Sell or hold???

[paguatao]

Owning a rental property drives me crazy! Our tenants have been burgled so they want to move out... broken window costs $380 to replace ...

This is just 6 months after having had previous tenants abscond, owing almost 2 months rent, leaving a trail of damaged bedroom doors, filthy carpets etc etc

I feel like giving up, even after negative gearing, we are still making a net loss every year, and I wonder how long we should continue to try and hold, or whether to cut our losses?

We bought in Feb 2007 (yeah yeah, at boomtime, bad timing and probably overpaid) - Leda/Kwinana/SOR Perth. 3x1 for $305k (but mortgage $318k).
Rental is now at $340 a week.

But I've just done my tax return: rental income $15k, expenditure $23+k.
Rental loss $8-$9k. After getting a tax refund, net loss approx $3k.
This is on a good year. On a bad year, we've lost like $6k.

We've lost over $20k now, still holding on to the property, but prices are pretty stagnant. Comparable properties near us are on the market and selling for around $300k. Better properties are selling for maybe $320k.

So the way I see it, we have 3 choices:
1. keep, hold, grin and bear all the maintenance, repairs, bad tenants, high interest, lousy PMs, rates and so forth. Wait for property to be neutral and maybe one day cashflow positive

2. do some minor improvements, try and sell for around $320k, pay off mortgage and cut losses of last 7 years

3. hold, hold, hold, wait for the day when property price rises to sell for over $340k and at least be back to where we once were .... sortof ...

Wish a crystal ball would tell me when this will happen, but for now, I will ask Somersoftians what their opinions are. And if you say option 1 - please tell me how losing over $20k to become cashflow positive makes sense - is it over a very very very long time?

I know we've made mistakes, still learning, still make the same old mistakes. just like to hear what other people would do in our situation. Cheers

 

[Ausprop]

your losses are minimal and prices will have to move eventually... 2007 was 6 years ago. I'd sit.

 

[Ausprop]

Our tenants have been burgled so they want to move out...

also they can't just break a lease because they want to... they'll need to pay for re-advertising etc whilst you look to mitigate their losses

 

[MichaelGilbert]

Its difficult as I don't know the whole story let alone the location of the property (I'm in sunny Victoria!).

However reading most of what you had to say (there was a lot to read), I would do some small improvements like painting, new carpets and increase the security like sensor lights out the front and maybe a security screen door if you dont have one etc etc, to make it look more appealing to attract better tenants.
If you had better tenants you would probably not be pondering this decision.
I brought a house around the same time, around the same price and probably running at small loss if I sold it now but I've got great tenants paying the rent so no need to worry.

Who knows when the market will turn but to be honest I don't think it will be in the next year or two.

So I'll take option one please but with those editions I said above. You could always manage it yourself if you cant find a good PM. Maybe being more in touch with your property will help.

 

[Blacky]

All depends on what your strategy is, and how either selling or holding best fits your strategy?

By the sounds of it you don't have a strategy, are therefor don't know which way to turn.

Therefore before making any decision I would sit down and formulate a strategy, figure out where you want to get to, and how. You will then see how this property fits into your strategy, and the decision will be quite clear.

Blacky.

 

[paguatao]

Thanks for the replies guys.

MichaelGilbert - I agree if we had better tenants then I wouldn't have to worry so much. Unfortunately I think the area is what it is. We've never had huge numbers of tenant applications to choose from

Council is spending lots of money to improve facilities but I don't think this will flow on for a long while. I don't mind spending a bit of money to maintain, it's just seeing the losses year after year, with no sight of property increasing that is depressing.

Blacky - spot on! I think we were in a bit of a daze seeing the property boom back in 2005/2006 and thought that holding for the so-called 7-year cycle would see some gains.

Our strategy was to hold for capital gains, happy to hold for at least 7, even 10 years. But with no movement at all, it's hard to see how property is going to make that big jump needed for us to make back losses?

We've decided to keep renting out; have done some painting, will do a bit more maintenance and see how things go .....

 

[MichaelGilbert]

Good luck, I hope it all goes well for you.

 

[robboat]

Don't give up just yet.....
Things are starting to move a little in the right direction and this will flow on to your situation at Kwinana.

Is there some easy way you can add value to the property?
Or refinance at a lower rate.
Can you get better cashflow by managing yourself and renting rooms?
Rent out the garage...?

Negative gearing only works when you get the sums right....so either get more income or add value somehow....otherwise it is money out of your pocket.

Tenants trashing the place and break ins happen....so you need to increase the property appeal to get better (paying) tenants and have better security....they go hand in hand.

My 2c....Hope this helps.....good luck

 

[INVSTOR]

Do you allow pets? It may help you get a better tenant and provide good security.

 

[paguatao]

We do allow pets. Our bank interest is pretty low atm 5.1%. I think one of the problems is we borrowed the stamp duty too so mortgage $318k. If we had timed it better and bought around $280k then mortgage <$300k not so bad.

 

[strongy1986]

Why do you think you are loosing money?

So what if you have to part with 5 k a year
In another 5 years you will probably be parting with nothing as rents should have increased

So basically to own a 300k property after 25 years all you have parted with is about 50k plus initial deposit
So say about 85k

You didn't make the perfect decision but just give it time and it will work out

 

[Rixter]

Did you take out landlord insurance to minimise tenant risks?

 

[paguatao]

Sorry Rixter, dropped this thread so didn't reply to your message. Yes we have landlord insurance.... I put the claim through myself (don't see the need to pay $$ to PM) and they requested a police report for broken door (malicious damage)

I then had to chase down the PM for detailed damage to doors and pics, her reply

"The damage was caused by the tenant so they would not do a police report for this. 3 doors in total. It’s definitely tenant malicious damage.
The main door was missing completely – pic attached
Bedroom two pic is attached – hole punched in it
Bedroom 3 had a poster over it and when the contractor was there he removed the poster and the hole was underneath it! I am trying to source a picture of this one for you."

so then off I went to file a police report and emailed my PM back:
"I just rand spoke to the police, and they will file a police report for malicious damage to the door but they will not attend.

They asked me for a date and time of the last property inspection, which I don't know. Can you please contact police and lodge the police report on our behalf?
Please also send the photo of the 3rd door, as well as a final inspection report.

Please note date and time on future inspection reports for my reference."

This is the kind of ding-doinging that went back and forth between us - like - thanks for the pics. Which pic belongs to which bedroom?
What's the exact date and time of the property inspection?

So really, as much as you use a PM to manage, they charge for doing extra things like insurance claims. And then if you dont' really trust them to do the job properly, you end up doing the claim yourself.


The good news is, I switched PMs after the shitty job they did. New PMs were slightly better .... but we seem to have finally got a decent tenant (single mum with older son, but both working and treat the house well like their own) so we are self-managing.

We repainted the whole house and got new carpets in. Rent is now $360 per week. Fingers crossed we are at a point with no more nightmares

 

[Snoopy]

This is easier said then done but run it like a business and take emotions out of it. Maybe you need a better property manager and you should be managing them.

You will have substantial selling costs and buying costs if you sell and buy again so hold it if you can.