How to recover from this loss?

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

Join Australia's most dynamic and respected property investment community
  1. hammer

    hammer Well-Known Member

    Joined:
    28th Aug, 2015
    Posts:
    2,854
    Location:
    Darwin
    Heya, I reckon were getting close to the bottom now and selling would be madness. At least now the IP debt is producing income.

    Although the real estate has been pretty tough going up here, it's a different story with jobs.

    If I was in your position I'd roll tenaciously with the IP and work hard on increasing your income. Hitting 80k in this town is far easier than other parts of the country.
     
    Cmelderis and LoremIpsum like this.
  2. LoremIpsum

    LoremIpsum Active Member

    Joined:
    5th Jan, 2019
    Posts:
    42
    Location:
    Darwin
    Thanks @Rex It’s not uncommon to find this type of yield in Darwin. Neighbours at my PPOR achieves 6% also with their tenants.
     
  3. LoremIpsum

    LoremIpsum Active Member

    Joined:
    5th Jan, 2019
    Posts:
    42
    Location:
    Darwin
    Thanks @hammer exactly my thoughts on income in Darwin. I work as a PA to my boss. Looking to get into the NTG or an EA position. Great to see someone else on here from Darwin!
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    They probably would reduce the interest rate.
     
    LoremIpsum likes this.
  5. The Y-man

    The Y-man Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    13,436
    Location:
    Melbourne
    Some people spend more than that on seminars and "mentoring", and probably learn less that what you have learnt through this.

    The Y-man
     
  6. LoremIpsum

    LoremIpsum Active Member

    Joined:
    5th Jan, 2019
    Posts:
    42
    Location:
    Darwin
    Thank you @The Y-man makes it easier when the loss is viewed as a learning opportunity.
     
  7. AnDy62

    AnDy62 Active Member

    Joined:
    25th Jun, 2018
    Posts:
    43
    Location:
    Australia
    I guess you've learned a lesson about going heavily into one (relatively small/volatile) market.

    Agree that Darwin has already taken a fair haircut. It would be a disaster if you sold up and bought into a market which is entering into its own funk e.g. Sydney.

    I don't know enough about Darwin living on East Coast but if you're waiting for the next Ichthys you could be waiting a v long time. Hopefully there are other drivers of jobs up there in the meantime.

    1. Status quo
    2. Sell the IP (take the L) and consolidate your financial position.
    3. Sell the IP and buy elsewhere straight way (if funds allow).

    Up to you to evaluate the different options and pros/cons.

    Good luck.
     
    LoremIpsum likes this.
  8. Shazz@

    Shazz@ Well-Known Member

    Joined:
    24th Jun, 2018
    Posts:
    1,310
    Location:
    NSW
    I have multiple loans with CBA.
    IO IP loan variable- 4.79%
    IO IP loan fixed 2 years- 4.19%
    P&I IP loan variable- 4.3%
    P&I OO loan variable- 3.79%

    My total debt with CBA is > $1.1 mil. Easier to negotiate discounts with more debt, but ask a broker.
     
    LoremIpsum likes this.
  9. LoremIpsum

    LoremIpsum Active Member

    Joined:
    5th Jan, 2019
    Posts:
    42
    Location:
    Darwin
  10. Shogun

    Shogun Well-Known Member

    Joined:
    26th May, 2018
    Posts:
    2,856
    Location:
    Perth
    For someone in their 30's you are doing a lot better than many.
    At 6% the rent must nearly cover interest plus all the costs on the IP. So out of pocket cost to you is low. Just principle repayments?

    Maybe aim to pay off PPOR loan. Then start to salary sacrifice a little to your super.

    Lots of wealthy people have been bankrupt somewhere in there journey.
    I can see the logic for keeping the IP if out of pocket expenses are low.
    Bad investments don't always improve with time.
    Sometimes cutting your loses and starting again is best option.
    You are not missing out by not buying in Sydney or Melbourne. Nearly all posts on here suggest pain for years to come for those markets.
    I assume unless some other boom or event happens in Darwin then property prices will stay fairly flat long term.
    Long term. If you like living in Darwin. Could you live in IP and sell current PPOR?
     
    LoremIpsum likes this.
  11. Jana

    Jana Well-Known Member

    Joined:
    19th Apr, 2016
    Posts:
    458
    Location:
    Sydney

    How did you get this (P&I OO loan variable- 3.79%)? Did you negotiate with them over the phone? They offer for fixed, but variable still 3.95%.
     
  12. iloveqld

    iloveqld Well-Known Member

    Joined:
    11th Jan, 2017
    Posts:
    905
    Location:
    Brisbane
    Hi, just a quick note. Forget the yield percentage for now.

    With 445k at 4.8% costing you 21360.00
    Add on top of agent cost, council rate, insurance etc..


    For me, if my net Income can’t cover total Cost, I am thinking of selling (not advises, just personal thought) as this is where it is Negative Asset and No Capital Gain even in the near future. The earlier the better to say goodbye... If positive gain with no near future Capital gain, you can ask around and it is up to personal risk/investment strategy.
     
    ellejay, LoremIpsum and Beano like this.
  13. LoremIpsum

    LoremIpsum Active Member

    Joined:
    5th Jan, 2019
    Posts:
    42
    Location:
    Darwin
    @Shogun and @iloveqld appreciate the perspectives.

    Selling the PPOR and moving into the IP is also not an option for me as PPOR is my “dream home” :)

    The IP broke even for the first year and a half after I purchased it. Then the Darwin market went to crap in a way I could never have imagined... and here we are. So yes, I’ve learnt my lesson (well!) to do my sums to allow for a buffer in a downturn.

    @iloveqld your point is very valid.

    I’ve learnt so much from this thread alone. Thank you everyone for the insights.
     
    iloveqld likes this.
  14. Hwangers

    Hwangers Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    338
    Location:
    Sydney
    11% yield? Is this gross or net... if net - let's talk ;)
     
  15. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    3,345
    Location:
    Brisbane
    It seem's like residential investors talk in gross , commercial investors in net on PC.
    I only talk net yields!
    In fact in many properties I own (where the tenant pays the outgoings) I would not even know what the gross yield is ! :)
     
  16. LoremIpsum

    LoremIpsum Active Member

    Joined:
    5th Jan, 2019
    Posts:
    42
    Location:
    Darwin
    @Hwangers Yield (gross) is only 6%, not 11! I calculated wrong the first time.
     
  17. Shazz@

    Shazz@ Well-Known Member

    Joined:
    24th Jun, 2018
    Posts:
    1,310
    Location:
    NSW
    My relationship manager asked for an interest rate review when he did my last loan.
     
  18. iloveqld

    iloveqld Well-Known Member

    Joined:
    11th Jan, 2017
    Posts:
    905
    Location:
    Brisbane
    I am not sure if the way below is net or gross?

    The total cost is everything plus the captial which you can at least get 1.5% saving. Or if your ppor is under debt, it is that loan amount if you sell the IP and repay PPOR. Is it net yield when taking that into account not random 5-7% opportunity cost?
     
  19. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    3,345
    Location:
    Brisbane
    Net yield is the Net rental after all cost divided by the purchase cost
     
    iloveqld likes this.