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Viewing 11 posts - 1 through 11 (of 11 total)
  • Profile photo of Cherry ProCherry Pro
    Participant
    @cherry-pro
    Join Date: 2007
    Post Count: 22

    We own an IP (2 bedroom furnished unit) in Hornsby that we bought brand new 4 years ago, amount outstanding $470,000.

    The property annual costs are as follows :
    Interest costs $29000 pa
    Other property expenses $6500 pa (property management, strata, water, etc)
    ie. total costs $35500

    Rent $18500 pa
    Depreciation $17000 p.a. (a furnished property)

    Income : $65,000 pa

    Based on the above, the property is costing us around $125 – $150 per week.

    In today’s market, the property would not sell for more than $350,000 (i.e. $120,000 less than what we owe the bank ?)

    Has anyone been in a similar situation ?

    What should we do ? We were just naïve when we first bought and now there is a glut of properties in the market. Should we continue to hold even though it is costing us around $8000 p.a. or should we take a loss of $120,000 and move on ?

    Your inputs / advice would be most appreciated.

    Thanks a ton.

    Profile photo of L.A AussieL.A Aussie
    Member
    @l.a-aussie
    Join Date: 2006
    Post Count: 1,488

    If you can ride out the neg cashflow for a couple more years then do that. The market and the rents will come up.

    Treat the $8k as forced saving that you probably would have blown on other ‘doodads’. You haven’t made a loss until you sell.

    Cheers,
    Marc.
    [email protected]

    “we get sent lemons; it’s up to us to make lemonade”

    Profile photo of picklesampicklesam
    Participant
    @picklesam
    Join Date: 2004
    Post Count: 55

    Hi Cherry, i have a similar situation, i bought at lake mac. 2 years ago, it hasnt gone up at all, i pay $2700/m in repayments but only get $250/w in return…i too thought about selling, however i recently spoke to a builder, he’s about 60 and he’s been investing in realestate all his life..he’s got about 100 + properties…i asked him rather i should sell now, he told me to hold on, you won’t lose if you hold onto it long enough…he said the only people who whinge about losing $$$ in property are the ones who don’t have the patience, and don’t make the mistake of selling in gloom…after that chat i’m completely at ease, it helps to talk to someone with so much experience..

    Profile photo of v8ghiav8ghia
    Member
    @v8ghia
    Join Date: 2005
    Post Count: 871

    Hi Cherry pro. – I think LA Aussie made an interesting comment, in that you have not made a loss till you sell. Same with shares, and managed funds. It’s all ‘on paper’. Some investments are long term, and if you can afford the neg gearing, and view it as that way, it may be quite a lot better than flushing all your time, effort and money by selling. Something many here will disagree with me on however is the opposite – you have also not locked in a profit until you sell – the opposite is true too, as it is all on paper, unless you tap into the equity beforehand, and then of course there is nothing to say you would not end up in exactly the same position…..but renovators such as Sam Venutini and investors like Steve Mcknight and Peter Spann also agree- never be afraid to sell a property at a profit to ‘lock it in’ if it helps you achieve what you want, either short or long term goals. Boy that nice Cabernet Savignon tends to get me on my soapbox…… The only other thought is this- I have heard of many an investor that has ‘cut their losses’ in your position, and from that day on never taken any risks again, however educated, and never invested in anything again. Is that what you want? Like Mark said, if you can handle viewing this as a comination of ‘forced savings’ and a partial tax deduction, without causing you /your family major depravation meanwhile, that sounds like the way to go. All the best anyway…..[strum]

    Profile photo of Cherry ProCherry Pro
    Participant
    @cherry-pro
    Join Date: 2007
    Post Count: 22

    Thanks guys – appreciate your feedback.
    I feel so much better now. 3 people
    can’t be wrong – we’ll grin and bear it
    and ride this out till the market swings around again.

    Many thanks again.

    Profile photo of wilrosewilrose
    Member
    @wilrose
    Join Date: 2006
    Post Count: 21

    Hi Cherry pro

    this is a conundrum for many (as you no doubt realise). My view is to stay tuned to the market shifts……if you believe it will be many years before a return to profit occurs, consider the alternative options you may be forsaking by remaining in a zero growth market. Should you find something that promises better returns, I’d reckon that selling may be the go. Remember, you are currently losing $8k per year….that’s not small potatoes if it’s early in your investment career, and each year it’s compounding, leaving further behind (when the real numbers are in) to making a recovery!!

    all the best

    wilrose[thumbsupanim]

    Profile photo of wilrosewilrose
    Member
    @wilrose
    Join Date: 2006
    Post Count: 21

    so sorry Cherry Pro……..i did not read your post properly: I see now that you have negative equity. This would swing me back to the earlier advice posted by others in some ways. On the one hand, you could sell and then set about paying off the outstanding debt….say $9k per year in interest, and principal payments as extra….how long this would take you might calculate, and what relief/distress effects would you experience: or carry on with the current strategy…….perhaps 7 years ( at say 6% average growth per annum ) to recover the capital value ( to $470k) plus another 2 years to recover your additional investment in negativegearing interest costs over this period. Not the best situation, but one that you will overcome I’m sure. (will the average growth be 6%? perhaps less?)

    all the best (again)

    wilrose[thumbsupanim]

    Profile photo of marg4000marg4000
    Member
    @marg4000
    Join Date: 2006
    Post Count: 70

    Hi Cherry

    There have been lots in the same position as you.

    You may be a bit young to remember the scandal of the “two tier” marketing in south east Queensland in the early 1990s where interstate investors were sold properties $20K-$30K over their value, i.e. $120,000 townhouses were being sold for $145,000.

    Much gnashing of teeth, endless articles in the papers and even court cases. Some people sold out and made big losses. I remember newspaper articles headed “Sell your Gold Coast Property now, there is too much building and you will never make any money”.

    Some people held on, and those townhouses would now be worth at least $250K.

    In 10 years time when your unit in Hornsby is worth around $800K-$900K these days will be a distant memory.

    I would suggest you hang on and let time work its magic.

    Cheers
    Marg

    Profile photo of Cherry ProCherry Pro
    Participant
    @cherry-pro
    Join Date: 2007
    Post Count: 22

    Thank you for your inputs and advice.
    I do hope 10 years down the track, we can be laughing.

    Cheers.[biggrin]

    Profile photo of foundationfoundation
    Member
    @foundation
    Join Date: 2005
    Post Count: 1,153
    Originally posted by Cherry Pro:

    Should we continue to hold even though it is costing us around $8000 p.a. or should we take a loss of $120,000 and move on ?

    A friend of a friend was recently in a similar situation. He was amazed to discover he didn’t even have the second option. The bank refused to let him sell his unit unless he could provide cash to cover the shortfall between selling price and outstanding debt. He found that nobody would lend him the difference as he had nothing to offer as security for the (large) loan.

    Talk to your lender. You might find you’re wasting energy weighing up options that don’t exist!

    Originally posted by marg4109:

    In 10 years time when your unit in Hornsby is worth around $800K-$900K

    May I simply ask how you can make this statement? You sound like you are stating a fact, whereas I cannot foresee how this is even a distant possibility*!

    F. [cowboy2]
    * Barring hyper-inflation

    Profile photo of HookhamCHookhamC
    Member
    @hookhamc
    Join Date: 2007
    Post Count: 83

    Hi Cherry Pro,

    Two major mistakes people make in investing is.
    Buy at the top and sell at the bottom.
    You have made 1 of those mistakes (and you are not the only one it the country). Think long and hard before you make the other.

    All the best!

    [cigar][cigar][cigar]

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