would you sell!?

Well folks i need some creative ideas or a kick up the !!!!!

Currently have 1 IP and it is fast running out of cashflow with the rent and tax deductions not covering it totally and my income is not enough to hold for a few years yet.

It is still negative after the depreciation, etc, etc...... I got hit with RAMS rates and increases.... I could probably hold for another 7 months then will run out of Line of Credit, may have a little more equity in my own place but the value has slowed down and not increased as much as i thought,. the proerty is in WA.

Would you sell and take a loss because of break fees etc gonna cost me alot, but this area is up and coming through redevelopment and urban development it will be booming in about 5 years. So in a dilemma what would experienced investors do?

thanks for any help!

 

Sorry to hear your dilemma,

If you expect a delay of 5 years before significant capital appreciation, it sounds like holding property in a heavily negative geared mode is a risky strategy.

Obviously you will need to do your homework, but break costs & sales costs (including any CGT liability) might be less in the long run than the negative returns on holding the asset.

Do you expect good capital appreciation over the same period on your PPR ?

If there is a global slowdown, resources will be hit - so will WA house prices be hurt ?

Are you over-exposed to property ?

I would be doing a lot of market research and spreadsheet scenarios.

Cheers,

Rob

 

Hi, first up I'd ask yourself these questions
Are you claiming depreciation?
Have you had your pay adjusted to get your tax refund early?
Are your loans on IO rather than P&I?
Is the rent at market rates?

 

Hi Trui

Sorry to hear about your problem.

I would be very interested in the location of your IP?

One thing you may also want to consider is that it is very difficult to sell properties at the moment, in particular the outer suburbs, as investors are offloading their stock and demand has decreased.

Also, will RAMS charge penalty for early discharge, I have heard can be as much as 2%.... that's gotta hurt.

Cheers, AL

 

Triu,

I would look to NOT selling as RE is a long term strategy. Don't bug out now when things get tight. You really have only 3 options when you are up against it like you are now.

Option1: Decrease your expenses (that does not include selling your one and only IP).
1. Make sure you are only paying IO not P&I on your IP loan
2. Consider fixing your rates (this only fixes not decreases your expenses)
3. Consider self-managing (I wouldn't but you might have the time and expertise)

Option 2: Increase your income
1. Make sure you get tax deductions back weekly not yearly
2. Claim full depreciations available - use a QS for a dep. schedule
3. Optimise your rental income. Remember rents will tend to increase over time now.
4. Increase your personal exertion income
5. Look to some cash flow / income producing investments (not RE) - shares / managed funds / etc

Option 3:
Combination of options 1 & 2.

Aimy

 

Interesting - please explain

 

Sure samaka,

Say you get a $5,200.00 tax refund check at the end of the year when your accountant does your tax return.
Instead of getting all this in one hit - you can apply to the ATO to get it back at the rate of, in this example, $100 per week.
Fill in the form with your employer and they get notification from the ATO to not take $100 tax out of your pay each week.

Good thing is it helps cash flow in keeping IPs AND the $5,200 was an interest-free loan to the government because they held that money all year. Better off in my hands than theirs

Aimy

 

Hmm ok. From what I can tell wouldn't you better of getting $5,200 instead of $100 a week? Assuming your a diligent investor and you don't splurge the tax return on something - then that $5,200 in a high-interest or offset account is surely better spent then being drip fed to you...

Unless that $5,200 is actually counted as a reduction on your payable tax for that next year? I think I must be missing something.

 

samaka - you are missing something
You get the $100 per week starting now. Mortgage payments need paying each and every month. This helps service the IP debts you have now.
The $5,200 lump sum you have to wait an entire year for.....meaning you have lent it interest free to the govt. for 12 months - not a good investment!

Aimy

 

Hi Samaka,

What Aimjoy is saying is that the tax that you would get back after lodging your tax return is better off in your hand now (Ie, you can invest it, spend it etc). If you wait till after the end of the tax year it could potentially cost you the interest cost and opportunity cost of not having the money to use.

Cheers,

Dan

 

Ah ok - so they're not paying you last years tax return - they're taking less tax now because you're likely to get a tax return at the end of the current financial year (based on last years return).

Is there a proper name for this scheme - so I can google / search the ATO about it?

 

Income Form

 

Have you been paying for the IP out of your LOC from the begining?

I guess it depends how much your short each week ?

maybe try renting out room by room.. renting furnished.. rent as short stay... increase rent ... refianance to a cheaper lender or fixed rate that you can manage...

like some of the others have suggested.. it might be time to re look at your budget.. and see if theres areas you can reduce...