Forums / Property Investing / Help Needed! / Negative Geared Property killing us

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  • Profile photo of bjcampbbjcampb
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    @bjcampb
    Join Date: 2012
    Post Count: 24

    Hi there we have 2 very negative geared properties one in Cleveland, QLD and one in Lemon Tree Passage.  They are killing us as we can't move forward.  If we sold the Cleveland unit we would be out of pocket $20-30K because the market is very flat there at the moment. 

    Any ideas on how we can dig ourselves out of a rut and get back on with investing cash flow positive investments??

    cheers

    Belinda

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi there

    Welcome aboard.

    Can you increase the rents?

    Are you claiming depreciation?

    Have you considered lodging a PAYG variation with the ATO so you can pay less tax throughout the year instead of waiting for the large return at the EOFY?

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of bardonbardon
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    @bardon
    Join Date: 2004
    Post Count: 557

    Belinda, in addition to the other questions that have been asked how long have you held them, what are the yields?

    Are they more negative geared than you anticipated or has your circumstances changed?

    Profile photo of DerekDerek
    Member
    @derek
    Join Date: 2004
    Post Count: 3,544

    Your loans interest only?

    Really need more information. rent, loan, interest rates, any fixed loans, what your loan structure is, rates, strata etc and so on.

    Find out what each property is 'costing' you, what your debt/value ratio is and then determine what you need to do.

    Suggest you analyse your portfolio in depth.

    It may be that a sale is your best option – even with the 'loss' you may incur. Before you go down this path check with your broker as any cross collateralisation may limit any flexibility you may have with fund obtained from sale proceeds.

    Profile photo of bjcampbbjcampb
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    @bjcampb
    Join Date: 2012
    Post Count: 24

    Hi There our loans are interest only and are all stand alone loans.  Can't increase the rent because we made two bad choices when we bought these properties and they are not in super growth corridors.  We are already PAYG these properties. 

    Cleveland we owe 420K, rent is only $420 , we are out of pocket $320 per week but this does not include the variation rebate we get back.

    Lemon tree we owe $174K, rent is $220, we are out of pocket $157 per week but also this doesn't include the variation.

    Anyone in a similiar situation or has any ideas on what we should do??

    Bel

    Profile photo of DWolfeDWolfe
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    @dwolfe
    Join Date: 2009
    Post Count: 1,253

    Hi Belinda,

    Feel free to give us a bit more detail so we can give you a hand!

    What about vendor finance? There are people on here who may be able to give you some pointers with regard to on-selling this property via this method (I'm not an expert) and increase your cash flow etc. Paul Dobson is the resident expert on this.

    Can you give either of these properties a quick reno to increase either the rental return or get a better sale price? Sometimes selling is the answer, better a small hole or an expensive lesson than a big hole!

    Cheers

    D

    DWolfe | www.homestagers.com.au
    http://www.homestagers.com.au
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    Profile photo of bjcampbbjcampb
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    @bjcampb
    Join Date: 2012
    Post Count: 24

    One unit is only 2.5 years old and I we have had the other one on the market for well over a year now.  May have to look at vendor finance again.

    Profile photo of DerekDerek
    Member
    @derek
    Join Date: 2004
    Post Count: 3,544

    Hi Belinda,

    Happy to look at your numbers and make some suggestions – you may find that selling down may be your best option but I would need more information before I can make some definitive suggestions.

    Happy for you to send me a PM.

    Profile photo of livewildcardlivewildcard
    Member
    @livewildcard
    Join Date: 2012
    Post Count: 36

    Are you claiming depreciation? How much? Was it done properly could you be getting more I'd look at that as well.

    Profile photo of M.InvestigatorM.Investigator
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    @m.investigator
    Join Date: 2012
    Post Count: 134

    I think vendor finance would be a good option to prevent you losing tens of thousands of dollars from just selling your properties in a flat market.

    It reminds me of the vendor finance example that Steve Mcknight talks about in his book. That might help you out with figuring out the numbers and working out how to get it back to making you money.

    A key part of your vendor finance strategy could be for you to charge a higher interest rate to the buyer, so that the buyer effectively pays for your loan repayments but you also get a nice little profit which you could use to pay off some of the repayments for the 2nd property.

    Profile photo of CatalystCatalyst
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    @catalyst
    Join Date: 2008
    Post Count: 1,404

    If one is only 2.5yrs old there should be a lot of depreciation on that. How come it is still negative?

    May I ask what your getting in depreciation?

    Profile photo of bjcampbbjcampb
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    @bjcampb
    Join Date: 2012
    Post Count: 24

    the reason the Cleveland property is negative geared is because the repayments are way more than the rent we are receiving.  We get depreciation back but we are still out of pocket quite a lot of money.  We bought both of these proeprties when we were green to investing and in hindsight was a huge mistake.  This one has not grown in value despite it being less than 20 minutes to Brisbane.  But as everyone knows QLD ain't doing so well.  I hoped it would go up in value but an investor bought a heap of properties in the complex and has started to sell them off super cheap so our property has gone down instead of up.  Just really unsure what to do and we really want to keep moving forward while we are still young enough to keep working.

    Profile photo of livewildcardlivewildcard
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    @livewildcard
    Join Date: 2012
    Post Count: 36

    How much depreciation. $2k might not be the $15k your entitled to I think thats what people are asking. I have a a few properties that are around 3 years old some are $8k some are $35k per year roughly (see depreciation term doesnt help need figures).

    I would estimate a unit that is only 2.5 years old should be getting at least $8-10k minimum surely!

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,018

    I agree without knowing the actual numbers it is difficult to comment but i can think of a couple of ways of reducing your out goings and increasing your deductions.

    Seems very unusual to me to for a property like that to be costing you so much.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of jamesmdawsonjamesmdawson
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    @jamesmdawson
    Join Date: 2007
    Post Count: 6

    Have a chat to someone from we buy houses in the area , maybe just google them first

    #next_pages_container { width: 5px; hight: 5px; position: absolute; top: -100px; left: -100px; z-index: 2147483647 !important; }

     

    Profile photo of ruapehuruapehu
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    @ruapehu
    Join Date: 2012
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    Hi There our loans are interest only and are all stand alone loans.  Can't increase the rent because we made two bad choices when we bought these properties and they are not in super growth corridors.  We are already PAYG these properties.

    Cleveland we owe 420K, rent is only $420 , we are out of pocket $320 per week but this does not include the variation rebate we get back.

    Lemon tree we owe $174K, rent is $220, we are out of pocket $157 per week but also this doesn't include the variation.

    Anyone in a similiar situation or has any ideas on what we should do??

    Bel

    Hi, According to my calculation, you out of pocket money should be much less than you claimed.

    Your Cleveland property: Gross rent: 420×52 weeks=$21,840

                                              Net rent:    $21,840×90%=$19,656

                                              interest: $420,000×6%=$25,200

                                               Other expenses (water, rate and body corp fee) about $5,000

                                             So your annual lost is 19,656-25,200-5,000=-10,544

                                                

                                               Tax offset on you loss: 10,544 x31%=$3,269

                                               Your real loss: 10,544-3,269=$7,275

                                                However, because your property is only several years old, I guess you can get about $3,000 as

                                               building depreciation.

                                                 So your out of pocket money is 7,275-3,000=$4,275 per year, that is: about $80 per week.

    Similarly, your out of pocket money for lemon tree property is far less than $175 per week.

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
    Join Date: 2009
    Post Count: 2,539

    As ruapehu has pointed out above, maybe you are not as out of pocket as you thought? 

    The only thing that springs to mind to ask is: what interest rate are you on?  It doesn't make sense to me that you are as out of pocket as you've mentioned unless  you are on a massive interest rate, or pay enormous body corporate fees.  Could you perhaps illustrate the cost of your bills so we can understand the exact situation and help you?  If you are able to indicate rent, how much property management fee you pay, how much is the insurance, water bill, council rates, body corporate fees, and how much is the mortgage repayments… that would be very helpful.

    By my calculations, assuming you are on an interest rate of about 6.5%, you'd be out of pocket about $193 per week for Cleveland before factoring in any depreciation or tax offsets, and about $63 per week for Lemon Tree (again, before factoring in depreciation or tax offsets)

    So all in all you're about $256 per week out of pocket, which is $13,312 per year.  After depreciation I'd imagine this out of pocket figure would come in below $10k.

    So the question remains, how is it that you've come to a larger out of pocket figure.  There must be something about your interest rate or bills that we are not understanding….

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

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