Are you claiming everything your can? Depreciation springs to mind.
I would have a chat with one of the brokers on here and get some advice on what IO options are available to you and valuation options.
Can my bad investment be saved?
- Thread starter Sandman87
- Start date
Are you claiming everything your can? Depreciation springs to mind.
I would have a chat with one of the brokers on here and get some advice on what IO options are available to you and valuation options.
Hi Westminster, yes I'm claiming deprecation as well - good idea about seeing what other options are available via a broker though, thanks 
It's a fixed loan until September when it rolls over to P&I but I want to make sure that I have a plan in place when that day comes to minimise the pain.
The vendor finance option seems to be a good one to explore if it means that I don't have to incur a ~25k loss, even if I can get my accountant to work some magic with capital losses/gains etc. Is this something that is DIY or do you typically go through someone who takes care of it and takes a commission like a RE agent? There seems to be a lot of hoops to jump through with credit licences etc.
I think the general consensus is to sell, learn from my mistakes and invest more wisely moving forward..
It's a fixed loan until September when it rolls over to P&I but I want to make sure that I have a plan in place when that day comes to minimise the pain.The vendor finance option seems to be a good one to explore if it means that I don't have to incur a ~25k loss, even if I can get my accountant to work some magic with capital losses/gains etc. Is this something that is DIY or do you typically go through someone who takes care of it and takes a commission like a RE agent? There seems to be a lot of hoops to jump through with credit licences etc.
I think the general consensus is to sell, learn from my mistakes and invest more wisely moving forward..
Where is the IP?
Agreed vendor finance could work but it's not a simple strategy let alone with little knowledge or experience. It may also be hard to find a buyer meaning more time, money and effort poured into this investment.
Be sure to put a value on your time and stress levels as well. On paper it's an X dollar figure loss but it's also going to cause you continued time, effort and stress the longer you continue to hold this property.
As I said before, speak to an accountant and see how this loss can be credited in future gains. Seeing as though you will have learnt a great deal from it and your next investment is going to be a winner then your going to need those credits
Agreed vendor finance could work but it's not a simple strategy let alone with little knowledge or experience. It may also be hard to find a buyer meaning more time, money and effort poured into this investment.
Be sure to put a value on your time and stress levels as well. On paper it's an X dollar figure loss but it's also going to cause you continued time, effort and stress the longer you continue to hold this property.
As I said before, speak to an accountant and see how this loss can be credited in future gains. Seeing as though you will have learnt a great deal from it and your next investment is going to be a winner then your going to need those credits
Where is the IP?
Agreed vendor finance could work but it's not a simple strategy let alone with little knowledge or experience. It may also be hard to find a buyer meaning more time, money and effort poured into this investment.
Be sure to put a value on your time and stress levels as well. On paper it's an X dollar figure loss but it's also going to cause you continued time, effort and stress the longer you continue to hold this property.
As I said before, speak to an accountant and see how this loss can be credited in future gains. Seeing as though you will have learnt a great deal from it and your next investment is going to be a winner then your going to need those credits
Property is in Edens Landing, QLD.
Yes, even though the Vendrr Finance idea sounds good, I'll still be covering all my bases and getting some professional advice to make sure that I can come out of this with the least amount of damage! Really appreciate the help guys!
Sandman, just throwing another idea, without knowing the full extent of your situation, you may be able to refi down to a MUCH lower rate in September, and bring down your interest expense to ~11.5k-12k.
With 15k in rental income - 1.5k on PM, 3k in strata, 2k in others, 11.5k in interest; you'd only be 3k down per year. If depreciation is 6k, you'd be even week to week (just do a PAYG variation).
Doing this may just avoid realising a 20k equity hit.
Although this should be weighed up against your expectation of where the properties value will go over the next 5 years. If its still south, then best to cut your losses and run fast.
In terms of 'servicing' a 240k debt with 290k rental income is pretty good!!! Doesn't do too much damage if you can refi down to 12k interest expense.
Cheers,
Redom
With 15k in rental income - 1.5k on PM, 3k in strata, 2k in others, 11.5k in interest; you'd only be 3k down per year. If depreciation is 6k, you'd be even week to week (just do a PAYG variation).
Doing this may just avoid realising a 20k equity hit.
Although this should be weighed up against your expectation of where the properties value will go over the next 5 years. If its still south, then best to cut your losses and run fast.
In terms of 'servicing' a 240k debt with 290k rental income is pretty good!!! Doesn't do too much damage if you can refi down to 12k interest expense.
Cheers,
Redom
Sandman, just throwing another idea, without knowing the full extent of your situation, you may be able to refi down to a MUCH lower rate in September, and bring down your interest expense to ~11.5k-12k.
With 15k in rental income - 1.5k on PM, 3k in strata, 2k in others, 11.5k in interest; you'd only be 3k down per year. If depreciation is 6k, you'd be even week to week (just do a PAYG variation).
Doing this may just avoid realising a 20k equity hit.
Although this should be weighed up against your expectation of where the properties value will go over the next 5 years. If its still south, then best to cut your losses and run fast.
In terms of 'servicing' a 240k debt with 290k rental income is pretty good!!! Doesn't do too much damage if you can refi down to 12k interest expense.
Cheers,
Redom
If the value has dropped to 220k, he'll be well into negative equity, making him unable to refinance.
And in saying that, if he did refi elsewhere, it would most likely be LMI territory, wiping his previous LMI on 95% purchase. Not a nice position to be in.
My only suggestion is to cut your losses when you don't see a realistic recovery to justify holding. Otherwise it's an emotional hold which bleeds you slowly each day.
The 12k figures based on a 1 year fixed, given most lenders are competitive here (within 30-40 bp of each other), may be able to hit those numbers with current lender.
The above is good way to think about it. Holding will depend on assessment of recovery possibility and timeframe.
OP, have a look around at your local area - would it be possible to lease your place out on a fully furnished basis? Feel free to have a look at my website, we do this in Perth.
This is one way to turn a -vely geared property into +vely geared. It is more work for you, but it will tide you over while you wait for recovery of the property value, at least.
Something to consider.
This is one way to turn a -vely geared property into +vely geared. It is more work for you, but it will tide you over while you wait for recovery of the property value, at least.
Something to consider.
But its over 100% lvr isnt it?
Sandman, just throwing another idea, without knowing the full extent of your situation, you may be able to refi down to a MUCH lower rate in September, and bring down your interest expense to ~11.5k-12k.
With 15k in rental income - 1.5k on PM, 3k in strata, 2k in others, 11.5k in interest; you'd only be 3k down per year. If depreciation is 6k, you'd be even week to week (just do a PAYG variation).
Doing this may just avoid realising a 20k equity hit.
Although this should be weighed up against your expectation of where the properties value will go over the next 5 years. If its still south, then best to cut your losses and run fast.
In terms of 'servicing' a 240k debt with 290k rental income is pretty good!!! Doesn't do too much damage if you can refi down to 12k interest expense.
Cheers,
Redom
Hi Sandman
I too bought a property (not in qld) near the peak time - it taught me a lot about market cycles.
The above options from redom could be attractive to avoid selling at the bottom and realising that 20 k hit. If cant refinance which seems near impossible can current lender offer you a lower rate? some brokers are better than others at rolling over interest only loans to further interest only periods
Can you still move forward (and hold on to this property) by reducing your holding costs or get more rent. Do you have equity in your ppor that you could use to get another place? 240k and $290 a week rent still looks good on paper in terms of serviceability in the banks eyes.
From my research edens landing /Bethania have not grown yet (where as as other logan suburbs have)
You may be selling at the bottom now just before the upswing.
There are plenty of threads about Logan on this forum and why people think it will grow. some people also predict more interest rate cuts for next year
From my research In terms of edens landing/Bethania - some points listed below
-More desirable logan suburb to live in compared to some parts of woodridge etc
-Attractive now for investors as low vacancy rates/good yields
-Residents have much higher incomes compared to other logan suburbs
-Redeveloping the Beenleigh town centre
http://www.logan.qld.gov.au/plannin...-master-plans/beenleigh/beenleigh-town-square
-Can drive easily to gold coast
-Loganholme tourism plan ? new atttractions planned to bring tourists for when the gold coast commonwealth games are on. This will bring workers too and increased employment
http://www.logan.qld.gov.au/__data/...urism_Precinct_Master_Plan_Final_Editable.pdf
-opposite the nice new houses in woodlands estate and I think the woolworths, aldi and Bunnings there are quite new ?
-population predictions for the suburb are quite strong
http://www.qgso.qld.gov.au/subjects...j-pop-medium-series-sa2-sa3-sa4-qld/index.php
If you can hold by reducing outgoings and still move forward in your investing journey and regain some capital this may be better than taking a the cash hit now.
Its a tough decision all the best with it
I would be learning to do your own dd
You can arrive at a sound decision without listening to all the noise on here
A few months ago plenty of forum posters on here bagging out this suburb near yours
http://somersoft.com/forums/showthread.php?t=102366
Now prices have jumped, get down and have a closer look at what is going on your market,
For me personally, I wouldn't be selling ANY brisbane stock until I had seen 2015-16 out
You can arrive at a sound decision without listening to all the noise on here
A few months ago plenty of forum posters on here bagging out this suburb near yours
http://somersoft.com/forums/showthread.php?t=102366
Now prices have jumped, get down and have a closer look at what is going on your market,
For me personally, I wouldn't be selling ANY brisbane stock until I had seen 2015-16 out
Yes, I need to take a closer look at the area and which way I think that things will be heading into the future. I'll admit that I've let it go a bit long perhaps and thought "she'll be right" without actually looking into the area with great detail.
The current lender is CUA, fixed rate of 5.73% until September. If holding turns out to be the best option (because of foreseeable growth) and I have to go to P&I, using the 4.89% 1yr fixed rate from the same lender will make payments increase by $104 monthly. The "no more IO option" may be negotiable via a broker - not sure.
Jen_PFR - When I originally rented it out I floated this idea past local PM's but the verdict was not do it for the area. It's not within walking distance to any uni's where students would use that type of arrangement unfortunately.
After a revalue & refinance of my PPOR in September, I will be able to release about $70k. This will potentially allow me to purchase a CF+ property to help offset this one. Or alternatively put some of the 70k into paying down the IP to a point where I can refinance away from the current lender to get back to IO. Once again I'll have a chat to my accountant to see what implications this would have.
To re-fix a loan, unlikely to need another full application. Also some lenders wont require a full application for swap between P/I to I/O. Its probably not possible given OPs indication, but potentially worth pushing on.
More general point is to maximum the efficiency in the cash flow - cut expenses where possible and increase rent (furnishings a good idea). Then perhaps holding will remain an option again.
I think there was a point raised about it having a negative impact on serviceability - if some efficiencies are found, its not too bad (6.3%+ yield).
Cheers,
Redom
Yes, I need to take a closer look at the area and which way I think that things will be heading into the future. I'll admit that I've let it go a bit long perhaps and thought "she'll be right" without actually looking into the area with great detail.
The current lender is CUA, fixed rate of 5.73% until September. If holding turns out to be the best option (because of foreseeable growth) and I have to go to P&I, using the 4.89% 1yr fixed rate from the same lender will make payments increase by $104 monthly. The "no more IO option" may be negotiable via a broker - not sure.
Jen_PFR - When I originally rented it out I floated this idea past local PM's but the verdict was not do it for the area. It's not within walking distance to any uni's where students would use that type of arrangement unfortunately.
After a revalue & refinance of my PPOR in September, I will be able to release about $70k. This will potentially allow me to purchase a CF+ property to help offset this one. Or alternatively put some of the 70k into paying down the IP to a point where I can refinance away from the current lender to get back to IO. Once again I'll have a chat to my accountant to see what implications this would have.
IMO, if you've got 70k in equity elsewhere, i'd only consider selling if the market is likely to continue to move backwards. Otherwise hold onto it, do what you can to minimise cash flow losses, and then fingers crossed over the next 5 years it moves back up in value again.
Haven't dealt with CUA before, so others may have more info here, but perhaps suggest that you'll walk away if they don't let you switch to I/O. Recent client had success with this approach with Ubank, who apparently don't allow cash outs in the first 9 months of loan contract.
Cheers,
Redom
I have recently had the interest rate on my Gladstone house reduced (via the broker) and its value is more than $20K below the mortgage amount.
I dont understand why the OP was being urged to sell his house for a mere $20K. All of our SEQ houses dropped by about $70K after the flood, they are all on the top of hills so nowhere near any water problems. After a couple of years they are back to where they were previously.
I dont understand why the OP was being urged to sell his house for a mere $20K. All of our SEQ houses dropped by about $70K after the flood, they are all on the top of hills so nowhere near any water problems. After a couple of years they are back to where they were previously.
The OP has been urged to sell for a couple of reasons:
Firstly he said the negative gearing is having an affect on his cashflow (naturally) but whether he can afford this along with other expenses is unknown.
The outlook of the property. Keep in mind the property in question was not affected by floods, it is a townhouse (body corporate, not unique like a house so likely little can be done to manufacture a gain back into the property).
Issues with finance due to LMI paid and being tied to the lender.
With your property you may have been fine to hold, if it were CF+ then of course no one would tell you to sell it. It may have been negative but you could happily afford to hold it during the downtime. Also floods affected values and its natural as confidence came back that prices would recover. In the OP's situation there has not been such an event.
to consider this another way, the property market either goes up, sideways or down. In which of these scenarios would you be wanting to hold a property that costs you money each week?
Then consider where is this property? A heavily mining dependent town. Where is the economic cycle? Nationally it aint looking good. How long till it may look good? Who knows, we have to make our own assessment of that. How many years now has it been since Aus avoided recession?
the dollar, new car sales, government budgets, sentiment - all negative. The only positive may be IR's but Glenn Stevens aint exactly the best man we have had in charge - he got it wrong after the GFC plus he hates property so don't expect much there
So if you have an opportunity to exit at no cost, do you take it?
Then consider where is this property? A heavily mining dependent town. Where is the economic cycle? Nationally it aint looking good. How long till it may look good? Who knows, we have to make our own assessment of that. How many years now has it been since Aus avoided recession?
the dollar, new car sales, government budgets, sentiment - all negative. The only positive may be IR's but Glenn Stevens aint exactly the best man we have had in charge - he got it wrong after the GFC plus he hates property so don't expect much there
So if you have an opportunity to exit at no cost, do you take it?
If I am forced to go to P&I in September, I know that I won't be able to afford it on an ongoing basis. You're correct that I am limited by what I can do to manufacture a gain - new paint/window coverings/lights were put in prior to renting it out. Changing kitchens/bathrooms doesn't add up.
As I see it, provided that I think the market will turn around, I can only hold it if I can negotiate a further IO period with the current lender at a lower interest rate.
Great post. Especially the first line.
I don't know the answer to it as I have no idea about the area in qn. But IMO IF you can project out an upward movement in the absolute value over a 3-5 year period, hold onto it and make it more efficient. OP has equity, offset this negative cashflow with positive cash flow and have a neutral portfolio.
