Mortgage Prisoners with Negative Equity | 60 Minutes Australia

Shocking, we were led to believe something different here in Australia.

Mortgage Prisoners with Negative Equity | 60 Minutes Australia

Housing and banking expert Martin North has criticized developers and the housing industry in Australia's main cities such as Sydney, Melbourne, for “throwing up” high-rise buildings at such alarmingly fast rates. Significant defects and safety concerns are imminent.

I am a mortgage prisoner myself on my 2 Qld properties with Negative Equity.

Trying to Sell. Minus 30% already. Never mind.

I have 13 Aussie properties which were bought between 2007-2011.

All were CF +ve on purchase. Not by much but like 50-100pwk. Thats why I bought in. Now I am bleeding $11,000 per month just to keep the mortgage payments on the 13 properties. After Rent. Yes, After rents. Before council and Insurance.

Thanks to my US properties which are bailing this situation out. Went into Atlanta in 2011 and Detroit in 2014. Accumulated with Cash. No mortgage. Rent is now Free Cash Flow.

Kind note - US properties are not for Passive Investors.

Haters, please have your dig, but at the end of month, true Cashflow statement should make one realize Real money is really made in Rent strategies by being Inventive and Bold, not by Negative CF strategy or the $75 pwk positive CF strategies "after Depreciation", that were ingrained into many Aussies in the 2000s

 

Where are your Aussie properties located?

 

How can you have been CF+ when you purchased and now bleeding 11,000 per month?

Given you bought all your properties prior to 2011 and now interest rates are much lower, how did you get into that situation?

I assume IO conversion to P+I and you bought apartments with big drops in rent??

Not having a dig, just can’t understand how you went from cashflow positive to bleeding 11,000 per month

 

Sounds like Gladstone and similar high risk stuff.

 

I am a bit confused by this statement as another PC member who I understand has 25 properties with some in the US properties said this (in another thread titled "Property Values"):

My personal view is that property investment in Australia (and more so overseas) is not a passive investment (in spite of what the "experts" say) because:

1. One has to approve tenant applications.
2. One has to approve rent reviews.
3. One has to approve rent increases.
4. One has to approve rent decreases.
5. One has to review and approve maintenance requests.
6. One has review and pay land tax invoice.
7. One has to review and pay building insurance, landlord insurance, etc.
8. One has to pay rates.
9. One has to attend BC meetings.
10. One has to do any bookwork.
11. ...

I am with you - that is not my definition of passive investment. Share investment is more my idea of a passive investment.

@GentleChief, for my education as I don't have properties in the US, can you elaborate on your statement quoted above?

 

Sounds like Gentle Chief, like 60 minutes doesn't know what equity is. Just sensational scaremongering nonsense to improve ratings and profit. The lady they used in the story didn't even have negative equity. She put a 140 K deposit on a 600k house meaning she must have owed 460k. She sold or could sell the house 550K. The house is worth more than she owes. That is positive equity. Sounds like she didn't want to give up her smashed avocado or make an effort to increase her income. They say almost 10% of people have negative equity ! maybe 8%, So that must mean almost 100% have positive equity, but almost 10% sounds better for their story line.

 

News stories always drum up for a little suspense and action
but you don't need a big number to cause issues in the market or confident

8-9% unemployment will bring a lot of problems and 15-20% your country is up the creek
but 80-90% of the people still employed right?

These things has ripple affect once it hit the 10% mark it trickle down to other part of the economy, service, retails, employment in that sector and everything else links with it.

I think the 60 minutes program mentioned she lost money but not negative equity
which is the same thing if she didn't put in 20% deposit like a lot of other people.

put in 5%-10% get negative equity or put in 20% and you lose money, either way you lose money and its 110% loan not long ago for many people, FOMO has no limit

US mortgage and banks collapse in 2008 those business doesn't even make up 10% of the US economy but the shock wave and confident ripple

 

If this is dig at Aussie property and a promotion of US properties....you are missing a couple of facts:

1. Australia has more than 2 markets - Sydney and Melbourne.
2. Evidence is showing that Brisbane and Adelaide are now moving
3. The Australian property market is much more stable than the US market
4. Now that the Royal Commission is over...things will normalize. I feel that things around finance will loosen through some of the core things around affordability and customer due diligence will stay.
5. The US market is actually slowing.....
6. The US market is much more volatile...it too has cycles....some places have been growing since 2012. So at some point it will correct also.
7. The quality of property management in the US is hit and miss. If you don't like a property manager...it may be a challenge to change.
8. The profits on the US properties are chump change compared to how much Australian properties go up when they change.
9. As always the fundamentals rule...if the return is high the Asset quality as not as good.

Something to think about.

I for one.....have over $500k in rents and over $100k positive income in Australia...even today. Even then I plan to sell down...managing 30 properties in Australia is pain. Imagine having to do that for US properties........

 

If mortgage repayments are $11,000 per month after rent, then I would guess that they must be around $30,000 pm before rent (assuming monthly rent is $350 x 13 x 52 /12 = $19,000 approx.) or $360,000 per year.

Assuming IO and at rates of say 4.5%, this would equate to a total loan portfolio of $8M. Assuming 80% LVR, the 13 properties would total $10M or an average of $770K per property. That seems a bit high for 2007 to 2011.

This "back-of-a-cigarette-box" calculations is not making a lot of sense to me. I am not sure that IO2PI is the issue, may be it is.

@GentleChief , can you provide more detail of the real numbers so we can get our head around your situation (so we can all learn from it)?

 

Yeah, Australia is no good, other property markets OS are much better, and you have no worries about currency or govt rules changing or distance......and none of the other pesty management problems, Trump had rid the country of that due to his property expertise

I am not too worried about distance, but I still prefer places within half a days travel time & at moderate cost. Without the currency and govt rules changes - I get that currency has worked in favor for the last while, but that can change too. And there are other ways to do that if you wish to gamble on that aspect.

Wonder if anyone could find any horror stories from the US where there was mortgage prisoners ? lol.....ask Freddie Mack ?

I doubt any serious people on this forum would pay any attention to these sensationalist shows, they are an insult to ones intelligence for the most part is my experience.

 

I'm surprised Martin North went back on 60Minutes after he appeared to be so unhappy about how they twisted his last interview.

 

It would be quite easy to wind up in negative equity these days after building several new properties in mining towns or tropical resorts at 105% finance. My question would be "Why weren't they sold before they dropped 30%?"

I can imagine the answer to that question - shear unbelief that property prices could go down after the spruikers said this was a fantastic deal.

 

If the US properties are offsetting the negative cash flow of the Oz properties, how are your living expenses, mortgage, flights back and forth to US etc covered? Is that via excess rents as well?

 

Rubbish. Can't resist looking at Commsec multiple times a day to see how the share prices are faring

 

You jumped in & bought 13 properties that were new or near new, and your cashflow positive figure was due to Depreciation? Is that right? Or was it mining towns? Or maybe a combination of both? If that is the case, then they were not at all true cashflow positive properties. Depreciation can only be claimed against your Aussie income, and can be great at reducing the tax payable on a high income, but loose that income & it's not very valuable at all.

If I'm not mistaken, the rents have probably cooled because the properties are not shiny & new any more, you've probably now been switched to P&I AND your Aussie income reduced because you are now playing in the US, so can't claim the depreciation.

All this could have been foreseen. It's not the fault of the Australian market and it does not make US property a better investment vehicle, especially in Detroit of all places.

I took a good look at what you were offering from the Detroit properties, & the cashflow was not at all stellar. I'd hazard a guess, much more risky than your Aussie stock which you are now admitting that you got so wrong.

I am also a cashflow investor, but you have to manage your investments. You can't just jump in & say "Hey, this property will give me $50pw, so I'll buy it". You need to assess how stable that $50pw is. What are the risk factors, and how can I make sure that $50 grows, and doesn't disappear overnight, or worse still, become a loss. To me the risk of my $50 becoming a loss is MUCH, MUCH greater in Detroit than it is in Australia.

 

Bit like you, I jump onto ShareSight .

But I always look for the positive in things. For me, logging into SS is better than sex as I can do it (i.e. log on) multiple times a day and, at the moment, I am always happy with my performance .

 

Not a fan of 60 minutes...... however......

Not a complete disaster, she only lost $80k with stamps.

She could not afford to keep the property was my understanding, yet she had significant ???deposit

 

I am also thinking erosion of cashflow due to lending changes.

Not many will come on a forum and fess up to this, but clearly its already happening

Not sure how many will feel the pain when their loans revert from interest only to I@P ..... but that is 40% increase on mortgage, compounded dependent on number of properties an investor holds

This is big

 

Now I want to know how her real estate agent sold it to some poor unsuspecting sucker for so much more than the local agents assessed it at.