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

Graeme, with all due respect, I don't think you managed to comprehend much of Ems' situation either.

Firstly the rates cost at least $3000 and insurance $2000. That was for my 650m2 land. You have to pay this regardless of whether you have a tenant or not. Ems and her husband have another new property in Gladstone, also bleeding cash. They just bought a business and their PPOR in Perth. If they were made of money, they could do a renovation. But that would be crazy. They aren't on high salaries like you are, they don't have any spare cash to hold. Der. On a very old house, a reno like the other house in Toolooa Street would be pretty major. Why bother when the only houses renting or being bought are the almost new ones.

Guess what. There comes a time when we have to cut our losses rather that keep paying out good money after bad. O and do a reno. Are you kidding? Everything in Gladstone costs double the Brisbane prices, which are sometimes double Sydney prices. Get real.

 

Here's a proposition for the Gurus of Economics who think Ems should hold.

"I know of a demolition house sitting on a large block of land in a city that is the industrial powerhouse of Qld. There are a few industrial projects mooted to come on line in the future, sometime. Get your foot in the door of this wonderful investment opportunity. With interest rates so low, why not snap up this fire sale bargain of the century and get yourself an awesome development site."

Go for it boys.

 

Yeah, I made the same mistake. I mis-read that it was NOW IO.

But even if it is P&I, repayments of $1,800pm on a $319,000 loan is 5.4% to 5.5%.

Going IO at 4% or less would reduce repayment to $1,063, a reduction of nearly $800 per month. This equates to a weekly repayment of $245. Taking the $100pw rent, we are now looking at $145pw to hold (ignoring charges and expenses) - this equates to $7,540pa.

Can these funds be generated in another way? Can @Ems or her husband work longer hours in their business to generate extra revenue, can either of them take on a second job, ... There are many options here and I believe selling anything should be the last, last, last option!!!

I am a big non-believer of selling. And I am speaking from experience. We bought our first IP in 1992 for $125,000. After 8 years, it was still valued at $125,000 (didn't move 1c). Our accountant at the time told us that we had bought a lemon and that we should ditch it. We were too busy fighting fires in our business and never got around to selling it. If fact, this IP was the least of our problems!!!

Now 16 years later that property is worth around $600+K. One of the smartest decision we ever made was NOT to sell (...and we didn't even make that decision). BTW, we later sacked that accountant and moved our business to an accountant who knew what they were doing (but that is another story)

Not only would we have incurred the selling costs, we would have also have incurred buying costs for the next IP including stamp duty (OMG, I hate stamp duty - it has already cost me $140K this year but that is another different story), legal fees, etc. Also, we would have missed out on nearly $500k of CG. Gladstone will bounce back. @Ems needs to work out if there is any way that they can hang on until then. If there is NO, NO way, then (and only then) would I sell.

We live in Brisbane and we seriously looked at buying in Gladstone in 2004. We didn't because at that time, houses in Gladstone were selling at the same price as houses in Brisbane. We couldn't get our heads around that and we ignored Gladstone (another smart decision) and continued to buy in Brisbane.

 

Hi @kierank, appreciate your thought out message. The problem with Gladstone though is that she has 2 properties there and the vacancy rate is high, and there's lots of land for more development and newer houses. I'm really not sure its the best place to be owning 2 properties. Sydney, ok. Brisbane, ok. Gladstone... perhaps not...

 

True and, to be honest, I didn't think of that. I have roll over many IO loans and never had a reval - but my properties aren't in Gladstone.

Totally agree and I would really like to help. As I stated in an earlier post on this thread, I believe selling should be the last, last, last option. I know we don't know all the facts about @Ems' personal situation but I would rather x-coll (if that was an option) than sell. I know that is another dirty word on PC and I would never normally x-coll.

I have been in the **** many times in the past. I have always taken the option to fight, rather than run. We wouldn't be where we are today if it wasn't for those mistakes. I trust that @Ems will look at this in 30 years time (I am 60) and identify this situation as a defining moment in their wealth creation lives.

 

I understand what you are saying.

Queensland is a lot more decentralised than NSW and Victoria; for example, with towns like Gladstone, Rocky, Mackay, Townsville, Cairns , ... having a life of their own. I am not a big fan of Gladstone although I believe it will bounce back.

It is a question of how long (I don't think it will take 10 years - we just need to get rid the current Labor government LOL) and can @Ems hang on until then.

Ask me again in say 5 years. I will be a lot wiser then.

 

I'm in similar position to Ems except twice the loss and I'm double her age. AI'm also considering what to do and in doing so I'm wondering what the market is going to do. And that will depend on the economic prospects for Gladstone. Does anyone have a feel for what is going to happen in Gladstone economically?

 

1. Until LNG prices recover significantly and stabilise, to justify further investment, I think Curtis Island will be quiet for some time.
2. Gladstone to Fitzroy River pipeline won't have much impact on Gladstone economy (the project follows a distinct corridor, and the number of people required will be pretty small).
3. Eden Bann Weir is nowhere near Gladstone.
4. Bowen to Gladstone LNG pipeline, wont' impact Gladstone economy much (same reason as above).

The steel works you mention has been talked about since the 1970's. It won't happen. Energy and labour costs are too high in Australia. Boulder Steel (the most recent incarnation) changed it's name and dumped mining for healthcare late last year I think...

So many businesses have folded/moved out of Gladstone since the construction boom ended.. businesses moving back in will be a slow process.. good news for anyone that wants to rent commercial space on the cheap though!

 

Ouch! Gladstone will come back eventually, it still has quite a bit going for it, but the last boom created a huge oversupply. Recovery will be slow.

Don't depend on future construction projects to boost prices back to where they were either. There's a lot of FIFO-style accommodation built in the area now that will absorb a construction influx.

 

Has it been 5 years yet, has it been 5 years yet, has it been 5 years yet...

 

I've spoken to my broker regarding changing back to IO and apparently that isn't an option considering the value of the property. Our interest rate is 4.47% currently and outstanding loan of $317,000. We are paying P&I of $1778 a month.

No one through on the first open home at the weekend. It is up at $169,000 which is land value. The house is situated close to town but is on a very busy road. People have so much choice..

Having only purchased a small business only three months ago our limited cash is being put into this so a renovation at the moment is not an option. No equity in the PPOR to use either. The in laws have seen how we are struggling with this and have told us they will help. We are forever grateful to them and will do everything we can to return their money as quickly as possible.

To be honest the thought of losing $150,000 is unbelievable. When I say it to myself I can't believe it's something we want to entertain but the stress and worry it will continue to make if we hold is unthinkable. It's not worth it.

Thanks again to everyone who has taken the time to reply. I'm very grateful.

 

I'll be in Gladstone in Oct for 6 weeks.

It will be interesting to go back. We were last there nearly 2 yeastago

 

Hi Ems, sorry to hear of your situation. We just about dodged a similar bullet. Bought in Toolooa, Gladstone in 2006 (sight unseen from interstate), sold in 2012 after experiencing the rent and value soar - then crash

We sold out too late and also found out the property was in much worse condition than we originally thought, and we were up against the newer builds across town. We had to drop the price and got out at about the price we got in at, so we were 'only' out of pocket for the neg gearing costs and the buy-sell transaction costs - and the outrageous maintenance bills (and very high council tax and insurance...) for the holding time.

It hurt a lot at the time we sold. But a few years on and somehow we have moved on - other investments have done better and paying down PPOR and so on, and selling was the best thing we did. It freed up a lot of time and mental space to move on. Once its done its done and you stop wondering about all the 'what ifs' and focus on 'what next'.

 

... a question to the experienced posters/ accountants/ tax advisers - in Ems' situation, if an investor is left with a capital debt after sale of a property, is the interest on that debt still tax deductible, even if the property is no longer owned and there is no income?

 

No-one answered? Short answer is no. It's a capital loss, and can be carried forward to offset a capital gain, but the interest isn't deductible because it's no longer used for the purpose of generating income.

Disclaimer: I'm not a tax agent or accountant..

 

All the best with that referral its worked for others, hopefully you will also dodge a bullet.

MTR

 

What is your feedback on Gladstone at the moment ? At some point it should stabilise, find it hard to believe it is so bad, but seems a lesson for anywhere that has lot of people with no vested interest in local area.

 

Not there just yet but had a fun talk with a pm that we dealt with previously, looking to get short term accom at the place we've stayed before.
Its a Furnished place that must be atleast half what we paid a few years ago- basically a 2 bed room town house for the price of 1 night in a motel! No wonder she was ****** off on the phone lol she's known around the area for owning a lot of properties and i think self manages most. I thought Gladstone PM's would have lost the attitude of treating tenants like dirt by now!

 

So a local pm owns a swag of properties in the area and probably is also in huge negative equity???
Ouchy

 

She's been going since the 80s so would have seen it all before. ....whether she planned ahead is another thing!