When to sell a Bad IP

[josko]

Hi guys,

I'm curious to know how many of you have sold a bad IP/or are considering selling a bad IP/ or are there no bad IP's!

In these hard times, I am considering, well more likely - will be forced to sell an IP that is costing me the earth to hold. It is setting me back 30k a year and that is at today's IR.

I do not think I will see any growth in it for maybe 3yrs, and spoke to a R/E Agent yest, who informed me he thought it had lost 20k in value.

Therefore I will have lost 110k in 3 years. Now unless the market bounces back to 30% Growth in Yr 4, I stand to lose alot of money.

Yes, I know all about buy and Hold etc, but I have read many times, and Jan Somer's also says, that sometimes you just have to bite the bullet and get rid of a bad IP.

Anyone else?

Regards Jo

 

[steveadl]

Got rid of one last week. Mainly because I had a better opportunity present iteself. The new one will provide much better growth in the future than the last one would have.

It also allowed me to clear some non-deductible debt which was nice, but the main reason was to utilise the debt in an investment that will offer superior return.

The new property will cost me more to hold than the one I sold, but this was taken into consideration when doing the figures.

 

[Rolf Latham]

sometimes you have to shoot the bad dog, to keep a hold of the pack

ta
rolf

 

[josko]

sometimes you have to shoot the bad dog, to keep a hold of the pack

ta
rolf

Great analogy, Rolf.

 

[GoAnna!]

From your description of the property and holding costs I would let it go. You might then be in a good position to take advantage of some real opportunities over the next few years as people go though hard times. It's can be hard to sell rather than hold on to a perceived success but the hard numbers are obviously telling you otherwise.

Unless there is some hidden silver lining that you have not disclosed I would let it go......

 

[Highlygeared]

What constitues a "Bad" IP I guess is another question? Is it highly neg. geared bc you borrowed 100% or is it a low yielding and heaven forbid, a slacker in the growth department as well?

In this environment, its not hard to be deep in the red on a fairly expensive IP in a capital city. And price projections for most properties, say, in Syd are sketchy at best, even the top end of town. That's the problem with the cycle we're in, nothing looks good.

I'd shoot the dog that didnt or is unlikely to do well even in a buoyant situation. Personally thinking about doing the same, but find it hard to determine which one is actually bad for the right reasons.

 

[Joker]

"Shoot the dog" lol I like it

 

[timmyboy]

I am seriously considering selling the 3 that I hold, albeit 1 is virtually neutral, the other 2 are neg geared with returns around 5%. I am thinking to offload, take the gain made over the last 2-3 years and put it into paying down ppor to a minimal mortgage.
Alternatively, I will sell the 1 renovated last year as cap gain was less than expected and holding costs too much to contend with from a cash flow perspective. Gain will be minimal - break even if lucky, but learned a lot through the process.

Cheers

Tim

 

[Rixter]

Only sell if its a lemon or you can get a better return elsewhere.

Otherwise hold.

 

[The Y-man]

Only sell if its a lemon or you can get a better return elsewhere.

Otherwise hold.

Or you have made a slight boo boo elsewhere, and the sale will stop you going bust!

Cheers,

The Y-man

 

[josko]

What constitues a "Bad" IP I guess is another question? Is it highly neg. geared bc you borrowed 100% or is it a low yielding and heaven forbid, a slacker in the growth department as well?

In this environment, its not hard to be deep in the red on a fairly expensive IP in a capital city. And price projections for most properties, say, in Syd are sketchy at best, even the top end of town. That's the problem with the cycle we're in, nothing looks good.

I'd shoot the dog that didnt or is unlikely to do well even in a buoyant situation. Personally thinking about doing the same, but find it hard to determine which one is actually bad for the right reasons.

It is highly geared - 95%, to get a better property. I thought I would be able to hold it, rather than sell it, but at IR 10.85% now , as mentioned, it's a killer. No money to refinance, and exit fee $7500k! There's my "boo-boo" Y Man!

It is actually not a bad IP, not my best, but not bad. However it is costing me the most and has lost nearly all the gain that it did make in the 2 yrs I owned it, which was not much.

Got to make the best of a tough situation though. . . . .

regards Jo

 

[Rixter]

Or you have made a slight boo boo elsewhere, and the sale will stop you going bust!

Yeah in that instance I would look to rectify that boo boo firstly.

 

[Highlygeared]

Well, if the buffers are wearing thin, then its too risky to hold and perhaps you should bail. There's no decision to make then. Its made for you.

 

[Ausprop]

fairly symptomatic of the times we find ourselves in. with asset deflation setting in it is hard to justify neg geared assets. there is hurt here for everyone... investors will lose money and renters will be forced to pay somehting that half resembles a fair return for the durable that they are consuming. present rents are a joke and the joke is on landlords.

 

[HiredGoon]

fairly symptomatic of the times we find ourselves in. with asset deflation setting in it is hard to justify neg geared assets. there is hurt here for everyone... investors will lose money and renters will be forced to pay somehting that half resembles a fair return for the durable that they are consuming. present rents are a joke and the joke is on landlords.

Rent seems to be tracking inflation, wages and costs pretty well.

It's not renters fault their landlords bid up houses in a speculative bubble.

 

[Rolf Latham]

Hiya

For the statisitician amongst us ( NOT ME) I recall a logarithmic scale is used so that one can compare the rate ? of growth of 2 or more data sets ?

ta
rolf

 

[s_t]

It seems he's actually used a logarithmic scale in this one! See how the gap from 100-130 is bigger than from 220-250, though they are both 30 apart.

Who knows what data he's used though, and no doubt he chose the starting point very carefully to over emphasize the point he wanted to make.....

Hiya

For the statisitician amongst us ( NOT ME) I recall a logarithmic scale is used so that one can compare the rate ? of growth of 2 or more data sets ?

ta
rolf

 

[Aimjoy]

I'm curious to know how many of you have sold a bad IP/or are considering selling a bad IP/ or are there no bad IP's!

Jo, I think you are right.....there are really no bad IP's. UNLESS you bought in a dodgy area and did not do your DD properly.

What you seem to be describing is bad financing of a good IP or rather good financing at the time, now gone bad (ish).

Hey, 2 years ago who knew the sub-prime thing was going to affect things like it did? In hindsight we should have all locked in our interest rates for 10 years at 6.55% Macq Bank was the darling - lent me loads of money which is now getting exy to service. Those 95% LVR lo-docs from Mobius looked like good value too but at 11+% are starting to hurt. But while I was moving recently, I found an old loan repayment card I had picked up from a Credit Union many years, probably 20 years ago?. The rates start at 10 % and go to 17% in 0.25% increments. Nothing really changes mate - this cycle is the same ole same ole.

If you have to sell to survive, then you have to sell to survive so you can stay alive to keep in the game....but consider a long term view and make sure you are not just making a knee jerk reaction.

Also beware REA opinions - they don't know anything more than you or I do LOL.

All the best with your decision/s mate.

Cheers,
Aimjoy.

 

[Lake]

Hi guys,

I'm curious to know how many of you have sold a bad IP/or are considering selling a bad IP/ or are there no bad IP's!

In these hard times, I am considering, well more likely - will be forced to sell an IP that is costing me the earth to hold. It is setting me back 30k a year and that is at today's IR.

I do not think I will see any growth in it for maybe 3yrs, and spoke to a R/E Agent yest, who informed me he thought it had lost 20k in value.

Therefore I will have lost 110k in 3 years. Now unless the market bounces back to 30% Growth in Yr 4, I stand to lose alot of money.

Yes, I know all about buy and Hold etc, but I have read many times, and Jan Somer's also says, that sometimes you just have to bite the bullet and get rid of a bad IP.

Anyone else?

Regards Jo

Sell out in the middle of a slump? I wouldn't do it if I were in your situation.

A year or 2 from now, you'd be kicking yourself once the market recovers and your "bad IP" returns all of your losses plus more.

I think we've all been spoilt by the uninterrupted boom of the last 7 years. The market is bound to stagnate for a few months whilst the credit squeeze works itself out.

This downturn should steel everyone into budgeting more radically to cut out the unnecessary expenses and just focus on holding onto what we've already accumulated.

If we all panic and start selling, that's when the sentiment really turns and everyone starts seeing big red numbers on their portfolio.

 

[Ausprop]

Rent seems to be tracking inflation, wages and costs pretty well.

It's not renters fault their landlords bid up houses in a speculative bubble.

speculative bubble? we have near new houses selling below replacement in many places in Perth. it costs x for the land and y for the building, no escaping that

indeed with both investors and new home buyers runnign for the exits this stranglehold on supply will exacerbate matters.

whoevers fault it is doesn't really matter, the bad news is in the post

oh and now I hear midland brick is shutting down for 4 motnhs due to this gas supply fiasco. new homes supply has been slapped in th face and this is now a kick below the belt!