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

Are you then suggesting all Sydney investors offload all their RE holdings?

 

People should do whatever they feel is best for themselves, what worked for investors 10 years ago might not work for newer investors as the banking industry takes a really big haircut.
And for the last 30-40 years Australia has generally always had higher interest rates than the US, and it brought a lot of cheap cash into the country that Aussie banks had access to , those days are very quickly disappearing as the US starts to aggressively lift interest rates and it becomes a more attractive place to park money..
The really big question is what are the unintended consequences of the RBA keeping interest rates to low .
Especially relevant for super funds,the SMSF industry and older people with term deposits that will move money in search of a better and safe return.

 

Starta fees cover building insurance.

$360 insurance is 100% accurate as you don't need to cover building twice. Check EBM it will verify cost

Sorry forgotten management fees .

 

I think this is a very healthy and interesting discussion

Let’s run some numbers
- he is selling 10-15% from the peak. He is selling INTO A DOWNTURN.
- assuming a full time job and the cgt is 200k or more, he applies a 50% discount and still instantly gives 24% OF HIS EQUITY GAIN TO THE TAXMAN
- 2.5-3% selling costs
- 1% loan restructuring or reapplication fees
- 4-5% stamp duty and repurchase costs

Not being alarmist but I think he is down 40% or so on his theoretical gain. WHICH IS THE EXACT SCENARIO PPL SEEM TO BE FREAKING OUT ABOUT RE SYDNEY “CRASHING”!

Our whole economy runs on people skimming fees and charges off property wealth. If you want to help grow the nations GDP that’s fine but most wealthy people quietely go about their day without trading too many of their assets.

 

What about land-lords insurance fees - strata doesn’t cover that.

 

That is the $360 EBM

 

Further if you think the above scenario is an expensive way to hold property most people on this forum would be out.

The OP property is near CF neutral.

Yes they maybe unforseen expenses.

But

Yes but most of my rentals have increased 50-80% in the last decade.

Further if you are so risk adverse. I respect that totally but property investment is a risky investment class. Low risk but risjr.

If you want 0% risk invest in bonds or term deposit.

 

I wouldn’t see these holding costs as an issue early in a cycle, but early in a downturn, with pressure on rents in Sydney and risks to the upside for rates on investment properties, the risks quickly start to outweigh the potential rewards.

 

I agree but you are looking at things short term.
5-8 years


Im looking at a portfolio that is weather proof and due to last 30 years.

If its a good investment awith reasonable yiel it will weather the fluctuation .


Rules change. APRA will change new rules will come and go.

Who knows


Property may be nationalised.


Australia is fast becoming socialist .

 

Hi Rajib,

Good on you for reaching out to the community for this. You have been getting some great advice on this forum (eg from Codie, Leo 2413, Propertunity, Bris Developer and others).

Based on the information given so far, your property is actually slightly positively geared. It is making you money.

Ie:
Rental income pa: $30,420
Interest expense (@4.15% pa): -$21372
Body corp, rates etc expense pa: -$7540

Net gain pa: $1508

The cash flow outgoing that you are seeing is due to paying down the principal of the loan. Consider this a forced saving, which is one of the reasons that people that buy property end up wealthier than those that don’t. The lower amount of free cash and the thought of the large mortgage means that they don’t spend as much on discretionary purchases such as cars and holidays.

Now the figures above do not include rental management fees, landlord insurance or any property depreciation benefit. I would highly recommend investing in landlord insurance and also buying a depreciation schedule. They are both tax deductible expenses. Depending on the age of the building the depreciation could mean that your cash flow could also end up positive with sufficient tax benefit (depending on your personal income level).

Oh, and in my opinion, don’t sell the property unless you really, really have to. Any price reduction has already happened and as others have already pointed out, there is significant upside from here with increasing population, increasing rents, long term capital growth and as it is still your PPOR any future capital growth could be CGT free. If you sell then you are guaranteeing losing the sales commission and stamp duty cost if you want to get back into the market again.

On a more general note, you also mentioned that you have tenants with a lease until March 2019. In my opinion, you should show them the same commitment that they have shown you. And to all those on this forum who have suggested selling, I think you should take a long look at yourself in the mirror and then ask yourself, what if you were in the tenants shoes? How would you feel if the owner sold the property out from under you? Yes, another investor may buy it and keep you on but then you still have to deal with strangers traipsing through your home. And if you do have to move then you are in for a world of pain and expense to try to find a new place to live and then move.

In my opinion far too many property owners are too quick to sell property and/or kick out tenants for a small perceived potential gain or to let relatives move in etc. This is highly disruptive, expensive and unfair to tenants and they must be treated with much more respect. We have great negative gearing tax laws which support personal property investment and if it continues to be abused then calls for it to be abolished will only get louder. The irony of course is that those who have stuck with their property and stuck by their tenants for the long term, with small annual increases to keep up with market rates, have done much better financially than those who have not.

Rajib, you have bought an excellent property and you should stick with it. This is shown by the fact that there are currently zero townhouses for rent in Ermington, I don’t think you will ever have a problem finding tenants for it in the future.

 

I am sorry but I don't get tired, as I do not have a crystal ball into the future, hence I wish I could pick all the throughs to buy and sell at the tops, so instead I stick to my strategy and am crystal clear with my goals what I wish to achieve from my IPs (I invest in various states to take advantage or minimise fluctuations but I also never plan to sell).
What I tried to communicate is that median prices in various states fluctuate some point in time, have a look at the graph and article below, a picture is worth 1000 stories, right? It illustrates how median price changes, sometimes more than 10% sometimes negative, but look at the overall effect from 1970 - 2016:
Successful Ways | Australia’s median house price data
This graph is an eye opener for me. Just look at 1982, SYD had 0% growth in median price, MEL had 5%, BRI had 28%, PER had 5%. I have more detailed statistics in addition for ADE and AUSTRALIAN MEDIAN.
Then if we look at say 1990, SYD -17% (especially after such high previous periods of growth) but then in 2005 much smaller negative return...
SO it beats me what the future will do, so all I can do is stick to my strategy and overall return.
I also modify my strategy: have off-loaded few lemons, invested in opportunities elsewhere, and added capital renovations or improvements down my timeline track.
Basically, it is only you who can answer your own questions, what do you need to do, perhaps modify your strategy if it does not produce the results you set?

 

When I started out I bought units townhouses and single family homes. basically things where the developer/builder had already made the profit and is shifting stock onto mum and dad investors like yourself in search of slow and steady growth. Most busy professionals only aspire to own this sort of stuff and there’s nothing wrong with it.

You won’t shoot the stars with capital growth always but they are a steady Yield and an inflation hedge
Grow your income and as your serviceability improves, you tap into line of credits against them

Don’t be too disheartened . Everyone starts out buying the sort of property you did but giving up 15-20% when you dont have the income or asset base yet to Dip your fingers into the truly profitable stuff (commercial property and development sites imo) is foolhardy

 

I'd personally keep it unless you had a large portfolio to service!

I might sell one property and build two granny flats out right with profits from sale to boost cashflow and increase borrowing capacity