Advice please

[RumpledElf]

So I have this house. It is currently vacant, and has been for sale for around 2 months - I don't have the REA agent contract handy but I suspect it'll be off sole agency any minute now and I will be able to pull out of the contract sans penalties if I want. Electricity has been off for 1 month, and the current insurance says a house vacant for more than X days (probably 60) attracts a $2000 excess. The house is clearly vacant, the weeds are getting ridiculous (it is on a 1800sqm block so that's a lot of space to grow weeds) and everything loose around the house has already been stolen. Given time, the stuff on the inside of the house will start to walk too, then the house itself will walk.

I've had 3 contracts fold since it went up for sale. There's only the rest of this month left on the boost. There's a reasonably high chance it won't sell. The house is only in my name.

I have it listed for $85,000. On selling I lose $4500 to the agent, about $1000 or more in break fees from the loan (honeymoon intro rate variable CBA loan that is barely over 1 year old), and probably another $1000 or more on the conveyancer and outstanding council rates (which I stopped paying when we decided to sell the house).

The reason I am so keen to sell is because I have an approved subdivision on my currrent house and it will cost about $10k to complete (although there is room to move on the septic tank moving - $4000 of that cost - if we dig our own hole). Since the house was put up for sale, however, I've scrounged up about $5000 and am saving over $1000 a month towards it. If I keep the house listed for sale chances are I'll have the entire figure for the subdivision, cash, and there won't be any pressure to sell. If it comes down to it, after the subdivision is through we can sell our current house (worth about $160-180k) and move back into the old house until we find somewhere better. Maybe rent the old house for a year in the meantime.

If I rent the house out I'd get about $100-120 a week rent - $5200+PA.
Council rates are about $600 a year.
Landlord's insurance? No idea what that costs. Current house and contents is $400PA.
Then there's maintainance. The house is in very good repair but it is 130 years old so anything could happen, and I can think of two things staight away a tenant might want fixed (one bedroom has no window and the toilet is .. low ... courtesy of some strange renovations by previous owners).
P&I mortgage is $2300PA.
No clue what PM fees are, most places out this way are self-managed, although there is *one* PM agency round here.
It is a big, roomy, well looked after house in a very, very feral area.
If miracles happen and they start a mine or more wind farms or some other Real Job Making stuff in the area, the house is on a block 18x100m with three street frontages so I could put a donga or two on the back.

Objectively, should I keep this house or continue holding it vacant for sale? The other half is in the "sell it at all costs" camp and I'm undecided ... I've had this house for 6 years, I'm kind of attached.

ETA: I don't pay tax (its a low income with kids thing) so negatively gearing doesn't come into this.

 

[toony]

Before I can decide what I would do, I would need to know what you paid for it 5 yrs ago?

Not worth holding if there has been no capital growth. Not worth the hassle in my opinion for $1k-$2k positive cash flow per year.

 

[Shadow]

I have an approved subdivision on my currrent house and it will cost about $10k to complete (although there is room to move on the septic tank moving - $4000 of that cost - if we dig our own hole). Since the house was put up for sale, however, I've scrounged up about $5000 and am saving over $1000 a month towards it. If I keep the house listed for sale chances are I'll have the entire figure for the subdivision, cash, and there won't be any pressure to sell.

So in a few months time you'll have saved up the $10K and won't need to sell it anyway. And if you rent it out, it would be cashflow positive. And you're emotionally attached to it. And it's on a big block that may have potential for sub-dividing or development in the future. I'd keep it.

 

[GreenTreeFrog]

The very, very feral area bit would scare me out of it!! How feral are we talking?

Is it likely to get trashed?

 

[RumpledElf]

I bought it for $25k, its been renovated - new roof, new pretty much everything, all paid cash except the roof. I still owe $25k, it was lower but I refinanced last year and all the fees/stamp duty/etc from our second house ended up on the smaller loan.

Its one of those really small towns full of 'interesting' people. The worst ones already own their houses from donkey's years ago - I don't think any of the feraller people there actually rent, they all own and are invariably born and bred locals. The people who've recently moved into the town - some are renters - are mostly families with young children doing somewhat weird business activities (as we are) like breeding exotic cats or running internet businesses or artists of varying kinds. Its a strange little place.

They've been talking about the diamond mine there for ... well, a very long time, and several wind farms are going up in the area. There's a test turbine up in that council but it is such a large council it could be anywhere, but the wind is all up in the higher altitude areas so if they are starting another wind farm it would be close.

Anyone who rents there is likely to be mildly eccentric and on a disability pension or single parent pension. If you want cheap rent AND good access to drugs you go to the next town across. The town I'm in now is 35km down the road and has a severe rental shortage and oodles of jobs but I'm not sure how willing people who work here would be to drive for 15 mins every morning, people in small towns think that kind of distance is an eternity.

 

[craigb]

1st up cultivate , or mow your weeds your choice, could you move into it your self, buy a gun and rent the other one, perhaps save more and do the sub division over a 1 year time period, seek some council memos, to see what has and could happen in the area as far as wind farms and mining , as the economy heals its leisions, in a years time it might be all good,
ELF its good to get other peoples perception as somtimes its difficult to see unless your looking in , rather than out of a situation.
i hope i have helped you, cheers ,

 

[HandyAndy888]

Rumple, I personally would rent it, have it cf+ and live with it as is. Yes, it's a dog, yes, it will struggle to have and CG, but you never know....if you can do cf+, why not rent it???

 

[skater]

Like the others, I think I would keep it. Since it isn't going to cost you anything to hold, you might as well sit on it for the time being. Wait a little longer and see what is happening with the mine & the wind farms. The small income you will make might be a blessing for you too, since your income is only small at the moment. Add to that, being only 15 mins drive, you & hubby are close enough that you can do repairs when necessary. You can also advertise privately while there are tenants in place.

 

[RumpledElf]

rent the other one, perhaps save more and do the sub division over a 1 year time period, seek some council memos, to see what has and could happen in the area as far as wind farms and mining , as the economy heals its leisions, in a years time it might be all good,

That was the original idea - stay in the old house and rent THIS house - $65k house, $40k off it straight away from the land if we sold it, $180-200pw rent. That's totally crazy yeild (and equally crazy capital gain).

Sadly for our hip pocket we fell in love with the area and all the extra services and ended up moving into it That was *not* the plan. The plan was to stay 4 years longer in dodgysville and rent *this* place out. But you can walk everywhere here! And the shops are open til 8pm! And there's childcare! And ADSL! The best laid plans of mice and men, eh?

I'm still giving the house till the end of September. It might sell, it is an unusually not-crap and not-tiny house for the price range. Most stuff under $100k is truly awful.

Out of curiousity, how does the house being rented out affect my serviceability? An extra $2-3k a year is nothing in the scheme of things. We want to build a new house next door and sell this one - if I can't sell my old house I'd probably be wanting to move sideways into an existing lower-valued house (they don't sell fast here) and buying it subject to the sale of our current house (which should be very easy to sell, renovated houses sell very fast here) rather than getting stuck in the situation of having two mortgages at once again and just hanging onto the vacant block next door.

Ironic how unrenovated houses here take an eternity to sell while renovated ones sell overnight, and renovated houses where my old house is take an eternity to sell and unrenovated ones sell overnight ...

 

[toony]

I would sell. Its going to be a bloody long time before you enjoy any capital gains here, if you paid $25k about 6 yrs ago.

 

[kinga4610]

RE

Maybe a tenant in place may improve the prospects for the house. All IP's I have purchased already have tenants in place. This is a big plus for me.

Then you could potentially change your advert to read Investment Property earning x% return.

Just a thought.

Kinga

 

[RumpledElf]

I would sell. Its going to be a bloody long time before you enjoy any capital gains here, if you paid $25k about 6 yrs ago.

It's had capital gain - crap houses that were worth $10k 6 years ago are now worth $50k. Mine was valued by the bank at $75k last year - one of those fine-tooth-comb style valuations. We've since fixed the bathroom as it was pretty scarey in there. Houses in the next town south - population 20 - are selling for $80-90k and pulling up valuations in my old town.

The problem is mostly that you get zero or negative return for renovations. I've spent about $30-35k on renovations, the house unrenovated in its original state (leaky roof, no HWS, almost non-existant kitchen) would be worth about $65k and with that $30k of renovations it is worth $75-85k. Sure, if it sells for more than $75k I'll get every penny I've ever spent on that house back in full - including selling costs and all holding costs - but that is a net $0 capital gain.

On the upside, in the 3 years we were staying there fulltime, it has saved me $17,000 for rent in an equivalent quality local house or almost $50,000 for renting an equivalent house where I lived before I moved there.

I'm half tempted to put the price up for September. There are two similar sized stone but slightly lower quality houses for sale in the town for $130-140k. There are two much smaller or weatherboard houses in the town for sale for about $70k. Perhaps I should change mine to $110 for reasons of perception of quality?

 

[skater]

I'm half tempted to put the price up for September. There are two similar sized stone but slightly lower quality houses for sale in the town for $130-140k. There are two much smaller or weatherboard houses in the town for sale for about $70k. Perhaps I should change mine to $110 for reasons of perception of quality?

You will find that some people won't bother looking at it under a certain price. If you are still thinking of selling, I would definately up the price. Prospective purchasers can always negotiate a discount, can't they?

 

[RumpledElf]

$100k seems to be the line in the sand. The few people that have been to look at the house like it and think it is really cheap but then pull out. There are a LOT of mediocre houses in SA under about $90k, around $95-110k they start to turn to better houses. I'd take $75k for the place but for $75k you generally get a serious dump so I don't want to lower the asking price that far, it makes it look bad. I priced it low hoping for a fast sale, so much for that idea.

We've still got the rest of the month to really think about it - the plan of action at the moment is leaning towards upping the sale price for September and then renting it out to a Suzlon employee if possible (rather than a generic pensioner/unemployed) if its unsold after September. We were hoping to use the sale proceeds to reroof this house (the bathroom leaks badly around some shockingly done vents) but its still feasible to just repair the damaged section. Should cost a few $100 not a few $1000 that way.

I'm using snippets of this thread to lean on the other half - he wants it kept for sale vacant. I don't like the idea of leaving it vacant.

 

[skater]

I'm using snippets of this thread to lean on the other half - he wants it kept for sale vacant. I don't like the idea of leaving it vacant.

DO NOT LEAVE IT VACANT! Especially if it is a dodgy area. The ferals (sorry, locals) will all know it's vacant & this can be enough for some to do damage just for kicks. It is much better protected with tenants sitting there. Your insurance won't like it vacant either.

 

[RumpledElf]

No, after 3 months vacant - which for all intents and purposes is when we put it up for sale, although the other half is arguing it is when we got the electricity cut off - my insurance excess jumps to $2000. 3 months also happens to be about the end of September, funny that.

I've heard of entire houses get stolen when they are vacant. Literally removed stone by stone.

It'd be better tenanted by riffraff than vacant for more than a few months, at least you can be insured against tenant damage. There's not much left in the house to steal but even doors and carpet and ovens are fair game.

 

[RumpledElf]

Just had the 'local' property manager around.

Old house would rent for $100-120pw, gross yield 22% vs the loan.
Current house would rent for $200pw, gross yield 12% vs the loan.
Building a new house would rent for $280pw, gross yield of 13% on build price.

Makes you want to go back to the old house, put up with it for a bit longer and live off the other two ...

 

[craigb]

it might allow you to buy another as your getting so good at the reno thing,

 

[RumpledElf]

Nah, can't buy another without higher income at this point.

I found out today what could be scaring a lot of people off. My rather iffy neighbour that I haven't personally had any problems with is apparently contantly with his music up blasting all day, has all his mates round at all hours, and is generally being an extremely noisy nuisance, because his mother isn't home to keep him in check. And the person who told me this is too related (small town) to fix the problem, which is a simple phonecall to the right people.

Is it in a real estate agent's job description to make the call that will make his mother return home ....