Didn't think it could get any worse...

Got an email from our real estate agent this morning saying our house in Gladstone needs substantial funds injected to bring it up to live able again. Our tenant has just vacated and the agent went in to do a vacate inspection and has brought this bad news to us.

For those that aren't aware of our situation - we brought two places in Gladstone in 2010. A 1940's house and an OTP unit. For the past 6 years rents (and values) have fallen substantially. We are looking at a loss of about $150k if we sell the house (If that's even possible now after the news this morning) $150k which we don't have. I don't know what to do..

We could sell our house, go back to renting. This would give us about $80k and possibly borrow the rest from family..This thought makes me cry But I don't see any other way..

The OTP unit is manageable but the house expenses are killing us..We would be stuck for years if we hold on..We are still mid 30's so have time to rebuild - the only good thing I can see from this sh** situation.

I don't expect you all to give advice but I need to vent and I'm sure there are some in the same situation as we are or have been there..How do you pick yourself back up and go on..? I'm really struggling right now

 

Chin up Ems, I'm sure some members here will be able to help clear your head and figure this out

 

More info needed on this. Was it the tenant or house that makes it unliveable?

How substantial funds are we talking?

 

Is selling your own PPOR the only option... or is selling one or both of the Gladstone properties an option? On the one hand, you may make a loss, but on the other hand, there is lost opportunity in not being able to participate in a market that rewards you from a CG perspective. In other words, is in an option to cut these properties loose and move on with your life?

 

I know the feeling and I really empathise and my heart goes out to you, its a horrible horrible feeling when the risk in property actually happens to you. So many think its just a get rich quick scheme and forget the risks attached are very very real. I have a similar situation (but not as bad) with one of my properties, and we have been doing our heads in whether to cut our losses and sell now accepting the loss or do we hang on accepting the monthly out of pocket costs until the market gets better (unlikely until supply is absorbed in about 3-5 years). My only thoughts for your situation is why is the property now not liveable ? If its tenant damage what about insurance ? Have you got a decent property manager (a good one can really make all the difference) Also, what about flying up there/ taking some leave and doing some of the work yourself to get up to scratch so you can rent out again and save some $$$? Is there anything you can do to attract tents/ or increase rent based on its target market ? What about reducing loan as much as possible so it can at least pay for itself and reduce cash flow hurt ? (this is our plan at the moment but it will take some time but its a plan at least). Walking away might be the right decision, but lost opportunity debates for CG somewhere else is also a risk, any CG expectation is a risk/ gamble imo because nobody has a crystal ball and its all just speculation - like putting your money on red or black at the casino it can feel sometimes......Gladstone will turnaround at some point in the future, but even if you do decide to cut your losses and keep your sanity and SANF (sleep at night factor I learnt on this site) you are VERY young and can recover, you have at least a couple property cycles to ride PS remember any loss can be carried forward and offset against any future gains (not really helpful right now but try take a long term view)

 

Sorry to hear the bad news.
If I were you I would cut my losses and sell both these properties and move on with your life.
Until you do this they will just remain a burden on your life and cause you unhappiness.

People have all sorts of losses in life and reality is being in Australia, a financial loss is the easiest one to deal with. Always remember we are in the lucky country and it won't take you before long to bounce back. You will learn from your mistakes and be better for it

My colleague bought a parcel of land, couldn't do what he wanted, market crashed and he lost 100k but he doesn't regret selling even though that particularly market has made some recovery . Fact is it caused him to be a very unhappy person and everything around him suffered because of it. When he sold it, the burden was gone and instead of investing thoughts and stress into that he concentrated on his side business and made a lot of money.

When I ask him sure it hurts that he lost 100k but he learnt a lot about himself and his relationship and is better for it.

 

I feel for you. I know its hard but in times like this, you need to take the emotion out of it and make sure you crunch the numbers to assess your options (do you really have to sell your PPOR?).

I'm a bit puzzled why this is needed since it was tenanted unless they truly trashed the place?

 

I remember your scenario, sorry to hear things have not improved.

Perhaps start working through all the specific scenarios, I understand they are all painful.
What if you sold OTP apartment, any money in this? probably not??

Where is your primary residence? what would be left after selling this.

I am a believer in doing what it takes to achieve the best outcome, if this means pain today then that is what it may take for an easier life and better outcome and happier life.

Holding on to your primary residence does not mean peace today, it could actually be more stress.

Its really quite amazing what you can achieve when you have a positive attitude and work towards a goal and get rid of the dead wood. When you make the hard decisions because there is little or no choice and you accept....... then you have a better chance to succeed IMO

MTR

 

We made a $200k loss on a farm we bought in 2009.We made the decision to cut the loss,and use the remaining funds to inject back into performing real estate,this has worked well,and as above we offset the gains,its a time thing,and a bit of a gamble that it will not happen again,but it is a way to recoup losses.

 

Hello Ems, I am available this week to bounce some ideas off.

We sold our Gladstone house last Christmas and lost $150k. It hurt my husband like hell and he was very difficult to live with for at least a year. I wanted to get rid of it as I saw no possibility that the price would ever go back to what we paid, not with all the supply and new estates still being developed. We were bleeding at least $12K per year holding it for the previous two years by the time you factor rates, insurance and outrageous tradesmen and incompetent PMs who call out a plumber when the switch on the HWS just needs to be turned back on by anyone at home at the time. This was money I could use for other much more pleasant things, as you can imagine. I wanted to sell it much earlier but Hubby insisted on the "wait and see" plan while I wanted to rip out his throat but instead developed personal qualities like patience and graciousness.

In our case we were able to refinance our PPOR to take the shortfall, but while waiting for the value of the PPOR to be high enough to refinance, we lost a year of time in which the value dropped significantly from the previous year, on top of the monthly cash flow loss. Just dicking around for the final three months placating the tenant before we signed up the selling agent it dropped $50K.
But
The increased mortgage payment now is actually a lot less than the $1K per month of real money that the house used to cost us, even being forced to go Principle and Interest post-Apra.

If you can see your way clear to absorb the loss, then it may serve you well to be rid of the problem. My broker tells me that after a couple of years we will be in a position to buy again if we want to, so you will have the benefit of being able to start over. If I can help with ideas please message me. I can recommend a broker who will move mountains to get you finance if there is even the slightest chance that you can qualify.

Have a private chat to a few brokers to see what they can suggest so you can move forward. Best wishes.

 

If you guys are in your 30's, you could be making millions by your 40's. Then you could look back on your current position and realise that a couple hundred K is quite insignificant, even though it may seem a big deal now.
Just gotta put the work in aggressively and the results will come.
If you continue to dwell as victims, it's likely not much will change for you.

 

Another thing. Plans B and C.

Before we agreed to put it on the market, we got two separate appraisals on our other IP, the townhouse. Both agents felt it would sell easily and give us just enough equity to cover negative equity on the Gladstone house, should Gladstone not sell quickly and before the bank foreclose on it just because they might feel like it. We were keeping up the repayments, but anything is possible with banks even though our total equity position was under 80% LVR.

The PPOR would also easily sell, but we didn't really want to. Once we made the emotional decision to lose the PPOR, everything else fell in place and we got an acceptable (with gritted teeth) offer on Gladstone.

 

On the vacating inspection the agent was concerned about the condition of the property. She has said that it has almost no chance of letting in its current state. The property is extremely worn and probably near the end of its life expectancy without a substantial injection of funds, beginning with a building inspection to assess its structural integrity. This is the first we have heard about the condition of the property (On previous inspections nothing has been mentioned) In view of this and the associated health and safety risks, they have withdrawn all marketing until we've had time to consider our options.

No figures have been mentioned yet.

 

We have a small business (I work full time in) and our PPOR. Selling both should get us to pay the balance off..We could then rent and I would find another job until we can once again buy. I want to sell but my hubby is wanting to wait and see and believes it will improve. When is the question...

 

im sorry to hear that

in my mind, real estate is a sound, slow and safe investment, and in your case I dont know what prompeted you to buy there (not criticising, I bought into a mining affected area too), but if I recall it wasnt greed or impatienece of lack of research etc. etc.

to be that substancially out of pocket is painful to hear,

if I was in the same situation id probably never do property investment again,

I dont have any advice to you unfrotuantely, but I feel for you that you may have to sell your PPOR

good luck, and IM sirry I have no useful advice

 

You are not really stuck for years; you have 3 properties, admittedly one is causing a lot of cashflow drain currently...if the debt is servicable; it is akin to putting a lot of your expendable income money into a Bank and leaving it there...not so bad in the wider scheme of things if you can hold on, and maybe find ways to fund the reno it needs.

Maybe you can find a young broke tradie - who needs somewhere to live - offer him a massive rent discount to live there in exchange for work done on the house - even free rent (it's not rented anyway) no agent involved etc. It's a risk; but what else is there to do?

We had an IP that sat for 2 years vacant for similar reasons - long story, but the Shire put an "Uninhabitable" sticker on the place until it was repaired and signed off on them.

It was not that bad; you could still live in it, and I have lived in far worse myself...but anyway.

I eventually bit the bullet, whacked all the reno costs - which we couldn't afford - on the CC, and got it back up for rental...took well over a year to finally pay off that CC debt for the renos (only when we sold our PPoR).

Then, as above; had to sell our house last year to clear unservicable and mounting debts (similar to yourself) due to business downturn.

This seemed like a massive failure for me, and for a year or so before this (when I finally realised we had to sell, but was keeping the bad news from my wife in the hope it would turn around), I was massively depressed, angry and felt like a failure.

But, you move on, we sold the house, lots of tears, more anger; but cleared all the various debts, came out with a bit of money left over (plus a bit of debt still to pay back to the in-laws for a small loan they provided along the way) and went back to renting.

That was last Oct when we moved out, and wasn't expecting to buy another PPoR for a long while, but one came up, have since bought another PPOR which is currently tenanted. We will hopefully do a rebuild in a year or so, and move in then.

We now are lifting the eyes to the future and the next PPoR, and while their is still sadness about the sale; life is ok.

This all happened over the last 3 years - and I was over 50 when it all went pear-shaped; you are 30 years old, so there is loads of time.

You will get through it.

Making the decision to sell is really hard; you feel like a failure.

But; you are not a failure; you are having a crack, and sometimes things go wrong that are out of your control. You are a winner in life!!

Your choice is simple; fight or fold? I say; fight.

Once you sell (if you decide on that strategy), clear the debts, you can start to create some cash surplus and use that for debt reduction on the IP's, use it to reno the old house in Glady, and in a year or so be cashed up again and start moving forward.

Good luck.

 

Have you had a valuation or real estate give you prices what they're worth?
Plus a quote for the repairs

2010 was the close to the start and the peak around 2014. But yes it's taken a big hit.

 

What the?
Can your parents take a Winter vacation to Gladstone to sort this out? I'd want to see the house with my own eyes. I don't believe anything agents tell me any more. Phone your insurance company too.

For all we know, there could have been water damage after the summer storms that was never attended to, now mouldy carpet and walls etc, and the PM never attended to it at the time. Covering her back, making you responsible, and charging you for the privilege.

 

What was your understanding of the property's condition when you purchased it? Should you have made allowances for future improvements from the start? Property doesn't deteriorate overnight. Doesn't change the fact now I know, but you sound surprised at the fact that the property requires substantial work..

Is there an oversupply of rentals in the area? Maybe agent doesn't want to waste their own time if they are already having difficulty letting properties is good condition, so they can pick and choose who they take as clients.

People saying Gladatone will pick up over time. Come on.. Depending on when you bought, at what crazy price it could take 20 years to just break even again..
The compounding effect of 20 years of funds used elsewhere compared to just breaking even again in Gladatone is huge!
Take 2 backwards steps, sell the lot, even if it means selling the PPR, take 2-3 years to stabilise again, study the hell out of your next purchase and buy a bloody quality safe performing asset in a proven long term growth area.

It's easy to be hypocritical of those who bought in mining towns.. However it's also easy for those who own a PPR or 1 IP in Sydney, who put no or little effort into research and bought around the corner, to call themselves successful property investors and every second one of them is appearing in a property mag with their arms crossed, smiling, telling their top tips. Give me a break.

If you started from scratch and achieved 1/4 of the success some of those Sydney investors have, where will you guys be again in 15-20 years..

Be strong. At the moment it sounds like overall you guys have 80k on equity overall. You don't have 3 properties, feeling bad to let them go, you have $80k.. Low performing $80k with risk to decrease further, not even keeping up with inflation.

You guys have not failed. You made decisions to improve your financial future and it has not worked out. No shame in that..

The road ahead will be challenging for you guys, but I'm sure you have not lost. Invaluable skills have been learned that will make you guys strong investors in the future.

I really wish you both the best.

I'm sorry if I came across patronising, hard to show empathy on a keyboard lol...

If I or any of the members here can help do not be afraid to reach out. We are a community here to not just for self betterment, but for the betterment of others..

GG

 

and on propertychat also telling how the growth mindset is all it takes...

To the OP, for what it is worth: Let the numbers decide and do not trust the REAs.