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[WebBoard]

From: Jason Prestwidge


<PRE>I have a 1B unit in Chippendale ,Cleveland St.
It is currently rented for $250/Week, but the tenent will not sign a new contract( I think she is on the lookout for something cheaper).
The average rent for the building is approx. $240, although some idiotic agent let 2 out for $220, so there is a bit of bargaining starting now.
I paid $210 for this in Feb 2000, with $10000 in legals.
It cost me $20,116.56 in expences last financial yr and the income was $13,750.00.

I'd appreciate it if someone could quickly run these figures through their PIA to let me know if its worth keeping.

I am currently selling my own home and am refinancing to buy 2.5 acres at Razorback, to build my dream home.
I will be mortgaged a bit higher than I would have liked , but I have no choice as my current property is peaking in regards to the surrounding area.

I will have to pay approx $40k of the IP as there is not much equity in it as yet, so I am in a dilemma as with which way to go.

A. should I sell unit and breakeven to concentrate on my own property, because if the impending downturn and lack of rental yield.
OR
B. Keep the unit and hope that the South Sydney council lift their game with regards to the Aboriginal community within the area( no offence intended, but they do bring down the price in the area)and sell in 3-4 yrs time when things look rosier.

Sorry for the long post, but I'm stuck.
So a reply would be great.
You can also get me at presto1@ozemail.com.au
Thanks.
Jason</PRE>

 

[Ric1]

Reply: 1
From: Ric1 .


Jason, can you attach some bi-focals with your posts?!!

Ric

 

[WebBoard]

Reply: 1.1
From: Jason Prestwidge


Sorry I just worked out what I was doing wrong.
Here it is again.


I have a 1B unit in Chippendale ,Cleveland St.
It is currently rented for $250/Week, but the tenant will not sign a new contract( I think she is on the lookout for something cheaper).

The average rent for the building is approx. $240, although some idiotic agent let 2 out for $220, so there is a bit of bargaining starting now.

I paid $210 for this in Feb 2000, with $10000 in legals.
It cost me $20,116.56 in expenses last financial yr and the income was $13,750.00.

I'd appreciate it if someone could quickly run these figures through their PIA to let me know if its worth keeping.

I am currently selling my own home and am refinancing to buy 2.5 acres at Razorback, to build my dream home.
I will be mortgaged a bit higher than I would have liked , but I have no choice as my current property is peaking in regards to the surrounding area.

I will have to pay approx $40k of the IP as there is not much equity in it as yet, so I am in a dilemma as with which way to go.

A. should I sell unit and breakeven to concentrate on my own property, because if the impending downturn and lack of rental yield.

OR

B. Keep the unit and hope that the South Sydney council lift their game with regards to the Aboriginal community within the area( no offence intended, but they do bring down the price in the area)and sell in 3-4 yrs time when things look rosier.

Sorry for the long post, but I'm stuck.
So a reply would be great.
You can also get me at presto1@ozemail.com.au
Thanks.
Jason

 

[paulzag]

Reply: 1.1.1
From: Paul Zagoridis


Hi Jason

So what did you do wrong in the first post? That happens a few times and most posters don't know why.

I don't think the Aboriginal community in Eveliegh Street is impacting the rents in Cleveland Street. I have owned 2 houses in Abercrombie and my business partner owns a unit there as well.

Uni students and city fringe dwellers are the main rental demand for Chippendale. It is "almost" Glebe and still affordable for many.

The lower end of the market has rising vacancies, low interest rates and FHOG has had an impact there.

If a unit cost me $386.86 per week (like yours) I'd want it rented immediately. So what if I get $20 per week less - every week vacant is another $400 (that's 20 weeks to pay back at the extra $20!). I don't think the agent who found tenants at $220 was that idiotic. Vacancies will lead to lower rents. Supply and demand is having that effect throughout Sydney.

We have no idea the timing and extent of any "impeding downturn and lack of rental yield". So it's hard to plan for it. I think bargains will be easier to find over the next 24 months (but who knows?).

Your negative cash flow was 2.89% of your original investment. Ouch! Why would you think prices would improve over the next 3-4 years. The property cycle is not constant over that short a time frame.

What was your plan when you bought the IP? If you planned to sell it quickly for profit then sell now and break even. If you planned to hold it long term, then why change you plan mid-course unless something else has affected it (like the building has major structural problems).

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz

 

[WebBoard]

Reply: 1.1.1.1
From: Jason Prestwidge


Were did you get the (2.89% of original cost) as negative cash flow?
I'm new at this, so how would I improve this scenario,besides the obvious like raising the rent.

It looks as though I can't sell this thing now anyway, you see I had this as a fixed, interest only loan, and the bank wants nearly $7000 in economic costs and the like.
That coupled with commissions and other expenses, makes for a pretty poor return.

I understand that half of this will come back at tax time, but I needed that cash to help pay for my new home.

So other than selling at a loss and waiting for July 2002 to get it back, I am thinking of keeping it and waiting until the fixed term has expired.
Maybe there will be a little more equity built up then.

Any other suggestions are welcome.
Thanks anyway Paul.
Jason

Oh yeah, un-tick "Pre-Formatted text", which I think is the default, this causes the tiny text.

 

[WebBoard]

Reply: 1.1.1.1.1
From: Jason Prestwidge


You needn't worry about explaining the 2.89% Paul, I worked it out myself(simple really).

But there was one important fact that I left out, and that was depreciation.
I worked it out again with depreciation added and I come to a pre-tax cashflow of -1.75% and a after tax cashflow of -0.39%.

Now these figures accounted for a variable interest rate of 8.2%-6.9% during the year.
This year I will have it fixed at 6.7%, so going on last years costs rounded up, and reducing rent to $235/week, I will be $1100 better off before tax and depreciation is taken into account.

So on the surface this doesn't look as bad does it?

Jason.

 

[paulzag]

Reply: 1.1.1.1.1.1
From: Paul Zagoridis


Hey Jason

That's great that you worked it out. 2.89% was merely to show you the extent of your cash flow losses. Don't use it to compare investments.

Yep I've been burned on fixed rate loans before. No fun there.

I suggest you do not wait until Jly next year to get your tax refund. CAll your accountant right now and get a 1515 (formerly 221D). This allows your employer to withhold less PAYG from your regular paypacket. I can't give you more details as I don't use them (not an employee as such)

Regards

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz