I bought an IP in Richmond (inner Melbourne suburb) in May 2002 for $300K. I spent $15K on Renovations & $15K on govt costs. (So it ended costing me $330K in total). I took out 100% finance and my repayments are about $480 p/w. I can only get rent of $300 p/w. (a $9K shortfall p/year) – A Bad Investment I Know.
I tried selling this house by auction through a reputable local agent 4 weeks ago and nobody bid (extremely embarrassing). That same day someone later offered $305K after the auction. I declined it. The auctioneer then suggested we auction it again on 7 December. I’m sure I won’t get any more than $310K. I am happy to break even and sell at $330K (less $10K to the agent which I can’t avoid). [
][]I want out in order to stop this huge negative cash flow (about $9K p/year). I then considered Wrapping it. Even if I charged the Wrapee what the Bank is charging me, I know I won’t be making any money on the deal but atleast I can put a stop to the negative cash flow. Hopefully then the Wrapee may refinance in a year, two or three….[
]Do you think Wrapping is the answer? I am willing to breakeven on repayments and accept a small deposit. “Oh God, What Should I Do??”[
]Lucky Dave (not so lucky)[
]Hi Dave,
Are you able to lower your repayments by putting in some cash and negotiating with the lender for a longer loan term if possible?
C2
“Is it true the more you owe the more you grow until the bank steps in?”G’day Guys…
I looked at that C2… even interest only makes bugger all worthwhile difference…as I said Lucky Dave… hang in their I will get another opinion in the next 24 hours…… Please go to the trouble of completing the PFA… just as C2 did
Cheers
Bill
Bill O’Mara
Real Estate,Mortgages, Option Writing & Forex. [email protected]Oh dear, Property Guy- doesn’t sound good :o(
I don’t think you could wrap it, personally. If people won’t pay you $330k for it, I doubt a wrappee could afford it. Remember, wrappees are traditionally those who cannot get finance. Anyone who could afford that kind of dough, is probably not going to get into a wrap situation.
I suggest you don’t panic. There will be many like you soon, no doubt, who realise the returns aren’t what they were promised. Richmond isn’t a bad suburb, really- you could have done worse. But it would be impossible for anyone to get $600 a week rent to come close to breaking even on the purchasing price in terms of cashflow. No doubt anyone who could afford those kinds of rents would have bought it themselves.
You might have to wait it out (if it doesn’t sell at the next auction) and get back a fat tax return so you can pay an extra chunk on your mortgage. The losses won’t seem so bad once the mortgage is less! In fact, in about ten years time, your income to debt might become positive!
I wish one of us could give you a magical solution. I think the more we pay for a place, the more we have to lose :o( Maybe buy and hold might be your best strategy. If you sell now, you come out with nothing. If you make a profit, given that you’ve sold within one year (and a day) you’ll have to pay full CGT. I hope someone can provide you with that magical advice. But it ain’t me, PropertyGuy.
Good luck.
kay henry
It’s not a real solution but to lighten the negative cashflow how about filling in a form with the ATO for a variance on PAYG tax.
It means you give an estimate of what you will get back from your -ve geared property at the end of the FY and they reduce your weekly or fortnightly tax by the amount. It may help with cashflow in the short to medium term.
Otherwise don’t panic – Richmond is a very popular suburb. Now is the time to hold of you can rather than taking a bath.
Thanks guys.
I didn’t think there was an easy quick fix solution to my problem. I was just hoping there would be someone willing to pay a higher price (by way of a Wrap) for the priveledge of living inner city. I guess it will simply end up being a buy/hold strategy whilst losing about $9K p/year. Still searching for that magical wand, but meanwhile Bill, I’ll send you a PFA if this will help.Cheers
sounds like you’re in a bind!
here is a web page by the self proclaimed only honest real estate agent “if you dont do it my way it must me wrong” jenman.
he talks about the property escalator
http://www.jenman.com/NewsQuestions1.php?id=65
i know its not much, but it is food for thought
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