Im hoping someone can give me some advice on what I should do. I am 30 years of age and currently have 3 investment properties all tenanted.
1. Villa 19 year old – Old Reynella SA
rent currently $190/week (an ok tenant/ single mum to be on benefits)
2. Villa 11year old – Old Reynella SA
Rent $225 per week (Golden tenants are investors themselves!!!)
3. 4 brm house 22 year old – O’Sullivan Beach SA
Rent $230 per week (Unpredictable tenants with 7 children!!!!! just had triplets, both on welfare payments with dad working here and there…)
I currently self manage all 3, yes Im crazy but I love it and want to break into property management professionally eventually.
My Problem is In January I was made redunant thus loosing between $1400 and $1600 a fortnight wage (shift worker). I have just now found work again but is not permanent and is lower income, but consequently have fallen behind in payments on my loans due to keeping up with living costs. On top of that 2 lots of tenants are not paying rent reliably and am now at the stage where evictions notices are being served.
I have found that my passion and motivation has been stretched to the limit and I am now in the “Dont care” stage. I want the properties to work for me not against me, tired of constantly paying out and working long hours…yes reality is slapping me in the face as we speak!
Is my only option to sell up and maybe branch into shares for a while? – as I have now found that prooperty shares are curiously interesting. It’s gut wrenching as I have worked hard to get my little portfolio up and im only very very new to investing with sooo much more to learn and im refusing to give up. I have no idea how to set my properties up so that they are cashflow positive when my tenants wont or dont pay. any creative idea’s would be wonderful and greatly appreciated as I want out of the rat race now baby!!!!
If servicability of the three loans is becoming an issue then it seems you are overstretched for your current means. The obvious answer would be to divest one of the properties and use the profits to pay down the mortgages on the other two until your cash flow position is more manageable. You don’t necessarily need to sell all three and branch in to shares. In fact I would strongly recommend against that approach, you’ve got better leverage in property and there’s some speculation that equities are overheated now too.
I underdstand that you can also take out insurance to protect you from poor payments on behalf of your tennants. Of course, if you don’t do this then you need to make sure you hold a cash reserve as a form of self insurance to cover for the occassions when cash flow is a problem.
Its easy to buy property, the hard bit is holding them through those unforseen eventualities.
My 2c would be to divest one to releive some of the pressure, but retain your two preferred properties so your still in the game.
Yeah, sell the worst tenant rather than try to evict. Selling is quicker and easier and you get money at the end of it[biggrin]
pay down the loans on the other two better propeties and then see where you sit.
As for shares: well I’m just now selling my shares (should have sold 2 weeks ago but…) as I’m seeing interest rates rising, US economy sucks hard and we have just come off the back of a great growth period in aussie stocks. Mind you I’m selling because I’m not a real share market afficionado and I’m pleased with the returns I’ve got so don’t go thinking the share market wont work. But as was said property offers better leverage and you can take personal action to increase equity (heck just giving the outside of a house a good wash can raise it’s price).
Thankyou so much, you have given me some real insight and things are starting to look a little clearer.
Yes i very much agree with you Michael, i did over do it on the 3rd house.. I really should not have stepped into that committment, at the time i didnt but you know us girls….. when it comes to shopping and a good bargin we cant say no.. but i have learnt my lesson!
Id like to keep the good tenants definately..as they are in the best property of the3… the worst tenant unfortunately will have to stay until the lease runs out as i have only had the 3rd place since december 04. would it matter that id be selling the main property that is the security for the other 2? unfortunately my broker didnt listen to me when I explained to him how i wanted my investments structured… i gather he takes me for the pretty blonde who wants to play dressups as an investor *frowns* so they are all linked….
so keeping the investments long term should be the way to go. I guess i have been given too much info from family on managed funds and their returns etc etc. Being tempted by the NOW returns is what has me interested but still i love property far too much.
Firstly let me REALLY commend you on your efforts so far.Your enthusiasm for financial independance has been put into action as opposed to others who just talk, so I feel for your plight but you are on the correct road, DONT GIVE UP.and “YOU” probably are half the reason for your woes.
Reading between the lines, you seem a very compassionate person, ie tenants with 7 children etc is no problem except for the unfortunate small matter of no rent coming in which is making life for you miserable.
I bet you are on a first name basis with all tenants!!
Time to get tough and correct the things which NEED correcting.
Remove yourself from the emotional connection and employ a Property Manager (I know this is not your wish but your success at this stage must come first)
If the manager doesnt perform quick smart, get another, time runs out very fast when you fall behind in repayments.
Once the non paying elements are removed and replaced by cash paying type tennants, gradually increase your rents EVERY renewal by small amounts consistently, rather than big hits occasionally, to ensure success of your venture.
This is what I would do and have done in the past, for what it is worth.
*chuckles* you can read me like a book.. but thankyou for your compliments, i love getting feedback like that!
and yes the emotional attatchment with the girl with 7 children is 25 years strong.. my first biggest mistake. When it comes to property management though im firm but fair.. its not about property management any man and his dog can do that.. its about conflict management and 2 out of 3 tenants understand that if they do right by me i do right by them always. anyway i know the 7 kids are a long term..10 years long term… shes stayed at her last property 8 years.. yes defaulted but had a very slack and qualified Property Manger who did not do a thing. As for the property management, being a tenant for 8 years myself made me realise that i dont want to pay for someone who is not interested in looking after my investments and that includes my tenants, (Ive been the tenant on the end of many a bad property manager/private landlord) and thats what motivates me to get into property management on my own.. but thats a completely new FORUM!!!! hahaha…..
Anyway thankyou so much for giving me your feedback.. i have definately taken it on board and am now on a new journey rejuvinated self and wealth education!
I totally agree with the above advice regarding the sale of one or even two of your properties.
Just regarding your potential move to stocks, just like property, shares are not without risk and complexity either, especially listed property trusts. Do your homework and always adopt a critical attitude.
I make great returns from stocks and options and it does not even depend on a booming stock market. But this only happens by implementing a variety of strategies with great care. Even then, in the right market with the right stategy, nothing beats what an individual can do with real estate, specifically positive geared real estate.
So my advice is to alleviate the current situation and take a step back to learn about all investments and economic cycles with a critical attitude. It does not matter if its property or stocks, if you do the right things at the right times, the possibilities are endless.
What a great attitude and outlook you have. Compassion and empathy are great qualities, and Steve is a good role model exhibiting these qualities most successfully in property investing.
I am new here too but have some experience in commercial property, business and the stock market. It is often times like these that make or break you. If you are able to persist and learn from these experiences you come out a winner. As Steve says, have a strategy and see it through. Changing mid-stream to the stock market when you are not well versed in it could be jumping out of the frying pan into the fire.
Rather than give you specific suggestions without knowing your unique circumstances I would simply encourage you to keep your great attitude and listen to people who are experienced and have a vested interest in you. Develop a sound strategy and stick to it.
Yes you have done very well for yourself. But selling will be costly – you have variouse fees and CGT etc.
Do you have any equity in your homes? Could you increase your loan temporarily while you get back on your feet? Please try to keep the payments on your loan up to date in case you wish to refinance. You will have to accept a higher rate if you don’t.
Are all of your loans IO? if not, you should look at switching to reduce the repayments.
Your lender may also be able to extend your loan (if PI) resulting in a lower repayment etc etc.
Hi Property angel,
This is just my second post..but reading your message I thought I might add that living in one (as PPOR )before you sell it will help the GST problem and save $$$if you are renting else where…also whilst living in one before you sell it AND with the extra time you have between temp jobs maybe you can do some small DIY renovations to inprove value….
hope your work situation improves and good luck with whatever you decide to do..keep us posted.
(I really enjoy your posts)
living in TOKYO
(IP’s in QLD)
With the short term solution advice I am a little light on however if ther is some way you can either stay the debt of rent on the properties and suggest that the tenants pay thru Centrelink. then those on benefits can pay their rent direct to you from Centrelink and not even be a direct transfer from their bank. Simply, Centrelink pays rent direct to you at a cost of $1.01 per payment and the tenants do not have to go thru any bank and what they then receive in benefits is , all mine, I say , all mine –sorry got carried away–all theirs to keep. Then maybe they could pay you a little extra each week to pay down the debt. Also no need for an agent to reap any benefit. Cheers for now Len
I wouldn’t recommend putting too much faith in Centrelink payments. They can be cancelled by the tenant with a phone call. They can be set up one day and virtually cancelled the same day. Wether you get the rent, regardless of how it is paid, or not ultimately depends on the quality of the tenant.
I was recently in a similar position to you – just beyond my financial limit. I sold a property that had made significant capital gain even though it was a positively geared property. The financial pressure was lifted immediately. It was well worth the selling costs.
WOW! thanks so much for the wonderful and creative advise. You’ve all given me so many idea’s, now im back to the late nights of getting excited about property again.
Just to let you know that i have decided to sell one of the properties, as much as I hate doing so but Id rather do it this way and focus on learning more about other ways to invest in property. Doing this and keeping 2 im still giving myself a fair comprimise on my passion for property and my ability to service my loans. You’bve all been a wonderful help thankyou so much, Im now on a journey of business development within the property industry! its all so exciting and I cant wait. As for my troublesome tenants, Im unfortunatley moving one onto bigger and brighter places by selling up. THe severely troublesome tenant I’ve been able to sit down and educate fairly and firmly. So now the proof lays in her hands, I hope my friendly communication keeps her in the house as long as she hopes. shes in control of her own destiny just like we all are. I agree that my emotional links are my weakness and therefore, if she fails to comply with my fair comprimise ill be placing her in the hands of a firm but fair experienced property manager!
Please keep the advice, life experiences and assitance comming. You all facinate me and I cant wait to learn more from you all!!!!
Thankyou again!!!! Im so excited~!!!! I’ll stay in touch!!!
I’m not sure how much equity you have in each of the 3 properties. And I’m not sure how long you have had each of the properties. If you do have a reasonable amount of equity in the properties one option is to sell one of them and reduce the debt in the other 2. Presently yoou seem to be be far to highly negatively geared for your income. Anyway I would also suggest getting a Property Manager to look after the properties. I have been down a similar path to you. I used to look after our properties and although there was a saving in management costs the dramas we would have with tenants(selecting the wrong ones) was not worth the savings. My wife and I have 5 investment properties in Townsville(inc 2 blocks of 4 flats) and all are managed. Its the only way to go. I would not rush to sell rel estate just to get into shares. With property you should always aim to ACCUMULATE over a period of time. However at the moment in yoyr current situation maybe you should sell one to ease the cash flow problems.
Is there any way to can restructure your mortgages to suit your situation?
I recently got divorced and managed to keep only two of our rental properties (plus another one for me to live in). Because of my new single status, I restructured my mortgages to still be able to pay the principal down on each loan, but reduce the payments (and the interest rate) dramatically.
No, I did not refinance. I simply “switched” products over the counter at my existing bank. Of course, I asked around and researched quite a lot to be sure that my new mortgage structures weren’t going to be a bad thing. In fact, it was quite easy!
My point is – the restructure gave me a much bigger positive cashflow than I had before and lowered my interest at the same time.
Anyway – I live in Old Reynella right now, so if you wanna email me, maybe we can catch up for coffee and chat about saving our rental properties? Obviously, you live somewhere around this area. I’m happy to chat with another single girlie investor if you are!