Hi all, I am new to the forum but unfortunately lost my original post! I found the forum exploring, and I’ve been very impressed with the wealth and breadth of experience you all provide. I’ve read what I can!
Unforunately, I am admittedly ignorant and pretty hopeless with money. I’ve made my purchases rashly and at the property peaks in the past. We are thus pretty dejected with our ‘investments’ thus far. We are quite frugal, I’ve worked hard and made pretty good money for a while, with nothing to show – even theoretically.
I’m the breadwinner of our family of 4, and my income is set to rise next year (200k+) and potentially rise continuously thereafter. This is on the back of a decade of training and 80,000 debt for the privilege. The debt needs to be paid down quickly next year, but after this cash flow shouldn’t be a problem (perhaps until my little ones get into school at least!)
We’ve been out of the country and QLD, thus have also lost touch a little with the local markets.
We have two properties, one in Cairns (approaching ten years), and another in Brisbane – currently rented out whilst we were overseas, but was our PPOR for 2 or 3 years first. Due to convenience, we will move back into Brisbane in order to facilitate one of several options.
Some details:
PPOR1 for 3 years –> IP1: Edge Hill, Cairns. Modest, 3br house but blue-chip suburb. ZERO capital growth over most of the decade. No possibility for worthwhile value add. Owes 360k, rents 380/week. We didn’t sell this as we weren’t in a position to have a vacant rental or realise a loss.
PPOR for 3 years –> IP2 for 2 years: Mt Gravatt East. 3br, owes 430k, rent 480/week.
Our thoughts/plans, and we are most interested in yours:
1. Cairns IP: Sell? It has been stagnant, and unless AQUIS comes through, will remain stagnant. It’s negatively geared with no growth over the decade. But – interest rates are low and it has never been vacant. Unless something happens (AQUIS!), this has been an absolute investment dud bought rashly at the peak of the market after a windfall by someone who knows nothing (me), and I’d still like to get out.
2. Mt Gravatt East: Many options here. Literally across the street is the newly zoned medium residental zone of the Mt Gravatt Central Corridor.
a. Live in it – to stretch this out for 3-5 years, would need major renovations/extension including garage/ additional family room/bedroom/bathroom, pool. The suburb and street would support the value add I think. We wouldn’t stay longer than this most likely.
b. Keep renting it out – very rentable. I suspect rents will rise, but will be negatively geared for some time. Hopeful for capital growth – has been modest, maybe an optimistic 10% since purchase 4-5 years ago.
c. Subdivide/develop – its a 607m2 block with 15m frontage and zoned LMR 2/3. We have no experience with this, but have some young property developers and builders in the family who may give SOME broad advice.
3. Something else??? Cash flow should improve once our 80k line-of-credit debt is gone – I’d like this gone within 2014.
Gratefully yours,
BM
Hi BM,
Try not to get too dejected. We all make mistakes and the most important thing is that we learn from them. Having a strategy in place and working to that certainly helps matters instead of going in almost blindly. In saying that though, looks like both of your current IP’s were PPOR’s at one stage so that does make things a little different.
It looks like you bought the Edge Hill property right at the peak close to ’07. The GFC hit Cairns hard and only in the past 12 months or so have prices started to recover from the very low base of ~2009. Infact, according to Residex the growth in the last 12 months for Edge Hill has been 14%. If I can figure out how to attach a photo I’ll attach a snapshot of the past 10 years.
Cairns council seemed to have recognised the error in their ways with having an economy almost solely dependent on tourism and are now starting to diversify into other segments. There is a lot hinging on Aquis but I don’t think it is the be all and end all for Cairns. Particularly for a property that isn’t located on the northern beaches. I said in another thread re the Aquis announcement “I was talking to a client today before I heard the news that Aquis has been put on the back burner and my comments were if Aquis goes ahead there will be a mini boom and if it doesn’t then there will be a mini glut as I’ve heard quite a bit of anecdotal evidence that people wanting to sell having been holding off until there’s an announcement thinking it will go ahead and taking advantage of the renewed interest…Now that it’s been put on hold I think there may be a very slight softening in the market with the announcement but I don’t think it will be all that big as there are other fundamentals there which is making Cairns a market in recovery. Medium term I think the prices will still go up, perhaps just not as quickly if Aquis was a definite goer.” I think this is more applicable for the Northern Beaches though.
The Cairns market seems to have treated you badly but I think there are now and will be some good fundamentals in place to make it half decent market to play in. In saying that though, are there better markets than Cairns? Yes. Are there worse markets than Cairns? Yes. If you do sell will there then be a realised loss? Or is capital being tied up which could be put to better use at the moment ie is there an opportunity cost to holding the Cairns property? Or can you ride out the storm a little longer to see what the next 12 months brings? Past performance isn’t always indicative of future.
As far as the Mt Gravatt property goes, looks like there’s some good fundamentals there. It’s hard to say whether a, b, or c would be better as have a bit of a narrow view of your current situation. If you don’t move back in to the property can you / would you want to rent or buy another place? Does it really need the major renovations or are they more of a ‘want’ item? If you do the renos would you be over capitalising? If you subdivide do you have the capital to do it? What are your long term goals and how do these 2 current properties fit into it?
Hopefully the above has given you some food for thought.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Thankyou Kinnon for your thoughtful reply and the figures which offer a little hope.
There is no impetus to sell in a hurry, with a major cash flow injection starting in 2-3 months, it will be easily serviced – we can keep it forever. In terms of opportunity costs, both properties are sitting about 80%, and until I pay down the 80k I won’t want to stretch this further in any case, and wouldn’t wish to purchase until we are back from our year overseas. It seems a little silly to sell it now after this long, with even a hint of improvements in the future – but having made losses each year its a little difficult to swallow.
My immediate strategy is to wipe out the 80k debt (at tax deductible interest), then reassess both house possible sale values and rents. Based on income alone I should be able to repurchase perhaps mid 2014, maintaining an 80% ratio or perhaps slightly higher.
The renovations will become necessary if and when we have our third child, but otherwise life will just be a squish.
No worries :)
It seems a little silly to sell it now after this long, with even a hint of improvements in the future – but having made losses each year its a little difficult to swallow.
Yes, it’s tough seeing it drop in price. I was able to ride the Melbourne wave in the mid 2000’s but still hurt when prices stagnated and dropped a bit in some areas around 2011-ish. Just starting to recover now which is good for my equity position! Seems like if you were to sell now you don’t really have too much to gain, whereas if you do hold on to it you may make back some of those capital loses.
By the sounds of it, seems like there’s no rush to sell. If it were me, I would hold on and re-assess in 12 months time once I’m back in Aust then look at things closely and weigh up my options.
I’m going to contradict myself here a little when I said ‘past performance isn’t always indicative of future performance’ by saying that property / shares / investing is cyclical. So there will be growth, and drops and troughs just need to ride it out and sometimes it takes a little longer than hoped.
Best of luck with your year to come and the goals you’ve set yourself.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Kinnon, it’s been three months, what’s happening in Cairns? Can I quit my day job yet?
(Personal Update:
Last tenants trashed our Cairns house, few repairs and cosmetic refurbs. Agent valued it 35k higher than purchase price, bank valued it 45k under :(
The Mount Gravatt house has moved enough (25% since 2009) to draw down the equity and pay the deposit for a 5 bedder 5km from the CBD which we will move into later this month.
Win some, don’t win some.
Ha, if only! There’s been a bit of movement and action but probably not long enough for it to start noticeably impacting prices!
Sorry to hear about your house getting trashed. Hopefully you had insurance which then paid for a cosmetic reno. Was the bank val done recently?
Good news about the Mr Gravatt place though. And congrats on the new purchase, with 5 bedrooms you will have room for child #3 now!
I wouldn’t call Edge Hill a looser yet, things are now slowly on the up.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Yes, insured but have not lodged a claim. Then I will be ditching my $5000/year policy (is this normal!!!?) for something less ridiculous. The claim will help, but it was overdue anyway.
And the extra bedroom might be put to that use, or maybe I will be forced to live in it.
Keep us posted. I will have to visit the area soon, it’s been a long time
Then I will be ditching my $5000/year policy (is this normal!!!?)
Yes and no…. When I first bought my PPOR here I was hard pressed finding insurance for under $10kp/a (in a red flood zone) and was almost a deal breaker. I was then able to get building and LL insurance with EBM first of all as was going to be IP and insurance was about $2.5kp/a. Ended up moving here instead and got insurance through RACQ for about $2,600.
Ha, let’s hope you don’t need to use that spare bed yourself!
Will do, attending an afternoon tea with the Aquis people tomorrow afternoon so hopefully have a bit more clarity on where that’s headed.
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Hi Kinnon,
Did the Aquis people have much to say?
Hi Bangers, just saw this sorry.
Not really unfortunately. The afternoon tea was pretty much 2 hrs of fluff going over what has been done already with nothing new said.
A summary of the notes I wrote:
Total size is 340ha. There will be a 33ha artificial lake and a 40ha ‘island’ that will be the main resort/casino area. The whole development will be flood tolerant and has been driven by ‘impact avoidance’ where they want to impact the local environment as little as possible and in some parts leave it in a better state than what it is now.
The EIS has been approved (in record time apparently) and now they’re negotiating the casino agreement at a state level (no federal involvement). After that it’s capital raising and then design. They said best case scenario is approval and start post wet season 2016. (I’ll believe it when I see it).
There’s been 230 submissions in response to the proposal – 40% supported the development and 40% supported with buts. All these submissions can be viewed on the co-ordinator general website.
They project the population to be 300,000 by 2036 but the treasury expects lower.
They’re waiting for the EPBC (Environment Protection and Biodiversity Conservation act) to be signed off at a ministerial level.
Capital for the project has not been raised yet, they’re waiting for more certainty.
They’re building the Aquis brand within Aus for more brand recognition. There’s a new arm of the Aquis brand which is Aquis Entertainment and they’re sponsoring a footy team (forgot to write which code).
There’s the expectation of a lot of ‘me too’ followers once (if) this is built so will act as the anchor point for a lot of new developments.
Hopefully this helps a bit :)
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
Thanks Kinnon,
I saw your post elsewhere, sorry I didn’t catch it in time to save you writing it twice.
Bran (of several names)
Ha, all good. I actually wrote this one first in response to your post then thought I may as well post it in the other forum that shall remain nameless ;)
Kinnon Bell | Kinetic Funding
http://www.kineticfunding.com.au
Email Me | Phone MeMortgage & Personal Loan Broker based in Cairns and Melbourne but servicing clients Australia wide.
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