Can't make mortgage payments

[Techman1]

My wife and I have 5 properties which are generating about $13,000 negative per month. We have one up for sale, nobody is buying. We could sell another one but if we sell it before July we are up for a $100,00 + capital gain and we would only net less than $15000. The problem is there is not much equity and all have fixed rates, and as you know big break costs.
3 of the properties are with RHG. I am wondering what would happen if we just gave 2 of the properties back to them. Would it do any good to call them and ask or would it be to our disadvantage to do that?

Anyone have any ideas?

 

[Rolf Latham]

Ouch

Thats a hard gig..................

Sounds like u really need to sit down with soome one to manage that debt and sructure a solution

RAMS wont just take the properties "back".........

The hole that will be left on your credit file would take many many years to fix.

ta
rolf

 

[Techman1]

At this point we're not really worried about losing our excellent credit rating.
It is a matter of not wanting to go bankrupt.
You said Rams when I said RHG aren't they suppose to be separate? We do have one Rams loan too, if we default on an RHG loan would Rams take action on that loan too?

 

[Rolf Latham]

RAMS and RHG are not related in the day to day work..........

If you have a default(s) on your file and subsequently a judgement for the mortgagee in possesion, you CRAA file will go from excellent to persona non grata......not quite as bad as Bankrupt in terms of the length of exclusion but still yuk.

If you have to pay some CGT to save your file, and the post reads like it might, then perhaps seek some advice on doing that, and then negotiate some terms with your creditors ? ta


ta

rolf

 

[Kristine..]

3 of the properties are with RHG. I am wondering what would happen if we just gave 2 of the properties back to them. Would it do any good to call them and ask or would it be to our disadvantage to do that?QUOTE]

Hi Techman

Welcome to the Forum!


I am working through a similar situation with some of my RHG customers at the moment.

RHG could not have been more helpful. We are wanting to release 1 security unencumbered from a pack of 4 securities.

Valuation came back today for the remaining 3 securities with ample equity to secure the loan, intact, remaining registered.

This is costing the customer a documents fee, a contribution to valuation, a contribution to settlement, and the standard discharge fees. All up, less than $1,000.

RHG have been their usual professional, friendly and helpful selves.

Make that phone call. There is always a solution to a problem and you may find the solution is easier than you think.

Cheers
Kristine

 

[Ajax]

Techman1,

I feel for you being stuck with RHG at fixed rates on 3 loans and large break costs. Easy to end up in this position. I don't know whether the break costs are now so large they render refinancing a waste of time.

My position is this:-


I have received an offer from RAMS to refinance a smallish (sub 150k) variable rate lo doc loan currently with RHG at 8.68% (before the Feb 3 cuts are passed on). Was originally an 85% lvr lo doc loan. The new rate for the RAMS loan will be 5.24%. Also RAMS will pay a small amount towards the re-finance costs (1.5k) and there will be a small amount of cash out as property valuation has increased somewhat since I bought.

The rate for the new RAMS loan (also lo doc loan) will result in an interest rate cut of at least 2.14% (probably more as I assume RHG may not pass on the full 1% Feb 3 RBA interest rate cut). When you run these figures in a spreadsheet there is a marked improvement in cashflow.

Then again I don't know the size of your fees to exit the fixed loans or how your credit rating looks (whether you have fallen behind in interest payments etc) or your whether you are registered for gst etc. Am not a finance broker.

I can give you the number of a guy at RAMS in Sydney who will run the numbers for you if you PM me...he puts a lot of effort into showing you the new result (including all break fees etc). I think he likes running the numbers.

The again speak with Kristine above. Dependant on valuations, size of break costs etc I suspect things may not be as bad as you think.

Ajax

 

[ok180]

My god, how did you manage to get yourself in a postion where your losing 13k a month. Thats 156k a year You would be having to bank on some huge capital gains to make that stregy work.

 

[Techman1]

How did we end up with this negative cashflow. Well its kind of a long story but I'll make it short.
We had a bunch of properties and we weren't too concerned with the negative cash flow as they were all going up and for the last year we had been selling what we could and we sold all of our best positive cash flow properties leaving the worst ones. Not by choice but by market demand. We have been trying for over a year to improve our cash flow position and it has improved but we are still how do you say it, stuffed.

 

[marg4000]

Could you sell your PPOR (no CGT) and move into an IP, or rent?

Otherwise maybe put all IPs on the market and see if you can sell one or two to reduce your debt.

Even if you only nett $15K after CGT if you sell a property, you will have reduced your debt and therefore your repayments, unless this property is creating income for you.
Marg

 

[Techman1]

We don't have a PPOR, we are living in an IP.
We have one property on the market and we live in one and the other 2 IPs have tenants that have a 1 year lease and the last IP has a month to month tenant but that is the one where if we sell it will be over 100k CGT and we might only get 15k now. And its our best cash flow of all of them. That has been the problem, the one we can sell is the best cash flow. We are trying to wait until next financial year to sell that one but the one that is on the market needs to sell soon or we won't be able to make it.

If we do put a property on the market with a one year leased tenant in it, we have found that it just ticks off the tenant and nobody wants to buy it until the lease is up. Then if we have a vacant property, we try and sell it but then we have to rent it out right away if we don't sell it because we need the cash flow and then we often find we have to give them a 1 year lease or they won't rent it.

 

[marg4000]

If you really think you will go under, then I would follow Kristine's advice and contact your lenders.

The sooner the better....
Marg

 

[markpatric]

What do you mean you dont have a ppor?.
I think you can nominate any one of these properties as your ppor?, even if you haven`t lived in it?, and pay no tax at all.
There may be a way out for you along that line.

 

[Ajax]

Hi Techman1...

"we are up for a $100,00 + capital gain" Sheesh...that's a lot of capital gains tax on one property held for less than 12 months given the sale will only net $15000.

Break costs must be horrendous.

Break costs appear to be claimable in some circumstances as a deduction against your assessable income. If your break costs are substantial being able to claim these as a deduction against assessable income could be very helpful. Then again am not sure whether these can only be used to offset income (to the extent there is income) and not capital gains

I think you need to run the scenario past an accountant.

My search on break costs and whether these are deductible threw up this recent thread:-

http://www.somersoft.com/forums/showthread.php?p=505444&highlight=break+costs+tax#post505444

"2005 info sheet from ATO

Page 12
http://www.ato.gov.au/content/downloads/NAT1729-05.pdf


Mortgage discharge expenses

Mortgage discharge expenses are the costs involved in
discharging a mortgage other than payments of principal
and interest. These costs are deductible in the year they
are incurred to the extent that you took out the mortgage
as security for the repayment of money you borrowed to
use to produce assessable income.
For example, if you used a property to produce rental
income for half the time you held it and as a holiday
home for the other half of the time, 50% of the costs of
discharging the mortgage are deductible.
Mortgage discharge expenses may also include penalty
interest payments. Penalty interest payments are amounts
paid to a lender, such as a bank, to agree to accept early
repayment of a loan – including a loan on a rental property.
The amounts are commonly calculated by reference to the
number of months that interest payments would have been
made had the premature repayment not been made.
Penalty interest payments on a loan relating to a rental
property are deductible:
■ if the loan moneys borrowed are secured by a mortgage
over the property and the payment effects the discharge
of the mortgage, or
■ if payment is made in order to rid the taxpayer of a
recurring obligation to pay interest on the loan."

 

[BoatBoy]

What do you mean you dont have a ppor?.
I think you can nominate any one of these properties as your ppor?, even if you haven`t lived in it?,

You can, but the CGT exemption starts from the day you declare it a PPOR.

and pay no tax at all.
There may be a way out for you along that line.

And any CG made while it was a rental gets taxed, if held for 12 mths you get a 50% exemption.

Thats my take on the ruling anyway, please, please,please someone say I am wrong.


IF, it was declared as a PPOR before being rented, there is the six year rule which allows you rent it out, move back in for a month or so, reseting the six years and move out and rent again.

I'm pretty sure in this example all CGT is exempt.

Dave

 

[steveadl]

We don't have a PPOR, we are living in an IP.
We have one property on the market and we live in one and the other 2 IPs have tenants that have a 1 year lease and the last IP has a month to month tenant

So then the one you're living in now IS a PPOR isn't it? Granted you may view it as an IP like I do my current PPOR, but technically according to ATO it's your PPOR and therefore CGT exempt.

 

[BoatBoy]

So I got that ruling wrong did I Steve?

Dave

 

[boomtown]

There is no "formal" declaration of being a PPOR - in practise this is something you can do in retrospect provided you have lived in the property for (six?) Months and are still inside the six year rule (and provided you never have more than one PPOR at a time.

 

[steveadl]

So I got that ruling wrong did I Steve?

Dave

I think you're spot on as far as the parameters go Dave. But I think BT is also right about being able to do it retrospectively.

 

[investor888]

Just reading all your comments Techman1, I can see why you are in trouble. $156K negatively geared with high LVR. That's crazy.

I am wondering what would happen if we just gave 2 of the properties back to them.

Thankfully this isn't America! Otherwise people like you would just start handing back their keys.

last year we had been selling what we could and we sold all of our best positive cash flow properties leaving the worst ones. Not by choice but by market demand.

I'm trying to understand why you would sell you best performing properties, and leave yourself the worst ones? What market demand?, if you were not in a rush, then I'm sure the others could have sold.

We don't have a PPOR, we are living in an IP.

What the? For how long. Have you also been claiming deductions for it like a normal IP. Think the ATO would have something to say about that.

 

[marg4000]

I think you can nominate any one of these properties as your ppor?, even if you haven`t lived in it?, and pay no tax at all.

You cannot claim a property as a PPOR unless you have actually lived in it, not sure of the qualifying period. The 6 year rule starts AFTER you move out.
Marg