Should I cut losses on IP? Advice appreciated

Hi,

Bought IP in the Whitsundays in QLD in 2006 as a naive, uneducated investor. Was given usual dream of "doubling money in 10 years etc". As this was pre-GFC, was given 110% loan to roll my existing car loan into (now I cringe at this).

End result: PP of $225k, car loan $30k, renos + purchase costs $15k. Total loan amount approx $275k. In one year, after a few minor renos IP was valued at $320k. I thought "great, this is easy". Come the GFC, coastal property prices crash and present day my IP is valued less than initial purchase price of $225k.

I have since paid roughly $30k off the principle, leaving the loan at $245k (vs. property value of maybe $210k). IP rents for $260 per week, BC + Rates approx $6k per year.

Should I cut my losses and get out? I.e. pay off a $30-$40k remaining loan. Will the bank even allow this? (ING) Or hold in the hope of capital gain? Area is near Bowen Basin in QLD, where coal is predicted to take off with the construction of port and rail line but that could be 2 years away.

Any advice appreciated. I've since made 2 successful IP purchases, doing well. I don't know whether it is emotional attachment to this, but it's an expensive lesson and I don't know what to do..?
 
110% loan to roll my existing car loan into (now I cringe at this).
...I have since paid roughly $30k off the principle, leaving the loan at $245k (vs. property value of maybe $210k).

How have you done the tax claims for the interest costs?

The Y-man
 
Hi,.
I have since paid roughly $30k off the principle, leaving the loan at $245k (vs. property value of maybe $210k). IP rents for $260 per week, BC + Rates approx $6k per year.

Do you need to sell it? If not, renting at $260 per week, I'd hold personally, if I could and it wasn't costing me much. Very much depends on personal circumstance though and why you bought it to begin with...
 
QLD is famous for making a lot of investors poor so you are not alone if it makes you feel better.

Now to the numbers:
You have 245k loan which at 5% interest cost you $12,250 p/a
Rental income is 260*52=$13,520 minus 7%+GST management = $12,520
Minus $6k in body corporate etc. which makes your total pre-tax loss $5,730
add on depreciation of lets say $4,000 p/a and 40% tax bracket should get you $3,892 back from the tax man making your loss to be 5730-3892=$1,838 or $154 p/m

To stop this bleed you need to invest $30-$40k of good money which you can deploy somewhere else.
The only growth rate that is guaranteed is growth along with inflation rate which is 2.5% p/a so 225k*2.5%=$6,125 p/a which is more than what you are losing at the moment.

I don't believe that your property will go back up in value anytime soon given the state of QLD economy, however based on the numbers I would say keep it and invest $30-$40k in some good IP that will cover your losses on this one. Give it 20 years and you will be ahead. Only sell if you make capital gains somewhere else so you can use losses to offset the gains.
 
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I agree with previous posts.
Also, you're definitely not the only one to think about this sort of thing.
As already said, you're not really losing that much at the moment and in the long run it'll come through.
You'll never make a mistake like this again and from now on will be much more careful and lateral thinking with your choices, I reckon.
Really, you don't have much choice but to make the most of it. If you sold and still had to pay out several thousand, you'd be required to pay it off at settlement and it could mean selling something that you don't want to sell yet.
Banks are getting better but we're still not at the point where they'll let you sell for less than the loan and pay it off - unless you get a personal loan. No. No way.

:)
 
I've got properties that plod along and I don't expect much growth but they pretty much pay for themselves and the combination of inflation on the property and deflation of the debt means they are making money, but I admit I do get itchy, had an agent around on the weekend for a sign up on one.... I think yeh if I could sell for a quick 10-15% gain in 6 months that's good, however I often feel I do things for the sake of doing something, when in fact at some time in the future you know they will double in value by default.
 
Sounds like it's near the bottom, almost worth riding out?

Coastal/holiday towns are one of those boom-bust places like mining towns - some people thrive on them. I always stick to capital cities as I'm quite scared of risks and scenarios like yours, because I don't want to have to go back to rebuilding my portfolio if it blows up because of one risky play. That said, it's almost temtping just to ride it through? Asian money flooding into QLD and new casinos being built in Cairns/GC?
 
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