Join Australia's most dynamic and respected property investment community

Feeling stuck?!

Discussion in 'General Property Chat' started by macdub, 16th Feb, 2016.

  1. macdub

    macdub Active Member

    Joined:
    23rd Jun, 2015
    Posts:
    36
    Location:
    Melbourne
    Hi All,
    I need some help moving forward as currently feeling stuck due to a mistake I did 3 year ago. My situation is as follows.
    PPOR - Purchased for 400k, Currently worth 520-530k, owing 380k
    IP1 - 3 yrs old, purchased for 350k, currently worth 300-310k, owing 350k

    Loans
    PPOR - 1. LOC190k 2. 190k variable rate loan 3. 40k equity loan used for deposit of IP1, secured against PPOR
    IP1 - 310k secured against IP1

    I got lured by BA and bought OTP townhouse 3 yrs ago thinking it will help me with equity to buy the next one. Obviously, didn't do enough research and paid way too much, it is worth less than what I paid for today! The property is rented and no issues with tenants and rent coming in.

    Now moving forward, my broker told me I am not in a good situation and bank won't let me anymore money for next IP. I will have to wait for a year and get the valuation done on IP again to see if it has improved.

    My question is,
    is there any way left for me to move forward?
    is it a good idea to keep leveraging on PPOR (for deposit of next IP) if its performing reasonably well than IP1?
    When bank calculates equity on PPOR, do they take amount owing as 380k or 380+40 (equity loan)=420k?
    Is it possible to change the security of the equity loan from PPOR to IP1? I guess for that IP1 valuation needs to stack up??

    Any comments/help will be greatly appreciated.
    Thanks
     
  2. MsAli

    MsAli Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    1,147
    Location:
    Sydney, Australia
    BA and OTP don't seem to match up. Were they a "property advisor" selling OTP for sales commission? Or did you pay them to find the property?

    Find ways to increase income vs. expenses

    Is your broker investment savvy? Have the lenders been selected in the right order? What if you are with the most conservative lenders? Are you flexible to make a call and move lenders if it enables to expand your portfolio?

    Don't take no for an answer. Seek a second opinion.

    No reason why you can't do that. Depends on where you are headed. The aim should be to maximise opportunity (within your risk profile).

    What's the other alternative? i.e. Wait till IP1 outperforms PPOR?
    What if that doesn't happen?
    What is the opportunity cost of waiting for that to happen? Could that set you back many years?
     
    macdub and Propertunity like this.
  3. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

    Joined:
    19th Jun, 2015
    Posts:
    1,224
    Location:
    NSW
    Unfortunately, when you buy a brand new shiny OTP property, the CG for the first few years goes to the developer's bottom line profit. You can't sell because you owe more than it is worth right now. The good news it that with the passage of time, it will grow and do well - so there is no point selling.
    As your PPOR grows you can draw down equity off it for more deposits (assuming your serviceability is OK).
    OK - so you made a mistake buying IP1. Property mistakes go away with the passage of time in most instances. Patience grasshopper.
     
    Leo2413 and MsAli like this.
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,756
    Location:
    Perth WA
    The banks treat it as thought you're owing $420k on the PPOR, which you are. There's no equity to get unless you are happy to use LMI, and have a lender that's willing to do that for you.
    If you're relying on equity to move forward right now, it will be a bit tough but not impossible.

    Unless you're x-coll, then you're stuck for the time being.
     
    macdub likes this.
  5. Leo2413

    Leo2413 Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    5,714
    Location:
    Sydney

    Agree. But also, if you haven't already, assess your level of property investment knowledge, and fill the gaps where necessary so you can put yourself in the best, safest and strongest position moving forward mate.
     
    Cactus likes this.
  6. Xenia

    Xenia Adelaide Property Manager Business Member

    Joined:
    21st Jun, 2015
    Posts:
    2,342
    Location:
    4/136 The Parade Norwood, South Australia
    May be a good idea to take a breather, pay down some debt and create equity before you can move forward again.

    There are no mistakes, only learning.
     
    Toon, Hanison and macdub like this.
  7. Perthguy

    Perthguy Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    4,669
    Location:
    Perth
    My suggestion is to take a break for 12 months to consolidate your position and assess the market in terms of the economy. We are entering a dynamic phase in the property market where there is potential for Sydney, Melbourne and Perth to all move down in price (Perth already is). Use the next 12 months to put some money in your PPoR offset account and save yourself some interest. Research property further and expand your knowledge. In about a year, you will be in a great position to take advantage of some great deals coming onto the market and will be in a stronger financial position to do so.

    I feel your pain though. There are some decent deals coming through in my area and I am itching to jump at them. However, in know the market is decreasing in price, so I know it is not a good move to jump in now. Doesn't stop me wanting to now.
     
    Toon, macdub, 2FAST4U and 2 others like this.
  8. Leo2413

    Leo2413 Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    5,714
    Location:
    Sydney
    Great advice from @Perthguy.
     
    Xenia likes this.
  9. Gurtofen

    Gurtofen Well-Known Member

    Joined:
    13th Jan, 2016
    Posts:
    94
    Location:
    Adelaide
    I'm not so sure I agree with this........I especially hope it doesn't apply in the medical profession!
     
  10. Leo2413

    Leo2413 Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    5,714
    Location:
    Sydney
    I think viewing 'mistakes' as a learning process is more helpful than categorizing it as a 'mistake' imho. I think the real mistakes are mistakes in thought processes.

    Someone buys otp unit and pays too much. 2 years later has negative equity. They say it's bad luck or some other excuse. To me that is the critical mistake made right there, and not so much the purchase its self.
     
    Last edited: 17th Feb, 2016
    Toon, Xenia and York like this.
  11. Big Will

    Big Will Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,546
    Location:
    Melbourne, Australia
    You learn (research) before you practice (DD), you practice before you do (buy)

    OP skipped to step 3.

    I wouldn't be going to a doctor who hasn't even studied or practiced it something.
     
  12. macdub

    macdub Active Member

    Joined:
    23rd Jun, 2015
    Posts:
    36
    Location:
    Melbourne
    Thank you guys. It seems like a mistake to me at this stage as I am unable to move forward. But a great learning process! I am going to hold the property for very long as its not hurting me a lot cash-flow wise. Lets hope the mistake corrects itself in next 10 years. I can just hope.

    Thank you again for sensible advice. I think I am going to take a breather for a year or so and weigh my options later.
     
  13. Leo2413

    Leo2413 Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    5,714
    Location:
    Sydney

    What are you going to do to better arm yourself for the future? Taking a breather is one thing, but it won't better prepare you for the future. Please don't take my comments as a harsh response. Its not meant to be. I can give a 'nicey nicey' post but it won't help you much imho. I've just seen many people with similar experiences then take 'time off' from investing hoping the next time it will pan out better. You need to have steps to put in place now, so you can make better decisions in the future with better results. Maybe you already plan to, I don't know. But just taking time off alone isn't the answer imo.
     
  14. macdub

    macdub Active Member

    Joined:
    23rd Jun, 2015
    Posts:
    36
    Location:
    Melbourne
    Taking a breather strictly in finance terms. I don't have money for deposit and bank won't lend me. So nothing much that I can do now. What I can do in next 12 months is try and save some more and reduce expenses, get rid of some other debts etc and hope for better equity position too.
     
  15. Leo2413

    Leo2413 Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    5,714
    Location:
    Sydney
    What about expanding your property investment knowledge so when you have more equity you are in a stronger overall position to invest it?
     
  16. macdub

    macdub Active Member

    Joined:
    23rd Jun, 2015
    Posts:
    36
    Location:
    Melbourne
    Definitely! I have caught a bug. Reading lots on PC, listening property podcasts all day long and doing everything I can to learn more :)
     
    Leo2413 likes this.
  17. ashish1137

    ashish1137 Well-Known Member

    Joined:
    12th Sep, 2015
    Posts:
    308
    Location:
    Sydney
    Can you shed some light on the name of the suburb?

    May be there are certain things that you need to be aware of with respect to that.

    Regards