Opinions, to hold or sell?

[xrchris]

Hi everyone, I was wondering if you could give your opinion on wether to hold or sell my current IP. It was my 1st IP (It is a 2x1 unit bought in Perth at the height of the boom) and although I am ashamed to say it it was bought with haste and little DD. Thankfully I have learnt a HUGE amount since then, especially through lurking around this forum

My strategy was buy and hold but upon looking closely at the figures the unit is costing me $200 per week to hold (after tax) with a yield of 5%.

I could probably sell it for what I bought it for but factor in the costs, st duty at time of purchase, and the 20k in interest I have payed out over the last 2 years I will be looking at a loss of approx 45-50k.

I have a good income and can afford to hold the property but I think I would be better suited selling and looking for something much closer to CF neutral?

10k per year to hold with little prospect of CG over the next few years and I am sure I have answered my own question…

Was just after a couple of opinions from seasoned investors I guess.

Cheers

 

[want2bewealthy]

Theres no way Id be selling that one,
stick to your strategy of buy n hold, it will work out for you, you'd be wasting your whole effort thus far by selling up and you WILL see big gains if you stick at it.

May I ask what you paid for the property and what it rents for?

interest only or P&I?

 

[Perth Investor]

Lock it in for three years at 4.99% and it won't be costing you a cent. Any maintenance and management costs should be recouped by tax breaks, even if you depreciation is relatively small.

If it costs you nothing for 3 years it should be worth the risk that it does something in a positive way. If you sell it now you will blow $15K + in changeover costs to a new property...

Noel

 

[boomtown]

You are talking about a time horizon of "a couple years". Property is a "get rich slow" scheme.

You either need to adjust your time horizons to 10+ years or more or do something else. From my perspective I suggest it is your investing mindset that needs to change rather than your investment.

 

[xrchris]

Thanks for the feedback

I bought it for 250k and I have just put the rent to $250/week.
I am paying interest only.
Unfortunately no deduction is available for building capital expenditure (built before 1985?) so the non-cash deductions are quite light on.

Cheers

 

[want2bewealthy]

Thanks for the feedback

I bought it for 250k and I have just put the rent to $250/week.
I am paying interest only.
Unfortunately no deduction is available for building capital expenditure (built before 1985?) so the non-cash deductions are quite light on.

Cheers

You must be fixed at 8 or 9%?

 

[xrchris]

You must be fixed at 8 or 9%?

After the last cut, variable at 8.09%. The loan began as a low doc as I am a young professional who is mostly self employed and didn't have much in the way of financials.
Since then my income has almost trippled and is highly secure so servicability wont be a problem.

I actually hadn't thought much about refinancing, Perth Investors comment about locking for 3 years at a low rate is a great idea.
Also Boomtowns comments i will definately take on board.

Thanks again for the comments so far. All the new threads of 'cash flow pos already!' and 'cash flow neutral etc...' were making me wonder how far wrong I was going.

 

[Edmond Dantes]

Interesting thread,

quick question, if you're variable at 8.09% and "Perth Investor" mentioned locking it in at 4.99%; how can that be possible? do you have to swich lenders?

-andrew

 

[xrchris]

Interesting thread,

quick question, if you're variable at 8.09% and "Perth Investor" mentioned locking it in at 4.99%; how can that be possible? do you have to swich lenders?

-andrew

I imagine he means re-financing, shoping around and going with the lender with the best fixed rate ?

 

[LynnH]

Re Perth Investor's suggestion to lock the rate in at 4.99% for 3 years ...

Westpac announced this a couple of days ago - applies to new loans only.

http://www.somersoft.com/forums/showthread.php?t=47827

Why don't you have a read of the thread, xrchris? There are several (myself included) who are not about to leap in this direction, however it may suit your circumstances.

Another suggestion would be to throw a decent amount of cash into the loan - if you had some spare, of course!

I'm with the other posters - I do not think it would be a good idea to sell in the current market, FWIW.

Cheers
LynnH

 

[josko]

It's all been said....don't sell...you only sell in this market if you absolutely have/need to.

Regards Jo

 

[Perth Investor]

4.99% was ONE option

If you're paying 8%, then perhaps refinancing to a full doc lender at 6% will be enough to get your cashflow to a better level.

4.99% was one option to really turn the loss on it's head, but like most other forumites I'm probably going to sit on my hands for a month or two and see what happens with rates, as I think they might get better (or at least have 5 year rates at good levels, which will be better for me)

LynnH can you confirm the Westpac deal is only for new loans, their website is just showing the rate on their standard rate page and doesn't say anything about new loans only? http://www.westpac.com.au/internet/publish.nsf/Content/PBHLRF+Current+Interest+Rates

Noel

 

[xrchris]

Thanks Lynne for the link!
I'm waiting for a call back from my broker but from the sounds of things it will be wise to assess all the options available come Feb next year as PerthInvestor suggested.
Longer than 3 years will be preferable for me, will see whats on offer then. I can cope with the 8% for another month or two.

Thanks again everyone

 

[LynnH]

Noel

That information came from a Westpac advertisement in today's Brisbane Courier Mail (page 14) which reads, in part:

"For a limited time, we're offering the security of a fixed rate home loan at the reduced rate of 4.99% p.a. This offer is available on new Westpac Home Loans over $150,000, when taken out with a Premier Advantage Package (an annual package fee applies)." (My emphasis).

I note that the advertisement stipulates 'Home Loans' - I don't know whether IP Loans are excluded.

EDIT: Wondering aloud .... perhaps existing customers are eligible if they go through the application process for a new loan, rather than just ringing the bank and organising the changes over the phone??? [End EDIT]

Perhaps one of our knowledgeable MBs can shed some further light on these matters???

Cheers
LynnH

 

[lizzie]

(not an mb) home loans are for ppor's or ip's - basically a loan with a home as security rather than a car or personal or credit card or commercial etc.

xrchris - don't write off depreciation so quick. what is the inside like? has it been recently renovated? if so, would be worthwhile having a quantity surveyor look at it. just consider carpet - written off over 10 years, if the carpet would've cost $4,000, then you can claim (on average) $400/yr off your tax. then you have curtains, kitchen appliances, light fittings, paint, hot water heater, aircon basically anything and everything in the unit can be depreciated if it's not too old.

 

[marg4000]

I basically agree with the "buy and hold" strategy, but sometimes it is NOT in your best interests.

What would you do investment-wise if you sold the unit?
Are there better options out there that you are prevented from taking because of this unit?

We had the opportunity many years ago to buy waterfront property, but it would have meant selling our two existing IPs. As we had read Jan Somers and were happy with the "buy and hold" principles, we stayed with our existing IPs. We could not afford to do both - this was 12-15 years ago and finance was much harder to get. Needless to say, the waterfront area boomed and we would have been about $300K - $400K ahead today (after expenses and CGT) had we followed our "gut instinct" and switched.

But if you have just got cold feet because you have not owned the property for very long and reality is hitting that real-estate is a long-term investment, then I would suggest you look at a 5-10 year timeframe.

Consider your options carefully.
Marg

 

[xrchris]

(not an mb) home loans are for ppor's or ip's - basically a loan with a home as security rather than a car or personal or credit card or commercial etc.

xrchris - don't write off depreciation so quick. what is the inside like? has it been recently renovated? if so, would be worthwhile having a quantity surveyor look at it. just consider carpet - written off over 10 years, if the carpet would've cost $4,000, then you can claim (on average) $400/yr off your tax. then you have curtains, kitchen appliances, light fittings, paint, hot water heater, aircon basically anything and everything in the unit can be depreciated if it's not too old.

hi Lizzie, I have had a quantity surveyor assess the property, I dont have the figures in front of me as i'm at work but there were some reasonable deductions, nothing stellar though.
I will run my spreadsheets when i get home using significantly lower IRs (4.99-6%) and see what the figures look like.
Will definately see what my broker has to say re: refinancing early next year.

Due to the feekback here today i will be reaffirming my original strategy (while feeling more confident in doing so)

Cheers
Chris

 

[lizzie]

that's great that you've reaffirmed your strategy ... almost daily i have to pull myself up and say "no, the plan to reach the goal is XX - stick to XX and you will reach the goal."

mainly because, almost daily i see a great potential deal - a reno or a simple buy/hold (no work required) etc the could be a stand alone cashflow positve ... but our plan is to development sites of no less than 3 (preferably 4) townhouses, and if i bought the other "deals" i wouldn't have the cash for the orginal plan.