Bought badly & can't get out - Mandurah, WA

[glowkat]

Hi everyone

After making a decent profit out of Madora Bay (Mandurah, WA) over the last couple of years, I'm afraid I got a little cocky and bought 2 more blocks right at the peak of the boom last year. I bought them with the intention of selling after a few months, as per the gains I had made previously. Unfortunately, my lesson has been a very expensive one, and I know what I have done wrong, and (after beating myself up for a while) made my peace with it. I'm now at a point where I'm keen to cut my losses and move on, but I can't seem to sell them at all now.

I have two vacant lots and one brand new house, all priced at or below market, and not one of them is moving. Unfortunately my holding costs are blowing out and I just can't hold on to them any more, so I'm wondering if anyone has any 'out of the box' suggestions for how to get them moving. Even if I could get rid of at least one of them, it eases our monthly interest payments and gives us some breathing space. I just really don't know what to do anymore, short of continuing to lower the price, which doesn't seem to help if there are no buyers out there.

I have them all listed with LJ Hooker Mandurah, and I'm really happy with my agent so far, but he's not even getting any enquiries on them at all.

I'd love to hear from anyone who's having a similar or (hopefully) a better experience in the area, or who can recommend an agent who's getting results, or anything else that might assist me in changing this very frustrating situation.

Many thanks in advance for any suggestions!

Glowkat

 

[alexlee]

Not to sound trite, but if they aren't moving, would that mean your asking price is NOT at or below market?
Alex

 

[Harris]

Not to sound trite, but if they aren't moving, would that mean your asking price is NOT at or below market?
Alex

I agree..

You are pricing those higher than what the market is willing to pay..!

 

[glowkat]

Hi Alexlee

Thanks for the prompt response. It's certainly a valid point... I went with my agent's 'lower end' appraisal (and compared myself to what else was on the market), and then lowered it further than that because I had wanted a quick sale. Now 2 out of 3 of my listed properties are the cheapest on the market (relative to other properties of the same characteristics) and still no enquiries.

I'm already selling the two vacant lots for less than I bought them for last year, so any lower and I would have to find more money I don't have to cover the loan / settlement.

Glowkat

 

[Kennethkohsg]

Dear Glowkat,

1. As you would have probably know, the median house price in Mandurah have greatly "overshot" its true realistic market value during the last boom in 2006.

2. The current house pricing in Mandurah, has far exceeded its current stage of urban housing development as a result of intense market speculation from overseas and interstate investors.

3. While Mandurah has good medium-long term growth prospects, it is presently "over-supplied" with many "over-valued" properties being listed for sale.

4. As you would have probably known that the land developer at Pt Bouvard is prepared to give some A$250,000 -A$300,000 price discount for its remaining few A$1 million canal blocks towards the end June-July 2007 period.

5. Consequently, I guess that you have to be prepared to give similar steep 25%-30% price discounts if not bigger price discount, in order to effectively exit out from the present "over-supplied"/"buyers' property market situation, in the immediate near future.

6. Alternatively, since the median housing prices for Mandurah is still reporting some 41.5% pa. over the last 12 months as at 30th June 2007 or/and still achieving an average annual capital growth rate of 28.7% over the last 5 years, and with the Mandurah suburb officially reported to be the fastest growing suburb over the next 20 years, you may want to consider holding on to some of your properties till the local market has fully digested the present market housing supply and start to improve again over the medium-long term period.

7. For your kind update and further considerations/discussion, please.

8. Thank you.

regards,
Kenneth KOH

 

[Aimjoy]

glowkat,

Disclaimer: I have not used the strategy I am about to advise nor do I have any kind of financial relationship with the belowmentioned person BUT

I have a CD somewhere of Rick Otton's that described this very scenario in which you find yourself with 3 possible strategies for sale. From memory one was to offer vendor finance at 3.99% interest for 1 or 2 years even at the slightly inflated selling price. The idea being that ppl would go for a cheap interest rate over similarly priced properties. The incoming purchasers still got bank finance at say 7.5 or 8% but the seller (you) stumped up the difference of say 4% (on $300K it would be $12K per annum) on settlement. Sale ! wal...ah!

My memory may be failing me - but if you make contact with Rick Otton's organisation he may be able to assist or others on this forum who remember.

Cheers,
Aimy

 

[Melbear]

glowkat

Along the same lines as Aimy above with a Rick Otton type suggestion..

With your completed property you could always sell/lease it on a Lease/Option deal. You'd charge a higher rent than normal, improving cash flow a little, with a fixed price sale price at a date anywhere from 1-5 years away. The extra rent they pay goes toward their deposit for purchase, and gives you some breathing space cashflow wise for the moment.

 

[glowkat]

Thank you all for your responses, it always helps to gain clarity when bouncing off other investors who've been there, done that.

I'm dropping the price again to see if that makes a difference, and if not, then I may consider the wrapping strategy.

Ideally I think it would have been best to hang on through this tough market until it stabilises, and the train line is operational, but financially that's just not an option unfortunately.

Thanks again for your input!

Kat

 

[redsquash]

Are your holding costs based on an interest only loan or Principal and Interest loan?
What sort of figure are we talking about when you talk holding costs.
These costs are claimable on tax so you may have a few extra thousand or so

 

[glowkat]

They are all set up as interest only and the holding costs for three properties are around $6k per month. Unfortunately 2 of them (the vacant lots) are JV's and done in the names of family members, hence no tax breaks for me.

The interest I pay on the house in my own name is tax deductible, however I'm going to claim it as part of the capital gain / loss next fin year when I sell because I didn't have an income this year (06/07 - haven't lodged my return yet) to offset the deductions against. I hope that makes sense.

 

[asdf]

Where are your blocks and house? Seascapes? Meadow Springs? Theres no doubt that demand would return as fundamentally the state is still BOOMING. May take a couple of years before demand starts building up again. Same experience here in Sydney back in 03. In most areas, except undesirable Western suburbs, prices have risen from its highs. In time, it will get there but unfortunately for most of us with negatively geared IPs, the holding costs will kill us in the mean time. How highly geared are the loans? You could re-fi into one of those capitalising loan products where you pay cheap rate for first couple of years that steps up higher in later years.

 

[The Claw]

glowkat,
It might help if you include the "decent profit" you have made when you figure out how low you can sell before making a loss. By "giving back" some of this profit, you will be able to sell out lower and faster without making an overall loss on your speculations in Mandurah.
You say that you are offering the properties for below market value but they are still not selling. This is a problem you get with illiquid investments. What you think is the market value turns out to change when you try to sell. It is fine to have some illiquid investment/speculations but by the sound of it, you have borrowed and bought such a large illiquid portfolio that it is making you feel uncomfortable. I recommend that you reduce this portion of your portfolio to a level you can be comfortable with.
The famous investor Warren Buffett claims that he wouldn't mind if the market closed and he could not sell any of his investments for 10 years. Perhaps you could follow this advice and only keep something you would be comfortable to hold for 10 years.
You should also keep a very close eye on the asking price of similar properties and what they sell for. The last thing you want is to be dropping your prices more slowly than everyone else and not selling and getting in a deeper hole each week.
You say that the holding costs of your 3 properties are $6k per month. That's quite a lot of money. Why not quickly sell all 3, even taking a big loss. For example if you lost $36k then after 6 months you would make this back in holding costs. After that you could just live on the $6k without the worry of the direction of the Mandurah market.

 

[lizzie]

and the lesson you learnt? .... priceless.

 

[glowkat]

The properties are in Madora Bay, where we have four in total. One has $200k - $300k equity (the $100k variance is dependent upon the actual sales price we could achieve in today's market if we wanted to sell vs the appraised 'on paper' value) and is tenanted, which we were always planning to keep long term. The other one I have profit in is the house that is on the market. The two blocks are mortgaged at 95% LVR, so with the drop in price and the selling fees, we will need to put additional money in to finalise the loan at settlement. Hence the challenge with reducing the price too much.

The house has a loan against it of $415k and was appraised conservatively at $575k - $585k so that it would be priced lower than the other properties on the market that seem to be asking well into the $600's. Since posting here, I've dropped it to $555k, because using the profit from this property, I can absorb the loss from the other two blocks - provided this sells first.

Because I was only ever planning to sell quickly, using a long settlement from the agent (although the titles came through faster than expected - what are the chances?), I had never planned on holding costs for 12 months, which is where we're at now. As such, it's wiped out savings accounts, work bonuses, refinances, everything, and I'm really not sure how to make the next few month's payments.

I'm hoping the house will sell first with the new price reduction and I can use the profit from that to either reduce the price on the other two and absorb the loss, or generate some additional income to hold the properties through the market correction.

Let me say that overall, property investing has certainly worked in our favour, and I don't have any complaints. I am grateful for my valuable, yet EXPENSIVE lessons here, and I will certainly be more cautious in future. I know what I've done wrong, and I'm disappointed in myself on so many levels for letting my family down here too.

I guess I just want to take my expensive lessons, cut my losses and move forward now. Thanks again everyone for your input. Hopefully I'll have some good news about a sale soon!

Kat

 

[feihong]

Hi Kat:

When a person is able to take a big loss with a smile and move on rather than getting scared off from further investments, then that person is definitely a fair dinkum investor/enterpreneur

Good luck and I'm sure you will do very well in the future

 

[landlubber]

Investment vs speculation perhaps?

Sorry ...Buying vacant blocks of land with no income and "planning" for them to appreciate is not investment ...it's speculation. There's a difference.

Also... there's a big difference (normally in price I'm afraid) between "putting property on the market" and "putting property on the market TO SELL".

A good lesson as long as you can afford the school fees.

LL

 

[sunshine]

I know what I've done wrong, and I'm disappointed in myself on so many levels for letting my family down here too.

Hi Kat

Similar words came out of my crying uncontrollably mouth very very recently. Hubby gave me a good kick up the backside, and explained that I had let nobody down, and so what its just money...

Consider this your kick...

Don't give up. Maybe you need to look for the right QUESTION to ask, not the answer. This may or may not change your scenario.

When things don't go according to our plan, time to find a different plan. Are there any creative ways to offload or hang on, say some sort of Vendor financing, perhaps a JV, dunno just throwing some things in that perhaps might not have been mentioned. Can a different MB help you get creative, maybe a different loan maybe even a Cash Flow type loan?

In my situation, everything turned good at the very last minute. I don't know how, but it did, I never gave up after the kick..

Good luck and don't give up...

Sunshine

 

[landlubber]

Have you read Jan's book ?

Sometimes I really wonder how many of "you" have actually read Jan Somer's book and follow her BLOODY WONDERFUL, SIMPLE, EFFECTIVE methods. She provides this forum for us .....

Have you read , re-read, studied her book " More Weath with Residential Real Estate". ?

LL

PS THis is not an "ad" for the book ....I have no relationship at all to Jan but have been following her methods for 11 years very successfully.

 

[sunshine]

Sometimes I really wonder how many of "you" have actually read Jan Somer's book and follow her BLOODY WONDERFUL, SIMPLE, EFFECTIVE methods. She provides this forum for us .....

Have you read , re-read, studied her book " More Weath with Residential Real Estate". ?

Unsure who the "you" are, I have read her books, and almost everyone else's books too.

Sometimes when trying to find ones own investing style, things don't go according to plan, learn the lesson and move on is good, but not without trying to find an alternative.

Sunshine

 

[landlubber]

I guess it depends on what is most important to you. "Finding your own investment style" or simply getting on with getting wealthy. Me... I'm very happy to by-pass the "style experiments" and copy-cat Jan's "tried and true" simple systems ... and live happily off the profits.

LL