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

I was talking about the yield on his loan balance, not the purchase price.

 

Its not common to calculate yield on loan amount. current value seems the go-to measuring stick.

 

For the context in question, it should be based on purchase price. Basing it on the current value has no meaning.

 

So your loan is P&I? - is everyone missing this point? I think it’s pretty important to note it’s paying itself off. It’s technically not Costing him $80 a week. It’s making him $120 a week

Let’s say you have $800+ a month coming off your principal. With your rent basically covering this and you just being up for the costs. Why would you consider selling? It’s literally paying itself off with little impact on you.

If we are talking about opportunity cost of redeploying funds else where... I understand that, but work out what you would end up after all selling costs and CGT, and ask yourself if your confident you can match or exceed the same returns over the next 10yrs by picking a different market or property etc?

Because roughly you may have paid another $120-$150k (I’m just not working it out right now) off the loan, and not including any CG that may or may not occur. Let’s say it goes up a terribly low $100k, you have a 1mil town house with a $400k mortgage that’s rapidly decreasing.

 

If the op is considering trading current IP for another the only way to make comparisons is to use current value otherwise its not apple for apples. I could own a terrible investment but if i purchased it 30 years ago the yield could be great using the purchase price. Need to make decisions based on current value and future predictions.

 

Have you a fully paid off main residence or are you renting?

 

Whats listed for sale in the market now and there are quite a few

4/2/2 townhouse listed for 850-900k
11/1 Checkley Court Ermington NSW 2115 - Townhouse for Sale #128552354 - realestate.com.au

3/2/2 townhouse
$840,000 - $890,000 | DHA Lease | Rent: 650/wk
Ermington address available on request - Townhouse for Sale #128175142 - realestate.com.au

 

It's a no brainer. Hold. No idea on earth why you'd sell.

Only reason I would sell is if the debt didn't allow me to move forward AND I was fairly certain I could roll the profits into another project and manufacture more equity faster and greater than selling costs.

 

All my properties especially IO for me the value is what I paid for it. So a $500,000 @ $25000 rent = 5% yield
I don't calculate on loan value I usually base of initial purchase price.

I don't revalue the home every year and than worry yield dropped.


My value may be different to the person who is buying this now. for $1,000,000 his yield will be 2.5% gross.

 

I calculated the yield on loan balance to determine if the cashflow was sufficient to cover interest rate and holding costs. It is not something I do to check if the return on investment is good or not but in this instance, the OP is worried about his cashflow.

Anyway, back to topic please.

 

I'm pretty sure Terryw said it: you discard the raft when you reach the other shore. OP needs to work out where they're going, but holding for the sake of holding is nuts.

 

Take the money , and run , fast, then sit back and watch the markets for the next year or two before re investing.
At least until the next federal election.
A good windfall is always going to be a good windfall.
But seriously, no one has a crystal ball , and in 12 months it might be back to business as normal, although I seriously doubt it.
Probably would be a very good idea to keep a very close eye on the number of rental properties hitting the market ,as last month saw a big increase, although that may have been a one off event.
But should it extend over a long period , it would send rents into a downward spiral , and many owners that have held for 5 years ++, especially those with older properties that need to be modernized might be tempted to all rush for the exit doors.

 

Why are you investing into property? What is your end goal? What is your strategy for investing (townhouses, in say major CBDs, hold never to sell, to renovate - what?)?
Property is not a liquid asset to buy in and out, it is a long term investment! And what are you losing if prices go down if you don't sell? Are you worried if rents go down, or what?

It seems you need to do more reading why are you investing and decide your investment strategy!

I invest never to sell, only sold after acquiring many and had few lemons.....or no longer fitted with my investment strategy.

 

OP is not likely to miss out on any sweet capital growth in the next couple of years if he sells now, not after the market has just come off the biggest boom in a generation.
Take the money and run; plough that equity into something more productive.

 

I will be paying for Body Corporate, Council Rate, water or any repairing expenses. This makes up to be about $145 p/wk. This is before tax.

I bought this property as PPOR and stayed there till last June 2017. Hopefully there will not be much of CGT implications.

 

If you have not bought another PPOR..and then the 6 year rule may apply.

If not there are other ways to minimize the CGT but you will need to pay some......

 

This is very irresponsible advice and typical scaremongering I feel. Unless it’s your PPOR and U pay no tax then maybe...

Property is primarily a wealth holding vehicle. And the jumps in value happen sporadically
You are not treating this like crypto or stocks where you move in and out of positions.

As many have mentioned your holding costs aren’t extreme, rental growth in a global city like Sydney will turn this into a neutral or positive earner in time and if it’s an IP and you buy another IP... you lose at least 15-20% in frictional costs and there are not a lot of ways to make back the 20% quickly without risk or luck or hard sweat

Qld is in the doldrums just as much as syd due to the loan restrictions trust me

 

Those figures look pretty undercooked. How about property management fees ($2.5k), maintaince, real insurance costs (surely triple that). Starts to hurt pretty quickly if there are downward pressures on rent or a tick up in interest rates..

 

I get a bit tired of hearing what’s your goal, what’s your strategy. If we get a 5+ years of flat growth or a bigger downturn in Sydney (which I don’t see as unlikely), losing cash year on year isn’t great for a growth or yield strategy - these are the only real options for a townhouse. Value adding opportunities are limited.

 

There is probably about 98% of the investor population of Perth that would seriously disagree with you .
In the last 10 years they have watched 10 year growth drop from 10-13% to about 0-3% , and many of these are/were sitting on interest only loans.
For those that saw the really big price movements from 2003-2007 .it presented them with a few options , either take the money and run , keep on reinvesting in the same market that had proved so lucrative as prices dropped, went sideways ,then up a bit and then down a lot, or just hold and wait for the "next boom".
If Sydney completely stagnates for the next 8 years, you just slowly watch all your profits slowly disappear, made even worse if there is an oversupply in rental stock and yields plummet to 1-2 %.
I think people are now starting to realize that IO loans have pushed up the market even further, as many base their purchase cost around the IO component of the repayments, not the full cost which is a P&I repayment., but what happens when the tap for IO loans are turned of.
With the current issues facing the banking industry and the treat of NG dissapearing it might be a very long wait.