hi all just bought your new book steve and listening to audio i now realize ive been doing my property investing wrong negatively geared props massively in debt heres a rundown
properties-8 [only one is positive 1500 per year]
total rents per annum-101,000
total debt 1.4 million
total value 2.3 million conservatively
4 are 4 bedroom free standing
2 3 br units
2 are villas 3 br
avg interest rate 9 98%
dosnt take a genius to see a hell of a lot more is going out than coming in
ive stuck to buy and hold but listening to steve maybe a different tack is required
any views on my situation i eventually want to become a fulltime investor a change is needekind regards -chris
ps my total holding costremaining 30000ducksterParticipant@ducksterJoin Date: 2004Post Count: 1,674
Having negative gearing is costing you $30,000 at the moment but just imagine if the interest rate has say two .25% increases to .5%. how do you find an extra $7000 p/a to cover the increased interest rate charge. So as an example on a marginal tax rate of say 40% you pay out 30,000 to get a tax rebate of $12,000 so you are losing $18,000 a year.
What I am trying to have my goal to be is to have a few positive geared properties to offset a negative one so the total income may be zero rather than negative $30,000.attrillParticipant@attrillJoin Date: 2004Post Count: 54
$900,000 in equity doesn't sound like you have been doing it all wrong. How long would it have taken you to earn that? Are any of the properties in need of refurbishment that could bring the rents up?.
If the cost of holding such a portfolio is uncomfortable could you just sell one or two to make you sleep easier.?
Have you thought about a LOC to act as a buffer and buy you time to ride out the dips?
I suggest you put your post over at http://www.somersoft.com as over there you will find different opinions than you would get here.
Good Luck. There are many out there that ould be glad to have your problem.Jon ChownMember@jon-chownJoin Date: 2007Post Count: 254
There are many ways to invest in property and before you go changing tack on the way you have started your portfolio, perhaps you should read this example of one of my clients:-
NOUGHT TO THREE MILLION DOLLARS IN THIRTEEN YEARS FOR AN OUTLAY OF $43,000
Have I got your attention? Does this seem too good to be true? Read on, it is a true story about one of my clients and as I have been involved during the whole process and have been witness to the events as they have unfolded, I can vouch for their factuality. read moreScott No MatesParticipant@scott-no-matesJoin Date: 2005Post Count: 3,856
A couple of small points – LVR is around 60% (usually pretty comfortable), good level of equity.
Gross rent – 4%, pretty low return considering other factors.
As we don't know your full situation and exposure to cgt, risk profile (but assume you prefer lower risk levels) etc would you consider diversification into other types of property which have a better cap rate eg commercial, retail or industrial? To do this, you may consider divesting one property and seeking other opportunities or simply pay down debt.
You could also consider refinancing to a more effective rate (unless you have gone low doc and still can't provide docs).
Are you maximising your 'non-cash' losses eg depreciation?LinarMember@linarJoin Date: 2004Post Count: 567
Welcome to the forum.
Can you afford the $30,000 pa outgoings? If you can, my advice would be to hold on to the properties. (In fact, if you can't afford the outgoings, get a LOC to fund any shortfall). I think that this is a great market to be holding an investment property. There is a desperate shortage of rental properties just about everywhere, and, provided they are quality properties in a decent area, there will no doubt be an increasing demand (and subsequent rental price) for your properties.
The rising interest rates are slowing down the demand for new housing (I know, because I build houses and the demand just isn't there). The obvious implication of this is that the first home buyers, who would normally be looking to buy are instead renting and holding out until interest rates come down. Petrol prices are going up and low to medium level income earners just can't afford to buy properties. So they rent. And demand for rental properties increases. And hopefully they rent your properties. Actually hopefully they rent my properties, but when mine are all tenanted, hopefully they rent yours!
Speak to a good mortgage broker about getting a LOC to cover any shortfall.
KScampMember@scampJoin Date: 2008Post Count: 297
wow… that's the worst advice I have heard in years : Get more debt in order to finance your debts.
btw : sorry to say, but your properties just lost 20% value. In other words, you lost 460.000$ in about 3 months.
In another 3 months, when you lost another 460.000$, do you think this was a bad investment or will you get even more debt ?
Do you realize that the average house now sells for 50K-100K less than it's "value" ?
You're already too late selling, you won't sell anything for any of the crazy prices you *think* they are worth.
You are the reason houseprices have gone up, sell your houses now you still can. Get back to 0 debt, if you have anything left after that, good for you, if you have more debt than you can sell your properties for, then at least your debt is minimized.
What do you think the banks will lend you ? They're running dry, they're smelling fear, they will foreclose you rather than give you more loans to pay off loans.
What do you think happened in USA ? It's people like *YOU* who caused the housing bubble. And it's people like *YOU* who will *PAY* for it. After the banks and lawyers are done with you , you'll wished you never got yourself into debt like you did. You're a shame for real investors.
Think about what happens to your rent incomes when your renters stop paying because they become unemployed. Oh yes, it's coming. Wakie wakie !Jon ChownMember@jon-chownJoin Date: 2007Post Count: 254
Goodness me Scamp, did you forget to take your happy pills this morning???? I've just finished reading your last 5 posts and not a positive thought in any of them.
No one here is suggesting that this is an ideal market for investing, but on the other hand there are still opportunities for some who are perhaps better structured than others. I can see no evidence in my area that property values have come down 20% and I sure can't see how rents can reduce given the huge demand for rental properties. I am sure that there will be many hard luck stories to be heard, but they are the minority and I'm sure Kevin 07 will look after them.
Take a deep breath Scamp and don't let fear get in the way of constructive planning.jtwMember@jtwJoin Date: 2005Post Count: 57
I rarely bother to comment on these posts, but Scamp you are negative, rude and unhelpful. Throughout my investing career I came across many like you and luckily I had a go and went ahead with my plans. The result for me has been very rewarding.
Zebulan has not indicated he is any difficulty, he is merely seeking different opinions from other investors as to his investing options. You speak of the Australian market as one commodity, obviously this is a very limited view from a simplistic stand point.
Scamp I think your comments are unhelpful and unnecarily rude. Even if Zebulan had got in himself in hot water (Which it appears he has not) you post is not offering anything that could be used constructively. Nor does he deserve you rudeness.
The investment environment has changed and will continue to change. Scamp thinks that the world as we know it will end. I hope not, as nothing can be done to avoid the devastation that such a scenario would reap. I will continue to monitor the fundementals of the economy and the property market segement I choose to invest in. I can see a bright future, remember it is always darkest before the dawn.
Zebulan, if you can afford to keep going, keep going and fight on. Review your strategy and adapt to the investing evironment. I suggest you start a detailed planning process as to where you want to go from here. I am not talking about a wish list approach many think of as planning, but a process that involves a situational assessment, an appreciation process and finally a written detailed plan that has a definite goal and strategy. I suspect that is what you are commencing by asking for a peer review of you current situation and seeking help advice in various option. Best of luck and don't give up or give in to the naysayers.
JTWnewbi2Member@newbi2Join Date: 2008Post Count: 227
If you can't be constructive, please go away. We are not asking for rose coloured comments, and all are entitled to their own opinion, however, the purpose of the forum is to leave it having learned a thing or two. And I am afraid that your post was very rude and of little benifit. I respect that your opinion is different but there is no need to trash the author.
MickMichael 888Participant@michael-888Join Date: 2005Post Count: 260
Agree whole-heartedly with Jon, JTW and Mick.
Scamp you are welcome to have an opinion and free to post it here, no matter how negative and pessimistic it is.
You are even free to criticise, attack and rebutt the opinion of others, HOWEVER, you are not welcome to be critical or to attack the people themselves as you did in your very first post and subsequent posts on this forum.
There are not many here with rose coloured glasses and I perosnally do not belong to the pollyana school either. However as well as having conservative LVR's and DSR's with a robust due diligence process to everything I buy or plan to eventually develop, I am positve about my future.
What exactly is your agenda by playing doom-sayer and preaching the "the sky is falling down" ?
Be careful the amount of negativity and fear you harbour doesn't affect your health. What we continually focus on tends to manifest and expand in our life.
Please do not attack the people themselves. Being rude doesn't enhance the credibility of your views.
hi atrill yes all are locs the higher interest rates are eating into the remaining money have accountant looking at feasibility of selling one-two re capital gains etc i can sleep easy with the debt its the servicibility is becoming a problem, thanks for the reply-zebBennyteeParticipant@ten_burnerJoin Date: 2006Post Count: 243
I agree with Linar, set up a line of credit to help with repayments if your struggling.
Your 2.3 million property portfollio will grow more than 30K a yr… I dont believe it will effect you greatly by drawing down 30k from a line of credit per yr
have a look at a book called "How to achieve wealth for life"
its written by Tony Melvin & Ed Chan it discusses this in more detail..
all the best
hi linar yes locs are in place the 30000 i mentioned is what i have left in the locs to cover shortfalls and repairs 2 props brand only refinanced sept last year but my broker is looking at going again as 2 brand new 4 bedders have been completed and ready for rent thanks for the advice much appreciated i will do all i can to keep all hate to sell-chrisyarposMember@yarposJoin Date: 2004Post Count: 247
seriously is scamp for real or just a troll poster – saying things to get a reaction? if there is only one message we probably only need to hear it once, we can take it as read after thatLinarMember@linarJoin Date: 2004Post Count: 567
Hi again Zebulun
I think you need to decide what helps you sleep at night. If you are an agressive investor (and I am the first to admit that I am one) then by all means increase your LOC to cover the shortfall. Ten-burner is right – your entire property portfolio only needs to increase by $90,000 over the next three years and you will have covered your debt.
If, however, you are risk adverse and don't like high debt levels then it may be worthwhile offloading a few of the poorer performing properties to free up some cash.
Do what makes you sleep at night.
KsrobinsMember@srobinsJoin Date: 2006Post Count: 14
Although I don't agree with scamp's approach to his posting, I do agree with the content.
I would be *very* wary of financing repayments through capitalising interest in the current economic enviornment. I personally don't think house prices will *crash*, but I think that they will coast along for a long,long time without really doing anything – until the market catches up to where it would have been. To all the people saying that you should take a long view to investing -eg. 20 years, I think 20 year may not be long enough. If you purchased a house in Australia around 1900, it would have lost value after a few years, then taken until 1950 until it was worth the same as it was in 1900 in real terms. Thats 50 years, just to break even.
In that sort of environment, capitalising interest is a very dangerous strategy. The only way out with no cap gains is to pray your rental income rises faster than your equity falls, otherwise you're forced to sell and face a massive cap. gains tax bill. If this happens, it would fall like a house of cards.Chief BandogParticipant@chief-bandogJoin Date: 2007Post Count: 19
I personally have had a similar situation occur (unfortunately not at Zebulun's property level) 2.3 million is very impressive and you should be proud of doing what you have done. I am presently using a part interest capitalisation loan, allowing the rent to cover costs and tapping into a small portion of my equity. This allows me to sleep easy at night and also have a buffer for any future interest raises. Its maybe not the answer to everybodies problems, but it is servicing me very well at the moment.rukParticipant@rukJoin Date: 2008Post Count: 21
remember it's better to pay interest, than tax.