Rental yield only 3% - should I sell (cut loses) vs trying to hold?

[jingo]

Hi Mixedup,

Another thought,

Would you be able to set up an offset account against the property and stash cash into it, with the aim of making the property neutrally geared?

Selling and buying again would generate a number of costs and you'd really have to weigh up whether this would actually get you further ahead in the long term.

It's true, holding -ve geared property impacts your lifestyle - eg ties you to a job etc. Many people start off with -ve geared property and then tweak their strategy as they go along.

Regards Jason.

 

[vaughan]

Would you be able to set up an offset account against the property and stash cash into it, with the aim of making the property neutrally geared?

You'd have to put in about $300,000 to make it cf neutral. You could get 5% interest on that $300k in a term deposit, so that's costing you $15,000 a year.

In other words, as an investment for cash-flow goes, this property does not work. It's not working for capital gain either.

 

[matto_]

My perspective is always.....

What was your original strategy for the property. What were the original assumptions and have these changed.

Property investing is an LT journey. Some see it other ways, but my risk tolerance doesnt allow for that.

The other thing the high transaction costs of property is not kind to those who chop and change their strategy.

 

[whatever123]

If its LVR is 95% and only getting a 3% gross yield, you might really need to question your properties value. You may have mentioned but what was your valuation based on? Purchase price? If so, when did you buy (hopefully not 2007/08 for your sake)

I'd be getting a valuation done asap. You might find yourself in -ve equity which means after selling costs you'd come out even further behind in which case you may have no choice but to hold and hope.

Otherwise, there's always "jingle mail".

 

[mixedup]

thanks - my feeling is to sell in the short/medium term (i.e. property no longer satisfying the original intent), but to wait a bit (a year or two?) until betting selling conditions for a development property...

now I have to find out/learn more about how to pick this... Just created a separate thread for this here: http://somersoft.com/forums/showthread.php?p=914615#post914615

 

[mixedup]

added a Poll to help summarise (noting various advice people had)

 

[evand]

haha..i own 3 houses on Brisbane and follow the market closely. But its a national problem, not just a QLD one.

I reckon there must be some great bargains on the GC. Problem is the yield.

Don't listen to evand. He's just a bitter old Sydney coot with no love for Joh town. I reckon you're on the cusp of big things economically up there, MU, and a year or two more could really see Brisvegas pull ahead. The main thing is, no-one's crystal ball is perfect (except mine).

 

[evand]

Regardless whether its hurting his lifestyle, who wants to burn $34k per year and maybe falling property prices for how long? Nobody knows.

Good investment decisions aren't made on whether its good for your lifestyle or not. They are made on dollars and numbers. Nothing else.

And prop, if he sells now, you're right, he will never get the cap gains at some time with that a property. But you can do a lot with $34k per year and he can achieve gains with another property some time later.

To use one of you're own sayings (which i love) hope is not an investment strategy. In this case hoping for the market to turn at some stage.

From a purely numbers investing point of view, shoot that dog.

Question need to ask yourself

1) is this investment hurting your lifestyle ? (become more of worry than enjoyement )

2) if question 1) is yes, then dump it .

3) if question 1) is no, then keep it.


End of the day, you can't enjoy your life because of your investment. what's the point ?

 

[Lofty]

Hi mixedup

I would probably sell but, instead of taking a bath on the property, I'd sell it with vendor finance (VF). This strategy should be able to turn the property from negative to positive cash flow, to the tune of about $400 to $500 per month. When this positive cash flow is added to your current monthly loss, it's quite a turn around.

With this strategy you are selling the property so you do lose access to long term capital growth. However to balance that you get the turn around to positive cash flow mentioned above and you are able to fix (lock-in) your capital gain.

Another possible issue is you don't get the money back in your hand that you'd get from a traditional sale, to move on and do other things. However if you've fixed your capital gain and the property is putting money in your pocket each month, then maybe you won't care too much ;-)

Cheers, Paul

 

[HotRod]

Excellent Idea

Hi mixedup

I would probably sell but, instead of taking a bath on the property, I'd sell it with vendor finance (VF). This strategy should be able to turn the property from negative to positive cash flow, to the tune of about $400 to $500 per month. When this positive cash flow is added to your current monthly loss, it's quite a turn around.

With this strategy you are selling the property so you do lose access to long term capital growth. However to balance that you get the turn around to positive cash flow mentioned above and you are able to fix (lock-in) your capital gain.

Another possible issue is you don't get the money back in your hand that you'd get from a traditional sale, to move on and do other things. However if you've fixed your capital gain and the property is putting money in your pocket each month, then maybe you won't care too much ;-)

Cheers, Paul

Me likey dat.

 

[BuyHotProperty]

have you thought of adding a granny flat to up the yield

 

[Deltaberry]

Don't understand your numbers.

At 3% yield that's $19.5k rent.

At 95% gearing and ~6.5% mortgage rates that's ~$40k interest.

Not sure how you end up with $34k net loss. Where's the additional $15k? don't tell me your body corp + rates + land taxes added up is $15k.

 

[devank]

Agree... Numbers don't add up. I calculated with 40 weeks rent and 7% interest but still out of pocket of 27K before tax.

 

[whatever123]

Agree... Numbers don't add up. I calculated with 40 weeks rent and 7% interest but still out of pocket of 27K before tax.

I could imagine that once you add PM fees, insurance, rates, body corp, that could account for the remaining 7K.

 

[devank]

I could imagine that once you add PM fees, insurance, rates, body corp, that could account for the remaining 7K.

Including only 40 weeks of rent is supposed to take care of all that cost.

 

[mixedup]

I'd sell it with vendor finance (VF).

Hi Lofty - haven't come across this concept, and didn't quite understand it. Do have a link to where I can find/understand this approach? thanks

 

[mixedup]

I could imagine that once you add PM fees, insurance, rates, body corp, that could account for the remaining 7K.

Pretty much correct. And sorry really is 100% under finance (not sure why I typed 95) counting IP loan & input from LOC. So interest 44k then expenses after this.

 

[evand]

Management fees + maintenance + insurances + bank fees + whatever else. There is a lot more expense than just interest on aloan.

Don't understand your numbers.

At 3% yield that's $19.5k rent.

At 95% gearing and ~6.5% mortgage rates that's ~$40k interest.

Not sure how you end up with $34k net loss. Where's the additional $15k? don't tell me your body corp + rates + land taxes added up is $15k.

 

[Lofty]

Hi mixedup

www.negative2positive.com.au About 50% of our core business revolves around this concept.

Cheers, Paul

 

[DavidMc]

Management fees + maintenance + insurances + bank fees + whatever else. There is a lot more expense than just interest on aloan.

LMI, stamp duty and negative cashflow may have also been capitalised. It'll add up.