Advice needed whether to sell or keep a negatively geared property in Sydney?

Hi,
I have an investment property in Ermington, Sydney. Given Sydney market seems to be going flat (or downhill), I would like to get some advice on whether this is a good time to sell this or keep it. Not sure if the property market would get any better early next year. It is negatively geared and hence I am thinking whether I should sell and get something elsewhere in Brisbane/Gold Coast.

In summary this is what it looks like.
3 bd, 2 toillets Townhouse Unit with a good sized backyard. Current lease expires in Mar 2019
Approx value – 900k
CBA loan - $515,000. PI
Monthly repayments - $2500

Any advice would be greatly appreciated. Thanks very much in advance for any replies.

 

What are you trying to achieve?
What rent are you getting?
What if you sell to redeploy the funds into another market and that market does not grow?
Why would you consider trashing a significant part of your equity buy paying stamps to get in, rea commissions, legals, CGT to get out, and then stamps again on a new purchase?.

 

@Propertunity, thanks for your reply.
I am getting about $585 per week.
My intention is to minimise the shortfall in servicing this IP. I cant seem to find any ways out to improve the cashflow. On the other hand, I am concerned about paying the shortfall till the market gets any better, for whatever long it takes.

 

Your repayments are $2500pm = $577pw
Your rent is $585pw
You should be only up for strata fees, council rates and water, and PM fees.Even allowing for that and taking away for depreciation and tax, you don't look to be too negatively geared to me.
Relax.........and just hold. Rents will go up over time.
Go buy another one or more.

 

Sorry to say this but it looks like you are thinking like 90% of Sydney......what did you pay for it?

If you have large profit might be a good opportunity to sell....if you think ti will cause hardship down the track.

 

Hi Rajib,

Propertunity is right on. You have a three-bedroom townhouse in Sydney with only a minimal impact on your cash flow once all of the costs are accounted for.

As all Sydney residential property investors know, cash flow can be tight in the first year. However the beauty of capital city properties, is that the rents tend to grow as well.

Hang on to it, ride out the early years, and wait for the equity to multiply the longer you hold it. Don't sell.

And yes, use the next year or two to add to your position if you can afford to.

Well done!

 

No other major debts apart from this.

 

You probably needed to be having this thought process around 15 months ago - we did and sold those that were not going to be part of the portfolio long term (5+ years).

In any case - you either sell now or committ to holding it for next 3 years at least.
Then you get on with it and don't second guess your decision.

 

decision making can also depend on stock type. I.e. if in a large complex and you bought OTP will not have as good an upside as other established stock types might.

 

The answer largely depends on what longer term plans you have. If you're not sure at this stage, then I don't see what the rush is. As Alan said, it doesn't seem to be in the red too much. Selling and buying somewhere else will come with exit & entry costs which will further eat into your equity meaning you would need to recoup that in capital growth at a minimum just to break even to where you are now.

You don't have any other significant debt & I assume you work and earn and income to cover the small shortfall easily. Unless you have a good plan for better use of the funds, sit tight.

 

I'd say you're at much risk of trashing your equity in keeping it as you are in selling it. You need a plan now for the question "What if Sydney's downturn continues?" and it sounds like your answer is you're already paying quite a bit with little return.

Sydney is not doing well right now, and it's a very overvalued market. It's also oversupplied in many areas, including Ermington. There is a ratio of 10 listings per recent sale in that suburb alone, which is terrible, though it isn't as bad as some areas (parts of Outer South Western Sydney, Ryde, Strathfield, inner Parramatta et)c. So you need to be thinking about how you will be competing with all these assets as buyer demand falls (as it has, with no immediate prospect of regaining its previous stride).

It seems like your strategy is pretty much dependent on making a capital growth. Sydney has miserable yields, and a capital growth is looking unlikely. A few months ago this (The parts of Sydney where home prices have fallen most, in one chart) showed Parramatta has seen some of the largest falls for houses of around 7%. Personally I'd move on and buy something with a lower principal, better yields, good cash flow, and in a more stable market.

 

Rent @ $585 per week = $2535 Repayments $2500

Strata = ~ $2500pa
Council 1400pa
Insurance 360pa


Holding cost $80 per week.


Is their depreciation at play if so you may be Cash flow neutral.


So choices (2) hold at almost no cost or cash out $400K less fees, depending CG position and timing with other sales.


Is this stopping you from continuing your investment journey? if it is the answer may be clear. If not the answer may be clear.

 

Spot on!

Here are the numbers......lets say it was bought for 650k (inclusive of stamps)....and it is sold for $875k. I can't see product like this being worth more than 800k.

If @Rajib Datta sells now he makes profit of 225k....and lets say he pays tax of 40k in CGT.

If he holds for the next 10 years it will be worth about 800k till the new boom. About 150k net equity. So technically he is better off selling and plowing into another market as he can potentially out of pocket by 50k plus (costs included). Opportunity costs is real but only you can make this decision but consider the following:

1. What is your goal
2. Can you borrow more money now if you did not sell. Can you borrow after selling?
3. Are you better off reinvesting into a growth market - maybe in the better parts of Brisbane?


Too many people here have vested interests here...... . Their advise is not arms length.

 

As @Illusivedreams mentioned, if it's only costing you $80 a week then I wouldn't bother selling. The loss is deductible so after tax and depreciation you would not be losing much.
Property is a long term game. Rents will eventually rise and you will be in the positive in a few years.

If you're able to service more debt, you could use the equity you have to purchase something with positive cashflow in QLD to balance out your negative cash flow on your current property.

 

It depends on your goals and strategy but

I don't understand the never sell mentally if you made a good profit and don't see the prospect of further growth or a decline market, locked and load your profit I say.

chuck into your home loan or offset account and even if you do nothing it earns you 4% a year
compared to bleeding money and declining equity.

My motto take profit and take it often, you can make money in the boom then give it all back in the down turn what is the point? Cash out, sit on the sideline have some fun, there is always opportunity when you have cash ready to go

 

@Rajib Datta Your rental yield is 5.9%, which is not too bad. If it is really affecting your lifestyle maybe consider getting an income tax variation. Pay you tax quarterly and get some of the costs back. This is not advice, please get proper advice before considering this.

 

Im pretty sure the yield is 3.4%

 

You don't know purchase price .

So it depends yield on current market value or based on purchase price

 

Gross yield = annual rental income (weekly rental x 52) / property value x 100

What is a yield? - realestate.com.au