Stuck in a perpetual rut - need advice

[eek]

Hi All,

I've been a bit of a long time lurker, just reading through the forums and trying to get my head around different strategies, risks and general advice. There seems to be some amiss, as everyone seems to be able to pay off their loans in 5 years, whereas it seems like I haven’t gotten anywhere with mine.

So I’ve gotten myself into a bad situation, where it seems like I’m just working, paying too much tax, wasting time, paying an insane amount of interest and not getting anywhere in life.

• 3 bedroom weatherboard house in Sunnybank QLD, <100m from train station, purchased in 2008, just before the GFC hit, for $380K., and borrowed just as much! I lived in it for a year, got my FHOG and stamp duty concession, graduated uni, then moved to Perth, WA, where I shared a house.
• Since owning it, I’ve adding an additional toilet and wash basin.
• Currently rented out at 355/wk, 315K owing on loan, negatively geared on a 126K gross income.
• Currently set up offset account, paying interest only (I did this a year ago, before I got married, etc….very expensive exercise!!).
• Now, the tenants I’ve had in there for the last 4 years are now moving out, as they’re buying a house
• House is on concrete stumps – has moved a bit and need to have it levelled or re-stumped. Waiting for quotes, but I’m estimating maybe $10K for the job.

I’m feeling it’s a bad time to sell the property, since it needs to be re-levelled/restumped and the market isn’t so good now. If I sell and buy another place, I’d be paying thousands in stamp duty, conveyancing, and I doubt I’d get much more than the $380K I paid a few years ago + interest.

If I sell the house, I’m not sure whether spending $10K to level it out and fix everything up will be worth the sale price? I guess if I do whilst it’s an IP, it’s still deductible.

If I keep the house, it’s too cashflow negative and is impossible for us to save up for a second place. Ideally, my wife and I would like to live somewhere closer to the CBD, where I work, yet keep a rental property going somewhere.

Any thoughts on how to get out of this rut?

 

[starter]

Is there anyway that you can improve the yield on this place. Eg. a simple cosmetic reno, sub division of the part at the back or a granny flat?

 

[jackbak]

If I keep the house, it’s too cashflow negative and is impossible for us to save up for a second place. Ideally, my wife and I would like to live somewhere closer to the CBD, where I work, yet keep a rental property going somewhere.

Any thoughts on how to get out of this rut?

For starters, why is it "too cashflow negative"? If the loan is structured correctly it should be pretty much casflow positive, even after expenses:
Rent $18,460 p.a. ($355x52)
Interest $15,750 p.a (approx, based on $315k and interest only loan at 5%)
That leaves almost $3000 to pay other expenses...

 

[nhg]

I don't think many if any of us have paid down our loans, let alone done it in 5 years.

I only pay the interest repayments and leave the borrowed amount at what it was when I opened the loan.

Also may want to look at your savings.

For a guy on $126k, saving that much in 5 years isn't particularly astounding.

I am on a similar pay level and at my worst save $25k-$36k/year not including investment savings. (No I don't live at home or live a frugal lifestyle, far from it).

 

[kathryn d]

eek,
If jackbak's numbers are correct, I don't see a problem for you.
I think you just need to change your attitude.
Not all properties are going to make money straight away.
Fix the stumping problem. Is there a way to increase rent, such as renting out rooms vs whole house? Personally, I'd suggest managing this yourself, if you go that route.

Look at your own budget, and find ways of saving money.Keep track of your spending for the next month, and it will quickly show you where you can cut back.

Is your partner on board with investing? Sometimes if you have one resisting, it just gives you mental fatigue..aka rut.

Is the $126k your income, or a combined income of you and your partner?
If it is a combined, can you live as if you only had one, and save the other?

 

[twodogs]

Sorry to not be of much help, but, on $126k pa with just a $315k loan on a near cash flow neutral IP.... Any ruts are not related to that IP. I'm on just over half that salary with 5 times the loans and get by OK.

If you don't like holding an IP sure sell it and move on, but I don't think many people on this forum will see any financial problems here.

 

[Blair007]

under 100 metres from train station could mean potential for subdivision??

 

[eek]

Hey guys...almost didn't want to reply back, haha, but I do appreciate the responses.

There are a few things I'll probably need to clarify, however it seems like everybody thinks I'm in a pretty good position at the moment. My salary of 126K is gross, and my partner makes $0, so I do get taxed a fair bit on it, and I didn't graduate uni at this salary either I graduated uni on a mere $55K gross.

Anyways, the house itself has cost quite a bit in maintenance, such as plumbing and electrical repairs due to movement of the house. A guy went out yesterday and believes the house has never been re-levelled (packed) since it was built, so it's doing pretty good. The weird thing is, when I purchased it, it was fine! It's only in the last 3-4 years the movement has gotten bad. I'm hoping after it gets restumped with bigger footings and adjustable steel heads it should stop the movement for a few years.

I guess moving forward with this higher income for now, it shouldn't be as painful as the last few years. The last 12 months I've had 0 savings, especially with a wedding and honeymoon to fund.

For now, I think I'll get the re-stumping/levelling done, and spruce up the house a little. Unfortunately it might not do too much in terms of adding 'rent value', however I'm not going to re-model the kitchen on a crooked house. Probably do things like wash/paint the outside areas that are starting to wear a bit, maybe add an island bench, dishwasher, ceiling fans in bedrooms, and general maintenance around the house since the long term tenants are moving out soon.

In terms of cash, it might be a bit hard to purchase a property atm, however I am looking at FIFO to site, or even international assignments. However, I don't think it's easy to dodge the ATO these days, even if you work overseas for 6+ months

 

[Hysteria]

How bad are the stumps? If the stumps are ok you could look at levelling the house yourself if you are handy on the tools . Using a jack/ porta power and a dumpy level.

I had this problem on a property as well and it wasn't that hard to level out. Just be aware some tiles and plaster could crack if the house has sagged a lot.

Maybe just a few stumps will need to be replaced if they are blown out.
Maybe this is an option to look at if you plan on keeping it and to help save some $$$

 

[Shaneelastic]

let the cheese and kisses work??

 

[kathryn d]

Hey guys...almost didn't want to reply back, haha, but I do appreciate the responses.

There are a few things I'll probably need to clarify, however it seems like everybody thinks I'm in a pretty good position at the moment. My salary of 126K is gross, and my partner makes $0, so I do get taxed a fair bit on it, and I didn't graduate uni at this salary either I graduated uni on a mere $55K gross.

I still think you are in a great position.
cut your income in half and save/invest it, and live off the remainder.
Some people (most) will spend as much money as they make.
If you are serious and want to buy more IPs, take a serious look at your budget.

You partner doesn't work, so their job should/could be to find a way to manage on 1/2 wages. It IS easy. If you want 'frugal' suggestions, PM me.I have lots.

 

[jackbak]

Id definitely get it re-stumped, it will cost you around $10k but sounds like the movement is what's been causing many of your maintenance costs, once it has been re-stumped it should be right for decades.

As you've pointed out it looks like the reason you've been unable to save is because you've had a few personal expenses and your pay has been much lower until recently, neither of which have anything to do with your investment property.

Obviously the best way to increase your savings would be for your wife to start working, is she able to start working soon?

You've also paid the loan down quite a bit and there's a chance the property has also increased in value, speak with a broker about borrowing against your IP to help buy a home.

Also, make sure you speak with your agent before going ahead with your renovation, adding things like island bench's may be a waste of money if your not going to be able to get a higher rent for it. Usually you just want to do the basics with an IP.

PS I know all about wedding expenses, got married 3 weeks ago and the money just pours out of your bank account!

 

[nhg]

PS I know all about wedding expenses, got married 3 weeks ago and the money just pours out of your bank account!

Haha, I know I can't afford it. All my money is in property. All my friends who were considering investing no longer can for another year or two.

As for savings on high income. I get that the wedding was expensive, moving forward however, pretending you are on half the income and budgeting was a great suggestion.

I should take it myself.