All Topics / Help Needed! / Negatively geared with a positive cash flow?

Viewing 16 posts - 1 through 16 (of 16 total)
  • Profile photo of ShankShank
    Participant
    @shank
    Join Date: 2014
    Post Count: 11

    Hi all,

    I have a situation which i would like opinions on what any of you would do in it.

    Bought a house in Sydney west for $515,000 about 2 years ago. The house is about 20 years old, but was renovated in the last 6 years.

    Had an agent come out over the weekend, i could potentially sell it between $560 – $590k. More if i put a bit of work into it (carpets and paint mostly)

    Interest only repayments would be just under $2100.

    Rental income would likely be 520 -530 per week, agent fees is 7% + $10 a month admin fee.

    Council rates are $330 per quarter, water is about the same.

    Working out costs out of pocket is about 4.5 – 5k a year.

    My tax accountant worked out that i could potentially get a significant amount more than this as a refund with depreciation, this would make it cash flow positive right?

    Is this ideal, what would any of you do. Keep it and rent it out or sell it now ?

    Cheers

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

    Hi Shank

    Welcome aboard.

    What would you do with the money of you sold it?

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of ShankShank
    Participant
    @shank
    Join Date: 2014
    Post Count: 11

    Thanks :)

    At the moment, since it is not much of a return.

    I would likely sit on it. 

    That is until i found a better use for it, definitely not spend!

    Profile photo of ShankShank
    Participant
    @shank
    Join Date: 2014
    Post Count: 11

    Hi,

    It is sitting at 479K.

    Thanks

    Profile photo of Little_StoneLittle_Stone
    Participant
    @little_stone
    Join Date: 2014
    Post Count: 17

    Hi Shank,

    What is the debt on the property..?

    L_S

    Profile photo of Little_StoneLittle_Stone
    Participant
    @little_stone
    Join Date: 2014
    Post Count: 17

    There are much more experienced forum members, Jamie being one of them as well as Richard Taylor.

    However, if your property has grown by $50k (give or take) over 2 years (5% p.a.) is not terrible, but with the area is it maintainable. I've read previously Jamie referring to using an offset feature on the loan if turning a PPOR into an IP to assist in claiming the full benefit of tax deductions. I have to say i havent commented as much as i have read and Jamie's website/blogs are definitley ones to read.

    For what you'd lose selling it in costs, my two cents would be to maintain owning it and get it tenanted and at this stage (check local vacany rates in similar properties), your at 85.53% LVR so there is not point trying to take equity out of it upto 90% at the risk of paying LMI so if you were able to continue with the growth and manage the negative gearing and rented a PPOR elsewhere you could grow this property and use it to leverage an IP or perhaps a LOC for a new PPOR somewhere else after a year or two.

    Hope this may create some discussion from the more experienced members of this website.

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

    Nope – that sounds pretty good to me Little_Stone :-)

    I'd prob sit on it for the time being if it's not costing me anything to hold onto and if I don't have any immediate use for the money – unless there's a strong chance the value will dip.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of ShankShank
    Participant
    @shank
    Join Date: 2014
    Post Count: 11

    So you guys would agree to hold on to it, but not for too long?

    So what sort of depreciation should i use, prime or diminishing ?

    I was not intending of letting go of it too soon.

    Profile photo of ShankShank
    Participant
    @shank
    Join Date: 2014
    Post Count: 11

    Thanks, that is informative.

    4 Areas surrounding the area it is in are in the smart investors top 50 suburbs of 2014.

    In the area, there is no other place that could be directly comparable to it (feature wise).  On the whole in the area there are maybe 4 – 5 other properties for rent only.

    My aim is to grow my portfolio, so would keeping it be a good move with this goal in mind?

    Cheers

    Profile photo of ShankShank
    Participant
    @shank
    Join Date: 2014
    Post Count: 11

    Thanks Jamie,

    Can you tell me a little more about the offset loan etc?

    Value dipping, i am not so sure.  The agent i spoke with didn't seem to think so, even though he was there to sell my house he insisted i keep onto it.

    He said for the price i paid, for this caliber of house, i would never get a deal like it again.

    The agent also seemed to think with just doing the carpets, bit of paint, and a bit of refreshing it should easily get around 575 – 590k, possibly more.

    Profile photo of Little_StoneLittle_Stone
    Participant
    @little_stone
    Join Date: 2014
    Post Count: 17

    Thanks Jamie.

    Well you've just answered your own question, it is in top 50 suburbs, it is in limited competition in its features and in supply (supply is what will hurt your value and vacancy rates) so why not. You would not want to throw away all the work done in the past 2 years when you now have a "product" which can get you into a position to start a portfolio.

    Seek some financial advise to clarify the offset feature and also then to model how much renting will save you annually vs living in a PPOR with a mortgage etc and the figures are purely overwhelming.

    If it is continually growing by 5% p.a. and renting should go up atleast 3% annually i don't seea reason to get rid of it, unless the growth stops, it bleeds you with maintenance or it is vacant for long periods. Wealth is not made by buying and selling, maintaining property is where the wealth grows by compounding growth and then you buy off it's success.

    Let us know how you go with it all.

    Cheers,

    L_S

    Profile photo of ShankShank
    Participant
    @shank
    Join Date: 2014
    Post Count: 11

    Thanks,

    To clarify, it wasn't one of the suburbs listed, but all were within i would say 10km of it, one just out of this zone.

    There is a lot of land in the area, and there a new homes being built.  If it were to be priced higher, it would be in competition with newer homes.

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

    My aim is to grow my portfolio, so would keeping it be a good move with this goal in mind?

    Cheers

    Makes sense to keep it then – especially if it's in area with growth prospects.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of ShankShank
    Participant
    @shank
    Join Date: 2014
    Post Count: 11

    Can anyone recommend a financial advisor in Western Sydney or the city?

    What sort of cost would i be up for?

    Profile photo of Little_StoneLittle_Stone
    Participant
    @little_stone
    Join Date: 2014
    Post Count: 17

    Shank, what was the reason behind selling it..? To buy IP, to buy a new PPOR..?

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

    Shank just make sure you understand that any Div 43 Building Write Off that you claim is deducted from the Cost Base when you sell it so if you are thinking of selling remember the cash flow effect will be limited as the CGT will be higher when you realised the asset.

    Great believer in holding property for the longer term and building your portfolio but there is also a time to review your holding and assess.

    Cheers

     

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

Viewing 16 posts - 1 through 16 (of 16 total)

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