I bought a display home 2 years ago in Perth and leased back to the builder.
It was 7% rental which was positive geared.
Its a 2 storey , 4×2 home. With all the decors and furnishings, it looks stunning.
I paid $688K for it. I took “Interest Only” loan for taxation purpose.
Now the lease is coming to an end, I am stuck whether to sell or keep as IP.
CMA shows selling will not have any profit, at lease break even.
Renting out, based on current market rate will be only 5%.
I need some advise which option to take.I currently live in an exdisplay home, and from an IP perspective they don’t make great investments.
1. They are often located in areas like new estates with very high stock availability, both in rental and owner occupier. Desirability is so-so while awash with plenty of new and cheaper stock coming online for a while to come.
2. They are generally over capitalised for the site, having a lot of bling that costs money, but doesn’t actually add value to the property.
3. They are quite difficult to sell/rent out afterwards. They have to be priced to not lose money on, but this is often higher than the market median and so takes longer to sell or only sellable in a very strong market. We have had 5/8 in the same display block sold after the initial lease period and only one sold in a reasonable amount of time. After taking into account inflation, holding and acquisition costs, that one just broke even, the others more likely losses.
Rental wise, they have high end finishes, but not the additions that really add to rental price.My house has been great as a owner occupied home, but I don’t think I would make the right sort of money selling it or renting it out even though on per sq basis it was the cheapest in the block. It’s too big to have general market interest (it’s a 50sq 4×4) and renting it for the general market is not worth the wear and tear.
In your case, based on my experience I would sell for a minimum loss if possible and move my money elsewhere.
Hi joeygbh
Your answer is splendid.
I need some assurance of what I had been thinking.
All of what your said is exactly right.
I will look at selling and move on after all the last 2 years I already made some income from it.CHeers mate
Hi Limumeng,
Just be sure to factor in the costs associated with selling. Make sure you are aware of “close to actual numbers” just so you don’t get a nasty surprise.Benny
hi Benny
Yes, I probably use those “Sellmyhouse” or PropertyNow Agents” and sell it myself.
As it is empty and a display home, should be easy to sell as nothing to move or clean up
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