To sell or not to sell

[Lena]

I've been a reader of this forum for over a year but only now I really need an advice.
Like many people these days we are in a hard financial situation and are trying to hold on to what we have.
3 investment properties in NZ are now worth less that we paid for them which is fine as we bought long term .
Now we own a PPOR here which we refinanced to 97% (yeah I know..) and used all equity to buy a business last year. Just before the crisis hit.
The business have been going down in the last 4 months plus we had an accident where we had to pay $11000 in cash cleaning out all our accounts and maxing credit cards.
It looks like we are going to shut the business to cut our losses which means losing everything we made in the last 4 years. But that's life I guess..

Now I am thinking of selling our house because if the house prices drop we'll owe again more than we own After the sale we might get $25-30K (if we're lucky) and we owe heaps on credit cards, to suppliers, you name it..
Maybe we should rent for a couple of years and get back on track and start afresh or would any of you hang on to our house since we can make repayments?

I'd appreciate all comments..

 

[Propertunity]

Now I am thinking of selling our house because if the house prices drop we'll owe again more than we own After the sale we might get $25-30K (if we're lucky) and we owe heaps on credit cards, to suppliers, you name it..
Maybe we should rent for a couple of years and get back on track and start afresh or would any of you hang on to our house since we can make repayments?

This will depend.

If you owe money to creditors and credit cards will you be able to pay your suppliers off and at least service the debt on your CC's as well as make mortgage payments?

If not, your suppliers/creditors/cc providers will apply to wind you up and you will be bankrupted . So the sell or keep the house situation will be out of your hands and it will be sold to satisfy some debts.

How do you plan to earn a living now that you're closing the business down?

 

[BV]

Lena

What type of PPOR do you have?
Is it going to be popular to first home buyers?

Sometimes you have to cut your losses and move on with your life.
I'd probably sell the property and rent.

Are the assets and business in joint names?
Can you not file for bankrupsy?

 

[HandyAndy888]

I personally would rent if that is a financially viable option. The aim IMO, is to hold as many properties "AS YOU CAN" financially for any given time period. Hope you come out of this OK...

 

[Lena]

This will depend.

If you owe money to creditors and credit cards will you be able to pay your suppliers off and at least service the debt on your CC's as well as make mortgage payments?

If not, your suppliers/creditors/cc providers will apply to wind you up and you will be bankrupted . So the sell or keep the house situation will be out of your hands and it will be sold to satisfy some debts.

How do you plan to earn a living now that you're closing the business down?

Oh, we don't actually owe that much to creditors to go into bankrupcy and we endevour to catch up in the next month or so (at least paying suppliers). I have my own job separate to the business that pays for mortgage and bills.
It would be hard to meet the repayments on credit cards/personal loan though.. Hence my question about the PPOR. The situation with the business was a background that I needed to give

 

[Lena]

Lena

What type of PPOR do you have?
Is it going to be popular to first home buyers?

Sometimes you have to cut your losses and move on with your life.
I'd probably sell the property and rent.

Are the assets and business in joint names?
Can you not file for bankrupsy?

It is a 3 bedroom brick highset with 2 bathroooms, rumpus and a pool. Old kitchen/bathroom but a reasonably nice area. So, yes, it may be appealing to first home buyers. We do want to spruce it up a bit (need to fix the fence on one side) but obviously the finances are tight.. If we do decide to sell do you think we should do it asap since after June 30 the FHOG could be dropped and sales may slow down?
The idea of selling now is that I think it is unlikely the house prices will go up dramatically in the next 2 years (I coud be wrong though) and if we rent and catch up on credit cards then we can buy again..
If house prices will go down it will be hard psyhologically if our house will be worth less that we owe.. Second we'll be tied to it for a few years since we will be holding it until the prices will move up.
At the same time our repayments are $500 now and the rent will be $350. Not much saving every week BUT again if the house prices drop..

 

[josko]

Hi Lena,

What a shame this has happened for you.

Your home will only be in the FHOB market if the market price is between 300k to maybe 450k. Anything over 500k may sit there for a very long time, which is not what you need.

Whatever you do, do everything to avoid bankruptcy. I know it would be a last option for you. Get it out of your head unless this is affecting your health or your marriage.

If you can hang in there and hold your PPOR then it is better.

Can you rent out your PPOR and rent a place that is cheaper? Even if you need to rent a 1BR flat, it may give you some extra money.

Remember: You will only lose money if you sell your PPOR now. If you can hold out then do it.

Regards JO

The above is only my opinion, based on what I have done and would do.

 

[Propertunity]

Lena,

No-one can tell if:
1. House prices will go down once the FHO boost is removed
(No-one (even K Rudd) is telling if the FHO boost will be removed)
2. Your rent will go from $350 to $500 over time anyway
3. House prices will go up or go up dramatically over the next 2 years or fall

Lena, you are behaving a bit emotionally - I understand that, you have had a business failure, the NZ properties have not gone up, you have maxed out some CCs and the house loan. It is naturally human to want to stop any further losses. You can do that by selling. BUT you also lock out future gains, put yourself at the mercy of the rental market, lose a family home with all the emotional baggage that goes with that etc.

If it were me (and it isn't), I'd do nothing. Your loan on the PPOR has lots of consumer protection in it. If you get in trouble financially, the bank is obligated to help you work out a plan to keep it. No such legislation exists to help you keep renting (AFAIK). Saving $150 per week = $7,800 per year - it is a non-issue. Keep your job, have a conversation with your CC / loan providers to make arrangements to repay at what you can afford by all means and do that NOW. But no reason to sell the family home IMO.

 

[BV]

BUT again if the house prices drop..

I wouldn't worry about a drop in prices because it will only be temporary.
Prices will go up again it's just a mater of time.

Selling and buying again will cost you at least $30K
so I see no reason to sell if you are going to buy again in 12 months time.

Are you able to sell the business instead of closing it down?
Having mortgaged the house to 97% I assumed you paid a lot of money for it so surely it must be saleable??

 

[Lena]

Lena,

No-one can tell if:
1. House prices will go down once the FHO boost is removed
(No-one (even K Rudd) is telling if the FHO boost will be removed)
2. Your rent will go from $350 to $500 over time anyway
3. House prices will go up or go up dramatically over the next 2 years or fall

Lena, you are behaving a bit emotionally - I understand that, you have had a business failure, the NZ properties have not gone up, you have maxed out some CCs and the house loan. It is naturally human to want to stop any further losses. You can do that by selling. BUT you also lock out future gains, put yourself at the mercy of the rental market, lose a family home with all the emotional baggage that goes with that etc.

If it were me (and it isn't), I'd do nothing. Your loan on the PPOR has lots of consumer protection in it. If you get in trouble financially, the bank is obligated to help you work out a plan to keep it. No such legislation exists to help you keep renting (AFAIK). Saving $150 per week = $7,800 per year - it is a non-issue. Keep your job, have a conversation with your CC / loan providers to make arrangements to repay at what you can afford by all means and do that NOW. But no reason to sell the family home IMO.

Thanks Propertunity,
Despite what I've said before that's how I feel too. I had that crazy idea (of selling PPOR) and put it out to you guys to critique.. Just to hear opinions of other people but I do I understand that no-one can really tell us what to do.
Hopefully in the next 2-3 weeks we can work out all the debts/payments that we have. Then it would be for hubby to get a job which I am worried about too in this current situation.
Maybe we'll rent a room out in a house which will give us extra money (after my sister with her faimly moves out as they currently live rent free).
I can't believe only 8 months ago it was all different. My wages were higher, we have been paying extra on our house, we had some money saved, we had 2 wages coming in.. Oh well.. I can't play "what if" game

 

[Propertunity]

Maybe we'll rent a room out in a house which will give us extra money

See, once you settle the emotions and the crazy thoughts your mind can begin to focus on solutions

(after my sister with her faimly moves out as they currently live rent free).

Mmmm, free-loaders hey? ...no I don't want to know....lets not go there

I can't believe only 8 months ago it was all different. My wages were higher, we have been paying extra on our house, we had some money saved, we had 2 wages coming in..

Yep, that's what wealth creation is all about...not having to worry or rely on a job to live. Stuff happens on the journey. The measure of a man or woman is how they handle the hiccups along the way

Oh well.. I can't play "what if" game

That's right for sure.

It will all work out - it always does. 10% unemployment = 90% employment & no reason your hubby can't be one of the 9 out of 10 with a job.

Get life back under control, consolidate your position and move forward again. All the best.

 

[wylie]

I also wondered why your sister and her family is living rent free, when you could have someone pay board for a time to help ends meet. Family is family but would your sister want you to have to sell if she could help you out (as you obviously have done for her) by paying something for rent.

I am also in the "don't sell if you plan to rebuy in a year or two" camp. It costs so much to sell and then rebuy. Meanwhile you will save $150 a week in rent, but rent will increase and you may find you are no better off.

Could you rent your PPOR out, and yourself find something to rent that gives you money in your pocket?

I would be selling as a last resort.

 

[Lena]

I wouldn't worry about a drop in prices because it will only be temporary.
Prices will go up again it's just a mater of time.

Selling and buying again will cost you at least $30K
so I see no reason to sell if you are going to buy again in 12 months time.

Are you able to sell the business instead of closing it down?
Having mortgaged the house to 97% I assumed you paid a lot of money for it so surely it must be saleable??

Well.. we've just listed it but the longer we stay the more we get in debt so we are giving it 2 months to sell and then shut the doors. We'll loose lease bond which was $26K in cash (they wouldn't accept bank guarantee) plus the purchase price.

 

[quoll]

My view, the worst case is bankruptcy as it screws your borrowing for years. So almost anything is better than bankruptcy. You need to rank everything and decide what is more important than other stuff.

Option 1 - sell everything start again.
Option 2 - sell some stuff / buy more later
Option 3 - sell nothing but have enough income to serivce the debt.

If the PPOR isn't your dream house then that would be the first to be sold as it doesn't generate any income.

Pay off the most expensive debt.

I would be playing around with a spreadsheet and working back from the SELL EVERYTHING scenario until I came to a point where we could service the debt and wher happy with the situation and could see the light at the end of the tunnel, how long before you can start moving forward again.

Bit of a ramble but hope you get the gist.

Cheers
Graeme

PS been there done that. It sucks!

 

[pennyk]

Hi Lena,
Sorry to hear about your situation. We were in a similar situation a number of years ago, and its awful.
If possible, I would hang onto the PPOR. Apart from the financial losses of selling it now, it is also a "security" in bad times, so emotionally, it will help to keep it.
But as others have said, if it means going into bankruptcy, better to sell.

In terms of the business, if it is really draining cash, I would close it down as soon as possible. We tried to keep our business open in this sort of time, and probably 80% of our debts occured in the last 3-4 months of operating the business, when we knew it wasn't going to work out. if the cash is not there, its going to be difficult to find a buyer.

When our business failed, we owed around $180000, to banks and creditors, plus we had business car loans etc. We sold an IP that we had to pay off the business bank loan, and took the IP loan onto our PPOR mortgage. We can still claim the interest on that part of the loan, because the money was used for a business.
We sold the business cars, but lost money on them. We got a credit card with a very low ongoing interest rate for transfers, and used that to pay the car payments and remaining creditors. I think we still had some outstanding on the car loan, and the finance company allowed us to pay that out over time. We found most large creditors were accommodating with repayments if it meant they would get their money eventually.
We have paid off all but the main bank loan, but its taken us a couple of years of scrimping and saving. I actually paid off the smallest debts first.... its far easier having one or two people to pay off than 6 or 7, so I got rid of the little ones, and then began work on the big ones.
Something else.. we were running late paying the ATO for several years. I wrote a letter about the problems we were having, and they repaid us all interest payments that they had taken, and some of the other taxes that we had paid over that time. It accounted to several thousand dollars. So, well worth the effort! I had no idea this kind of relief was available, and I blubbered on the phone when the ATO lady rang to discuss it.
We also went back to full time permanent work to ensure a steady stream of income coming through. interestingly, we now earn around 4 times what we were in the business, as a family, with much less stress. so, I'm a big advocate for PAYG type jobs!! The business failure has also proved a real advantage in my current position, as my customers feel that I can understand and empathise with their position, and know that I'll look after their business and cashflow needs.
So, consider this just a blip in the road.... it can open the door to much bigger and better things.
Good luck,
Pen

 

[Lena]

Thanks Penny. It helps to hear that other people have been in the same situation as sometimes it feels like it was only us! I guess your self-esteem goes down too you had all this great plans in the beginning and then you have to tell people that you've failed. For me telling people part doesn't really matter but telling myself that I wasn't good enough - that hurts a bit..

We've put a plan in place on the weekend to wind the business down (if we cannot sell) by a certain date and in the meantime try not to increase the debt but somehow get it in order. Like you said I prefer to pay small creditors fist too so they are out of the way and then make a payment plan for all our loans/credit cards.

My sister and her family are looking for a house to rent. Helping them was a promise that we've made 2 years ago and it was supposed to be 3-6 months or until they find jobs(they moved from another country). The tension of living together for nearly 6 months is started to affect us all ... hey, I'm proud that I've lasted that long!

I've changed yesterday all mortgage payments to minimum amounts(as we were still paying last years rates) which means we're not paying it a bit faster (which would be nice) but it's a sensible thing to do now.

It's just since the time we got into business we had a really bad run with luck. Our cat had to be put down last month, auto accident in December, break in in the shop, my husband found a lump in his neck and had to go for biopsy last week (no results yet). We're not negative people and can save and sacrifice - that's fine with us. When we first met I had a 3 y.o child and we only could afford a room in the boarding house; for 6 months we took turns sleeping on the floor as we had 2 single beds in that room

But it's unbelievable that everything we plan lately goes out of the window with a new unexpected turn (and not a good one). It's almost like "what else is going to go wrong?".

sorry for the big blurb - it's nice to be able to share my thoughts..