Got myself into a mess - have spent almost a year getting 'advice' with no luck - help!

My PropertyChat / Somersoft friends, I could use your help.

Long time investor here. Been investing in property since I was 21 (17 years now) and had some good early success. I have 7x IPs. You'll notice I haven't been around for a while and here's why...

Sadly, I really screwed my portfolio with my last two purchases - 2x Gladstone purchases in a Discretionary (family) trust. Over the last 3 years they've dropped in value around $420k and are now running at a cash flow loss. I tried to sell one of them but the market is dead (3 months, zero interest).

So, I've had to make some tough decisions and in short I'm looking to sell these (when I can) and another 2-3 properties to make up for the losses.

It's been a bit of a blow to lose ~12 years of investing and essentially go back to where I was in 2004.

Naturally, this is a big financial decision so I thought I'd do the 'smart' thing by seeking financial advice from a highly recommended firm. Unfortunately, after 10 months of fact finding and analysis I was told (in other words) that my situation is too complex for the software they use (with 2x trusts involved and several possibilities around what I could sell in what order). They have not been able to provide much in the way of clarity on how to move forward.

Prior to meeting them I had done a fair bit of my own Excel based analysis. I sought their advice to verify my sums (independent of my own calcs), but now it seems my best way forward is to go back over these again and work this one out by myself.

Any thoughts or comments would be appreciated.


David.

 

17 years is a long time to be investing without any bumps in the road,and sometimes just taking a long hard look in the mirror,and not judge yourself by the money you make but as the vast majority of property investors aren't going to make big bucks in the property markets..

 

Not trying to be unhelpful here, but personally whenever people start talking complicated tax structures and trusts etc I get confused (and believe me I'm a smart guy). In general, unless I can simply u der stand all aspects of an investment I stay away.

Hope it works out. Sounds like a tough situation you've gotten yourself into. Is it possible Gladstone has actually bottomed? If so selling now might be the worst time to sell...

 

One other thought. Have you gone back to the banks and tried/grovelled for a lower interest rate?

 

I already spent a good $3.5k on a portfolio review (from a property advisory firm), which rated all my assets in terms of quality, cashflow, likely short-mid term growth. This was useful and helpful. It then suggested a sell down strategy, but had a little disclaimer about how any sell down should be done in alignment with my financial plan / adviser (which I did not have).

So I saw their recommended FA (who they use personally and receive no kickbacks from) and went to them with the request to review my situation, run various sell down scenarios and see what my cash flow and so forth would be to work out the best path forward.

I told them I wanted to answer questions such as how many I should sell, what order and when, in addition to some personal goals such as buying a nice PPOR for my future family and another car (which will have to be postponed, I imagine).

As far as I can tell they then proceeded to feed my data into their cookie cutter (modelling software) to spit out a report but it didn't really work, so now I'm in limbo. They said they need a 'base starting position' from which they can then move forward from, which I found pretty rough, as I can work this out myself in Excel in an afternoon. PIA has been more helpful.

 

The other option is to stay put and not sell. Can you handle the negative cashflow for a few years?. Are the other 2-3properties cashflow neutral/positive to offsey the negative cashflow on gladstone.
Why crystalise the $420k loss and sell more to make up the loss. Thats such a short term view to put you back 12yrs.
Gladstone is currently in a downturn, everyone is trying to sell. Why not hold the properties if you can. In a few years time it will be all a bad memory and you will still have 7 properties.
Calculate over 10yrs what will cost more. Selling at a $420k loss or having what, maybe $10-20k negative cashflow each year.
Prices over time will rise again.

 

I would recommend having a chat with @Terry_w and/or @Paul@PFI ... maybe they can help?

 

Sorry to not be helpful, but accumulating 7 properties over 17 years of investing must have taught you something.
Really don't see that anybody would be able to decide on the best way forward for your own situation than yourself.
If you need ideas or suggestion, there are plenty of members here who would be able to suggest good options for your evaluation.
In the end it's up to you, and you've paid your fees in experience, so don't see why you need to pay more to so called advisors.

 

Do you mean the company took ten months to give you advice?

Or that the whole process including you doing your own analysis has taken that long?

 

Based on what you (or the agent ) think the sale will be made at would the that price indicate a cf+ ?
Eg if the expected net sale price was $200k and the net rental is $200pw (after outgoings) then the net yield is approx 5%

 

Holy crap. That is disgusting.
I would recommend speaking to a tax specialist, as they will be able to assist you with taxation ramifications, which is probably one of the missing 'bits' you were hoping the financial advisor would assist with.
I find it very difficult to believe that they were simply going to use software to do the analysis, rather than look at the possible options and outcomes and advise you on the pros and cons. Unbelievable.
If it were me I would be seriously pee'd off. That response is simply not good enough.

 

Ok here's 2 cents worth of perspective....

- You have 7 IPs...
- 2 IPs are duds in Gladstone so 5 performing IPs left.
- Of those 5 IPs determine the possible equity each has (either post sale or LOC) and rank them high to low.
- Work out your loss coverage requirements (including any sales costs if selling) from offloading 2 duds
- Keep going down the list until you run out of IPs or have covered the financed loss obligations of the 2 duds
- that's option 1......

Option 2.... what is the annual holding cost & how long can you cover it & consider a LOC against an IP as well if needed to buy more time

Option 3.... the trusts.... I'm not going there...

BTW I appreciate the trusts complicate things.... not knowing which properties are tied to other makes it impossible to consider in any detail.

Good luck

 

So the properties with the losses are in a discretionary trust with the rest in personal names? Gains can't offset the losses, but you may just have to just bite the bullet on this one.

 

Any crossed securities for the loans?

Are you able to sell the trust properties and discharge the mortgages? Or do you require other funds to pay the loan off first?

You might be able to lend the trust money, then wind it up after all over and claim a capital loss.

Seek legal advice.

 

Agree. I'm more inclined to follow this approach.

 

I have one dud IP in 22 years of investing, I still hold it in the hope it will recover, it is worth 2002 prices. Just like exuberant buyers in booms think prices will never go down, despondent sellers in slumps think prices will never go up. Both are often wrong, maybe try to hold just one if you can.

Discretionary trusts.... a form of tax evasion still legal in Australia but not most other countries, does complicate things.

 

The 2 key questions for me would be:

• is your cashflow OK without selling and crystallising the losses on Gladstone?
• what are projections for Gladstone- I was just up in Mackay last few weeks and unless Adani mine gets approved (rightly or wrongly) can't see any light on the horizon

 

Firstly it's avoidance not evasion and secondly they have a hell of a lot of use beyond trying to save income tax