Hi,
I am after some advice. I have a heavily negatively geared property in an area that is undergoing good growth (North Lakes). The property is a year old with good tenants until at least June next year. I have a delimma whether to get out and sell at a loss or hang on for capital growth (which I don't think I'll get for 3-5years). There is a lot of new housing estates being developed in the area. Plus servicing the mortgage may be a problem in the future as I'm not on the same income. In fact I guess I'm very "time" rich.
Also, if I decide to sell, could this panick the tenants and they move out leaving more debt.
I would love to hear any ideas or direction to whom I could speak to for professional advice from the right people who are professionals in this field - otherwise it can be an expensive service for nothing.
Thanks,
Delaney.
Hi Delaney
I have a negatively geared property in an area that wont see any capital growth for a while either. To fix it I have done a JV with another guy in the apprenticeship programme to sell it via vendor finance. This will fix the negative gearing and means I don't have to sell it at a loss. If you want to explore this possibility you can pm me and I can pass on details.
Kyron
Financially free by 22/05/2017
Hi
We have also had the same problem - we purchased a property that we thought would be a good investment, good tenants, but with falling prices just became too much of a burden. After reading Steve's book and starting the course - it was blindingly obvious that we needed to sell as the debt associated with the property meant that even if prices increased they would have to skyrocket for us to recoup losses due to -ve gear and outgoings - ie just to break even.
We have sold the property to the tenants - they love the house and the area, want to make it their home (ie they have huge emotional investment in it) and we have been able to negotiate directly with them for a higher price than I think we would achieve on the open market. To help them secure the mortgage they need we have offered to carry-back some of the purchase price. We have agreed on interest - which I have to say isn't much over current interest rates, but more than what we pay, but it ensures we are not putting them under financial stress (thus increasing liklihood of them defaulting) and agreed the term of the loan - which is 5 years. Because we have achieved a sale price higher than the median for the area and far above similar property sales in the last 6 months we are really happy with the outcome as are the purchasers.
At the end of the day, if you can't afford the repayments/cash shortfall, you probably will need to sell. If you can't 'manufacture' some profit out of it - and seeing it is new I am guessing there aren't too many inefficiencies to exploit, waiting for capital growth is a bit speculative.
Good luck with your decision.
Cherie
Cheers
Cherie
Hey Cherie16,
Great post and congratulations on implementing the lessons learnt through this programme. You have taken a poor investment and turned it into something that is now working for you. This is a very good example of who to use Vendor Carry back to improve your investing position.
I am also impressed that you have set a balloon payment on 5 years. This will maximise your position by utilising the early years of the repayment which is extensively interest and not reducing the principle. By having the pay out after 5 years is a great way to maximise your return.
Win - Win for you and the tenant.
Well done and thanks for the post.
It might be worth talking to someone about vendor finance. Several people that I have spoken to have used this to turn a - into a +.
Cheers Angus
Hi Delaney,
You have an investment property that is losing money every week on the HOPE you have a capital gain in the future. This comes back to the old argument - Negative Gearing, Versus Positive Gearing versus Positive Cash flow.
Remeber Steve's mantra - The best return, for the smallest amount down for the least risk. or something to that effect :D
My question would be if you loose $6000 per year for three years ($18,000 loss) are you going to be $18,000 better off over Purchase price in three years - and that is just breaking even. If you are not making at least 5% ROI whats the point! you may as well give your money to a short term deposit.
Here is an example for you to consider.
Purchase $400,000 with a 20% Deposit + stamps + legals etc - I am in the investment with $100,000 cash.
In three years I want to at least have $15,000 profit (5% over three years, non compounding to keep it simple).
As said above, I am losing $6,000 per year - then I am in the hole $18,000 after three years.
Simple question - Is this investment going to return me $32,000 in capital gains after three years AND after CGT. Therefore I would need about $60,000 of capital gain to cover losses, minimum ROI and CGT.
The advice above about Vendor Carry Back and Vendor Finance is a great start. I suggest you go back over the course notes and webinars regarding these two topics. If you are new to the programme then I suggest you go and find these two topics in the folder and read them.
Vendor Finance has some licensing requirements and Vendor Carry Back is easier to achieve and may provide better returns.
What ever you decide, losing money every week for the long term is not investing, its going broke! Know your exit strategy. If you have a good reason to be in this position then great, but HOPING on capital growth is speculation, not investing.
Good Luck and like many of us when we started this course, be prepared for some real challenges to any previous way of thinking you had. This course will turn everything you thought you knew on its head :)
Dean
Looks like I need to read my notes as I haven't covered this material yet. I will do it when I get back from holiday.
I have a similar scenario as the above that I am trying to work out. I dont know all the correct terminology but I am wanting to do something creative to fix a potential problem...
I have a property that I am trying to sell but my tenant can't find another place and I don't want to put it on the market until they leave (as I want to stage it and get the best price). I have approached them to see if they want to buy and they were keen until they realised they couldn't afford to. I was thinking that perhaps I could raise the rent considerably for a certain amount of time (say 12 months) and then use the money I have saved (effectively for them) as their deposit. The market is going steady in the area I have my property so I wouldn't feel bad about factoring in a capital gain over the time it takes to save the deposit. I know the tenants have a stable job - of course there are many other things to consider but it's worth a further look into.
Chloe
FF 22/2/19
Hey Marie,
If you are open to the idea, can we use your scenerio as a case study?
If you can provide the Estimated Market Value, the rent, the mortgage left to pay off the bank, then perhaps we could provide / offer ideas using actual numbers rather than guessing. May also spark an idea for someone or help reinforce lessons previously learnt.
If you would prefer to keep your information a little more private then feel free to send me an email.
Lease with an option to buy,
Vendor Finance,
Vendor Carry Back
all provide opportunities for you to set up a win-win with your tenants.
Dean
enquiries@allpropertyprojects.com.au