you sell, TIME will allow the property to grow in value.

If you can afford the cashflow loss each week it may be worth holding onto if you are looking at a LONGTERM investment.

TIME can turn a bad investment into a good one. I guess it all depends on your personal situation and your ability to service the loan.

It may take years though but chances are that there will be another boom sometime in the future.

Don´t be too hard on yourself , you can come out ahead if you look at this as a longterm investment. If you want to exit now though chances are you will make a loss.

"If you can manage the downside the upside will take care of itself"

 

[tigerGT]

hecs suprise

Yes this came as a shock to me this year too. i thought that after reducing my taxable income they would realise that they overcharged me for hecs and give some of the upfront payements back. This was not the case. They still charged me the hecs on the amount i earned not the amount declared..

Live and learn i guess

p.s i dont see another boom in the horizon for a while.. It doesnt bother me though, as I know by then I will be riding the wave (a few properties by then i hope) and not just coming into contact with the white wash as i did last time round...

again live and learn

 

[investor]

Hi

What on earth possessed you to buy west of the harbour bridge in the first place ?

Don't you know that anything west of the bridge is regional ?

Anyway it's done now.

Look, everyone who bought in sydney after 2002 and those in regional areas who bought after that or are buying now will be hit with negative equity now or in the near future. ie there properties are losing or will lose value in the short term.

But don't be mistaken your property WILL be worth 600K - 700K ( double )in 10 years time. That is almost a certainty.

That's the nature of the beast, the way the cookie crumbles, the name of the game.

We are entering into an ugly part of the cycle where sentiment towards property is and will be at an all time low.

I have just now completed a full property cycle as I have been active in the market for 12 years and we are entering into a prolonged period of -ve sentiment. Don't panic because of what people or the papers say. If you can afford to hold then HOLD. Your rent will rise and your debt will fall with time and you may even be able to add to your portfolio hopefully east of the bridge before the next boom.

I sometimes sit back and read the SMH and laugh at all the articles. It's like deja vu, in fact it's exactly the same stuff I was reading 10 years ago.

Regards

Investor

 

[tigerGT]

reply

I will defintly be adding to my portfolio. I am planning to ride the next cycle indeed..

p.s why would i buy east of the harbour bridge though??? It will take twice as long to save up a deposit and that would probably be for a unit! Instead why not buy something 15km away from city centre on a 700m2 block for around 380...
Sydney is getting bigger and bigger.. Before you know it Strathfield might be refered to as inner city...
who knows

 

[Kennethkohsg]

Dear GeorgeSA,

1. I think that it might be more helpful for us to fully understand your present circumstances, thinking and considerations on your proposed option "Sell VS Hold Or.... something else".

2. It can be quite difficult for us to advise you properly, without fully understanding your current situation.

3. What are you presently thinking and planning to do, on your own? What are your considerations and assumptions if any?

4....Based of the feedback given by the various members to date, What is your likely position and why?...

5. ..It might be more helpful for us to help you check your own line of thinking and assumptions for your decision-making, with our own investing experiences than to offer you a straight "Sell" or "Hold" answer without first understanding your present situation clearly ourselves.

6. I hope this will help you to be able to make a better decision in due course, with the various members' feedback and inputs, which can be made more relevant and applicable to your specific and unique situation.

regards,
Kenneth KOH

 

[Kennethkohsg]

Some of the people in WA might be wise to read this post at the current time.

See Change

*****************************************************
Dear See_Change,

1. By your a/m comment, are you suggesting that the Perth property market is likely to follow what is happening in the Sydney property market?

2. If so, can I humbly request to learn from you what are your basis for coming to this conclusion?

3. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

I sometimes laugh when i hear those adds on the radio about borrowing 100%. I feel like saying NOOOO!! cant believe ppl are doing it and even in this market.

****************************************************
Dear GeorgesA,

1. Why do you think investors wants to borrow 100%? Do every investors who borrow 100% get burnt ultimately? What do some investors choose to borrow 100% while others choose not to? Why do some investors who borrow 100% are still successful in their property investors while others are not?What can we learn from here?

2. Every investor needs/situation is different. There is no one simple answer that fits every investors, given their various differing specific investing situations and considerations.

3. All investors like to think that they have done their due own homework and has made the best decision at the point of their decison-making, given their prevailing situation and calculated risks. I am sure that, that was your case too, isn't it?

4. Sometimes their decisons and calculated risk-taking proved worthwhile immediately while at other times, it takes a longer time to realise the desired consequences.

5. Nobody wants to deliberately and consciously err in their own decision-making.

6. You will agree with me that likewise, you clearly know that your own decision-making was " NOT wrong" at the time you first made and acted on it ;- neither does it need to be "wrong" now as over time, the same decision can still produce you the desired fruits, (as suggested by some of the forum members) unless you want to deem it to be "wrong" now for yourself and want it to be so or/and your present investing circumstances does not really allow you the time/means to change the outcome for your investing decision.

7. Only the affected investor will know clearly the original considerations and actuaL basis used for their initial decision making.

8. A good investor is one who is chooses to be bold enough to be ALWAYS honest to one's true self by reviewing true outcomes and full consequences of the decion made as they are now, and then proceed to evaluate/learn where he/she has gone right or worng in the decision-making process, decide on the lessons to be learnt and then think of ways to further improve on the decision-making process so that the outcomes will be as close to the desired outcomes as possible.

9. I trust you will further reflect on what I have to say here and to remain open-minded to different investing strategies used by different successful investors so as to develop your own unique success formulae for yourself.

10. Thank you.

regards,
Kenneth KOH

 

[Aceyducey]

George,

The question is not whether you should sell with a loss, it's what you learnt from the experience and how you apply that to your decision today.

My general philosophy is that if it's not seriously eating you, you don't have anything better to do with the money and there is a reasonable change of upside within a timeframe reasonable to you, don't sell.

If any of these are not the case, then the money may be better put to work elsewhere.

BUT if you haven't learn from the experience, don't expect your next investment to perform any better.

Cheers,

Aceyducey

 

[see_change]

*****************************************************
Dear See_Change,

1. By your a/m comment, are you suggesting that the Perth property market is likely to follow what is happening in the Sydney property market?

2. If so, can I humbly request to learn from you what are your basis for coming to this conclusion?

3. Thank you.

regards,
Kenneth KOH

Kenneth

I've answered this on other thread where you asked a similar question.

http://www.somersoft.com/forums/showthread.php?p=166001#post166001

See Change

 

[see_change]

I hope other begginers actually read it and learn from it.. I sometimes laugh when i hear those adds on the radio about borrowing 100%. I feel like saying NOOOO!! cant believe ppl are doing it and even in this market.

Georges

There's nothing inheritantly dangerous with borrowing 100 % if you do it with care. For me this means getting your timing right.

We 've borrowed all of the money for all of our IP's. The Deposit and purchase funds have come from a LOC on our PPOR which we owned outright at the time we started buying.

As a generalisation I agree with you re people doing it in the current market , though for people who really know what they're doing , it still could be a worthwhile option.

If you have money available for a deposit , from the risk management view point , it makes sense to hang on to as much of that money as possible rather than increasing your deposit. This can act as a buffer if you have problems further down the line. The same reason can be used for using Mortgage insurance to increase you borrowing power , so you can keep money in reserve.

See Change

 

[Bill.L]

Hi all,

There has been some really interesting and varied advice given so far.

Georges, for my money, I would want to look at the following as there is not enough information given so far.

1. Borrowed $350k (for purchase and costs) interest cost at 7% = $24,500 pa.

2. Other cash costs rates, insurance, maintenance say $2000 pa.

3. Income $860 pm(gross or net? assume net) = $10,320 pa.

You get a refund of $11,500 from ATO.

You are in the second highest tax bracket.

You make an out of pocket loss of $16,180 before tax. This means your other non cash claims( depreciation,travel, office etc) must be very high. Will they stay high???
On an older property with a minor reno, I doubt if your depreciation deductions will stay high for long, check your depreciation schedule.

From your figures this property is costing you $4680 pa to hold.

Now using WillG's suggestion play with some numbers.
Using 3% inflation, how does the property look after 20 years?? $860 pm turns into $1553 pm. or $18639 pa. This would still only be a 5.3% yield on your $350K.
Ask yourself what are the circumstances needed for any rise in value of the property as even a 5.3% yield is not attractive if the property is not growing in value!!

Use a calculator, change the numbers to something you like, Try to work out how possible it is to happen. (like all attempts to predict the future, it is not an exact science , your informed guess is as good as any FP, accountant or economist)
Can you put the $4680 pa to better use, even if it means paying out the loss you take on the property if you sell???

If it was my property I would sell, as the torture of a slow decline/no gain, and year on year cash loss would be too hard to endure. I've learned to cut my losses the hard way.

good luck

bye

 

[ren-A]

Would you buy it today?

Here's another suggestion: given what you know of the property market TODAY, would you buy it now?

In other words, if current market value gives a yield of say 5-6%, and you feel the market has bottomed or is close, perhaps it is a "buy" (ie hold) rather than a sell?

 

[Kennethkohsg]

Here's another suggestion: given what you know of the property market TODAY, would you buy it now?

In other words, if current market value gives a yield of say 5-6%, and you feel the market has bottomed or is close, perhaps it is a "buy" (ie hold) rather than a sell?

*************************************************
Dear Ren-A,

1. Although your questions does help GeorgesA to a certain extent, I think that we still need to know what are his present actual investing circumstances is like, for example, does he has the financial capacity to further hold on to the same property and if so, for how long and what are his considerations first, before we are able to constructively comment further.

2. My 2 cents comments to add to your post.

3. Thank you.

regards,
Kenneth KOH

 

[tigerGT]

situation is this

Well in regards to my situation;
1. I pay around 550 of my income per fortnight into this loan. This is about 25-30% of my pay.

2. I have around 35k saved for something else ( this money is sitting in the redraw.. i know i should have got the offsett- homepath doesnt offer it)), most likely another property which I will use as PPOR. I wil not be living in either of these houses as I will be living in a house that my dad has rent free.

3. At the moment im financing everything on my own income however in one years time after marriage then dual income will take affect.

At the end of the day this is how i see it using m very rough figures..(mortgage of 340)

Loan repayements: 23000
other eg water rates etc: 2000
rent: 11200

i therefore pay: 13800 say 14000 out of pocket

Tax return: 11000 of which 5.5k i dont see due to hecs

I can still say therefore that the property costs me around say 3-4k a year...

When i look at numbers like this then im ok with it... Im looking to get married and buy another proerty. Property first hopefully in the next 8 months. I just want to be able to handle them both...

In regards to this property in specific, If i had the knowledge i do now back then i would never had bought this house. It is not an ideal house, low side, housing commision on the street, 12.12m frontage, 5 min from station(not good in my area) 2br fibro etc etc.. I can probably get 330 k for it now if i tried... leaving me wiht a 15k mortage (after paying agent fees)..

The way i see it is when houses in chester hill go up 7% my house will only rise 3% due to all the negatives associated wiht it..

I think i could probably break even if i hold it for say 5 years but 5 years is a long time where i can be using these funds to buy something better and more financially sound.

From the moment i decided to buy till the day i happened to go to this auction was around 2 weeks in 2003. I didnt even look at contract before buying.... But i was bold enough to jump in and if one good thing came out of all this it was what i learnt and the fact that I have a house ( even though its a dud i still have one which will hopefuly lead to more...)

Really enjoying reading everyones opinions....
very interesting to see that there is no 1 right way....