How to recover from this loss?

Discussion in 'Investment Strategy' started by LoremIpsum, 5th Jan, 2019.

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  1. LoremIpsum

    LoremIpsum Active Member

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    I purchased my PPOR in Darwin 11 years ago in my early 20s, a small 2 bedder in a low rise which is now almost mortgage free.

    In 2015, I purchased an investment property in the Darwin region of Palmerston (with a separate deposit), in the mid $550Ks. I went in with no real knowledge of real estate or property cycles in general, and clearly paid, with $100-$150K wiped off the property’s value since in the current downturn.

    I’ve since learnt my lessons well - to never purchase at the top of a cycle, and to always research! Many of us in Darwin have fared much worse, but nonetheless, not a day goes by where I don’t wish I could turn back time and have just not gone through with the purchase.

    I still owe $445K on the investment property, at an interest rate of 4.8%. Fortunately the property’s been fairly consistently tenanted since day 1, and the rental yield’s been excellent (currently around 11%).

    I’m in my 30s and make $65K a year, which I spend mainly on maintaining the 2 properties. Cash in my bank account (which offsets the investment property) at the moment is minimal. Super is also not great, being a low income earner.

    Right now I’m putting the little spare cash I have into the offset account to save interest where I can. In the next few years, I hope to push my income up to $75k through changing jobs when an opportunity comes up.

    Any thoughts on short and long term financial strategies moving forward into my late 30s and beyond?

    Many thanks!
     
  2. datto

    datto Well-Known Member

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    If it was me I'd hold and wait.

    And don't worry, you're not alone, there are investors all over the country, well in Sydney anyway, that are down 150K. Things will change. Also, picking the top or bottom of a cycle is like picking winning lotto numbers.
     
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  3. Beano

    Beano Well-Known Member

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    I would not worry about it too
    It looks like you are getting a good "net yield" (perhaps 9pc ????) So maybe half of your net rental is " profit".
     
  4. Darwin55

    Darwin55 Well-Known Member

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    I’m in the same position with my place in Palmerston.

    Releasing all the land around Bellemack, Zuccoli, etc killed us.
     
  5. kierank

    kierank Well-Known Member

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    @LoremIpsum, I know how you feel.

    Way back in 1992 (yep, 27 years ago), we had no idea what we were doing and bought our first IP for $125,000. Even rented it to a family friend :eek:.

    Eight years later, we had it appraised and it came back at the same price we paid for it :eek:. We were so, so disappointed.

    We went to our accountant who told us we had bought “a lemon”. He said to sell the dud. We were a bit hurt because it was always rented (in fact to the same tenant). It wasn’t costing us much to hold it.

    Lucky for us we were very, very busy in our business and never got time to sell it.

    Roll forward another 21 years.

    Still own the property. Still rented (with very low vacancy rate). Now cashflow positive as loan has been paid off. Now appraised at $650,000.

    The only change we made was to sack that accountant and find one who was property-savvy and in tune with our wealth creation journey ;).

    Not advice.
     
  6. ellejay

    ellejay Well-Known Member

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    I agree with the others .Assuming you bought as a long term hold the value will go down, sideways and up at various times but you'll still come out way ahead of where you would have been if you hadn't bought .Plus you've learned some lessons first hand.
     
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  7. Scott No Mates

    Scott No Mates Well-Known Member

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    Isn't that just below the national average? ie a little bit low?

    Tried for a lower rate?
     
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  8. KittyCat

    KittyCat Well-Known Member

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    I'd hold and wait in another 15 years things could be very different and if you can maintain an 11% return well I'd be very happy with that! It's only a loss if you sell at a loss.
     
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  9. willair

    willair Well-Known Member Premium Member

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    Quote..
    I still owe $445K on the investment property, at an interest rate of 4.8%. Fortunately the property’s been fairly consistently tenanted since day 1, and the rental yield’s been excellent (currently around 11%).

    That's the only problem with investing for most investors under 40 they have only seen it one way over the past 25 years..

    I think you have done quite well,single --2 properties --and all it is a paper-loss of value nothing at all to worry about ..That where you start learn not to worry about the numbers on your investment's,they will change many times in your investment life..You may not know it but you may already have that mindset as you are not looking to blame someone for the bump in the road failure..
     
  10. mikey7

    mikey7 Well-Known Member

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    Don't be put off too much. As long as you're still earning from it (your high yield), you'll be fine.

    I try not to look at the online valuation of my PPOR lately with the downturn of Sydney. I remember RE.com saying $1.45M at the peak, and now it says $1.22M. So you're not alone. Difference is, mine isn't earning me rent (and is still $400k up from purchase price), whereas yours is giving you extra $ each week.

    P.S. Based on your name.. are you a website builder?
     
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  11. LoremIpsum

    LoremIpsum Active Member

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    Darwin
    Thanks everyone for the thoughts and suggestions - appreciate it heaps.

    I have to confess... rental yield is actually 6%, NOT 11!!! Just realised I’d forgotten to times the weekly rent by 52 weeks when I first did the maths!

    I’m glad you’re all of the view that the IP isn’t as much of a lost cause as I thought. Having said that, the market dynamics of Darwin differ from that of larger cities as the Darwin economy is cyclical and dependant on major mining projects. Given we have none on the horizon at the moment, we can only speculate on how deep this trough will be, or when (if ever) the market will ever achieve the levels of the mid 2010s again.

    Also having my money tied up in that IP means I don’t have the cash to take advantage of the current opportunities in Syd/Melb which is where I’d like to diversify into next.
     
  12. Scott No Mates

    Scott No Mates Well-Known Member

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    On an average salary, and 2 properties under your belt, you may struggle to get another loan let alone enough for one in Syd or Melb (outer suburbs). Serviceability is a big issue with APRA.
     
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  13. LoremIpsum

    LoremIpsum Active Member

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    @Darwin55, great to see another Territorian on here! Yeah I’ve learnt my lesson to never buy in areas where land is still being released. Having said that, Zuccoli is a different kettle of fish to the more established Palmerston suburbs.

    @mikey7, if at the end of your loan term you’ll own a property worth $1m, you’ve done well. And no, I’m not a website builder (but I do know what these words mean! :) )
     
  14. LoremIpsum

    LoremIpsum Active Member

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    @Scott No Mates Yes this is exactly what I meant... if I hadn’t brought the IP to begin with, then I’d have the funds now to invest in Syd/Melb.
     
  15. LoremIpsum

    LoremIpsum Active Member

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    Does anyone have any thoughts on whether CBA would agree to a lower rate (than my current 4.8%) given I’m in negative equity by $30k and with only $15k in the offset?
     
  16. Scott No Mates

    Scott No Mates Well-Known Member

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    You have to consider your options:
    1. Cut and run - you'll be facing a new mortgage, same or greater than the existing but with a much lower return, transaction costs for the sale, stamp duty for purchase & legals
    2. Focus on a debt reduction strategy using the income to pay down (offset) balances & buy when opportunities present. This way you don't lose the high income earning assets but can use the income.
     
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  17. LoremIpsum

    LoremIpsum Active Member

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    Thanks @Scott No Mates

    Sticking with #2 right now and trying to keep a long term view. (Also I did the initial sums wrong - the IP returns only 6%, not 11!!)
     
  18. mikey7

    mikey7 Well-Known Member

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    Maybe have a chat with one of the brokers on here. They're all switched on and investment orientated.
     
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  19. babyboomer1

    babyboomer1 Well-Known Member

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    blue mountains
    Why don't you contact bank after going online to find a better rate and see if they will give you a lower rate as it seems high
     
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  20. Rex

    Rex Well-Known Member

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    IMO Darwin is closer to the bottom of its cycle than Sydney or Melbourne and probably has more medium-term upside at this point in time. Plus you will struggle to find something with a 6% yield in those markets.
    Since the property is not costing you money on a day to day basis it probably makes sense to keep it and ride it out for now, as opposed to buying something in Sydney or Melbourne which st this point in the cycle probably won't see good growth for many years.
     
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