Hi Guys,
I currently have an investment property but am not sure whether to hold onto or sell. Here is the situation.
The House: Small 2b/r built with fake weatherboard (made of some sort of plastic). 800m2 block with potential to subdivide.
Location: Small town of Tatura, 20 minutes from Shepparton. There is plenty of employment (Tat Milk, Unilever, Goulburn Murray Water, Department of Primary Industries, Tatura Abattoirs are the main ones) so it will always rent.
Purchase price 150k. (Negotiated down from 160k)
Currently renting for 180p/w.The numbers…
Rent (after management fees): $8580.
Loan repayments (currently P&I as this was recently PPOR): $10200.
Rates/Insurance/Water: Approx $1400At the moment it is costing me around $3000 a year to have. I know all about negative gearing, but I don't think i'm going to see much growth out of this place.
So this is what I'm getting at. What would you do in this situation? At the moment im seriously considering selling and putting the remaning funds towards another IP with better growth potential.
Cheers
Without knowing the complete picture, could you hold onto it and value add by renovating?
OR
as it is a bigger block, could you get approval for a second dwelling, like a modular house or a kit home, something basic that could be rented easily, this may turn it positive and give you a little capital growth along the way.
Or
Depending on town planning, get development approval for either subdivision or units and either develop or onsell the property with that planning approval, again for a little extra capital.Good luck
If there is no growth potential, there is no point having it negatively geared, (also known as making a loss).
Sounds like you have already decided it is time to sell.
What would the figures be like if you changed the loan to IO?
patriotsoldier wrote:Without knowing the complete picture, could you hold onto it and value add by renovating?
OR
as it is a bigger block, could you get approval for a second dwelling, like a modular house or a kit home, something basic that could be rented easily, this may turn it positive and give you a little capital growth along the way.
Or
Depending on town planning, get development approval for either subdivision or units and either develop or onsell the property with that planning approval, again for a little extra capital.Good luck
Hi Patriotsoldier,
Thanks for the reply.I don't think it would be worth renovating, the back has already had a nice outdoor living area added on and there is no room to extend to either side as there is a fence on one side and the driveway on the other. The kitchen has also been recently renovated so other than tidying up, there is not a lot of opportunity for structural renovations.
I have looked at subdividing and putting a kit house on the back as you suggest. My concern is that once I have subdivided and added another house, that there won't be that much more equity than what I already have considering the original dwelling will lose a big chunk of value. My thoughts are that I'm taking too much risk for not enough potential profit. (I will admit I have not looked into this in a lot of detail so perhaps I should be getting some quotes before writing this idea off.)
Your last idea sounds more attractive to me by getting that little bit extra value without too much risk. Do you know the costs involved with getting plans approved etc?
mattnz wrote:If there is no growth potential, there is no point having it negatively geared, (also known as making a loss). Sounds like you have already decided it is time to sell.Hi mattnz thanks for your comment.
I completely agree. As it is currently losing money and not in an area where I'm going to see any good growth in the near future, I'm feeling that it's time to sell and invest elsewhere. I just need to work out whether to just sell as is, or put some work into and hopefully get a better return.
sonyasal wrote:What would the figures be like if you changed the loan to IO?Hi Sonyasal,
If I refinanced the loan to an I/O on the existing balance and at the same interest rate the repayments would be approx $8880. The rent ($8580) just falls short of covering the repayments without taking into account other costs. I think its time to add some value and reassess or sell and put my money elsewhere?
I would definitely sell if what you say is correct. Before considering some of the other options ie subdividing I'd be very careful with your figures as it could be a lot more than you think.
It doesn't make sense to hold on to something which is constantly losing money. How do you know that there won't be any capital growth in the future? Have you checked with council to see whether there is going to be any new developments in the future?If you don't foresee any growth, then there is no real reason to keep it. Think about the opportunity cost as well.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi hleung and Terryw,
Thanks for the comments.
I’m sure there will be capital growth in the future, however my understanding is that it will take a long time. I lived there for nearly two years and as it is a small town its very easy to keep up with the real estate. I’ve looked at houses sit on the market for months and seen freshly renovated houses pass in at auction. There is an empty block next door and for the last 12 months there has been a sign up ‘selling a land and house package’. There is simply not a lot of demand, and as Terry says I have to look at opportunity cost.
I was pretty sure of selling and you guys have just confirmed for me. I have read a lot of content on this forum and hold a lot of respect for you guys…so thanks for your help!
Cheers,
Pavv
do you claim depreciation?
Hi maree,
I have not claimed any depreciation. This was previously my PPOR and has only been an IP since the start of this year. I don't know that it would be worthwile getting a depreciation schedule done considering I am now planning on selling?
I am noooooooo expert, but if you reduced your loan to interest only, claimed your depreciation it would be worth while to hold imho
If i could subdivide then I would subdivide and sell off the land and use that money to reinvest in something else that is positive cashflow and would offset your losses on the current property. Or subdivide and sell both and then reinvest
Ryan McLean | On Property
http://onproperty.com.au
Email Memaree_bradross wrote:I am noooooooo expert, but if you reduced your loan to interest only, claimed your depreciation it would be worth while to hold imhoI know this can and does work in some situations….however the building is far from new so I don't think I would be able to recover all the holdings costs, and since any growth is minimal I'm finding it hard to see this is a viable investment.
ryan mclean wrote:If i could subdivide then I would subdivide and sell off the land and use that money to reinvest in something else that is positive cashflow and would offset your losses on the current property. Or subdivide and sell both and then reinvestThanks for the idea ryan. I know of and have considered this strategy, however my research suggests that this may not be such a good idea.
My thoughts…
Purchase price(house on 800m2): 150k
Subdivide: 30k and upto 12months time
Total cost: 180kApprox value (House on 400m2): 140k – Based on similar houses/units in the area
Approx land value(400m2): 60k – I watched a similar sized block sit on the market for this much for months and months. Considering you can buy a block of land in a new estate near the golf course 693m2 for $73500 (next cheapest block in town) I may be able to sell for 50kSo assuming all goes to plan…
I sell back block for 50k and pay 5k costs so I bank 45k. After the cost of subdivision I make a puny 15k that I pay into loan (meanwhile I have lost 10k off the value). If I sold both I would make 5k and would lose that in the cost of selling the house.Does my scenario sound realistic?
From what I can see my best option seems to be to sell and hopefully make a little profit and then start again and reinvest. When I purchased I bought 10k under the asking price and this was before the government increased the FHOG, so perhaps I can sell for a little more.
I have a real estate agent checking the house out this week to see what she thinks she can sell for, I will let you guys know how I go.
my IP is a 1948 cottage and it certainly is worth my while to claim depreciation
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