Mortgage Prisoners with Negative Equity | 60 Minutes Australia

a lot of people say its not when you buy, but how long you hold,

but I think smarter investors will time it better too

eg not many investors on here buying right now ( i assume)

 

23 IPs at $300k each
14 Ips at $500k each
10 IPS at $700k

gutsy!

if the timing was right, theyd have millions in equity in a few years

 

They MAY have been in so called boom mining towns ,they have gone from champagne to ####..Inner Brisbane or several small beach-front pockets nth coast gold coast would be a whole different matter..

 

Its an interesting question.... being $50-$100 CF+ per week per property means being 2.6K - 5.2K CF+ per annum per property. Across 13 properties that's 33.8 K - 67.6K CF+

To drop to 11K CF- per month across the 13 properties is a HUGE change. Whats the reason for the change?

Those repayment increases are too large for IO to P&I after 5 years - unless you have 13 very expensive properties with very large loans on each - so my guess is that a lot of those loans are rolling out to P&I after 10 years of IO or there's been some other loss of income ? if you started buying in 2007 and have had a lot of loans roll to P&I that would certainly explain the massive repayment increases - and if you aren't able to refinance, your experience serves as a classic example of why I've said over and over. for the past several years .. whatever you buy...make sure you buy with holding costs in mind. Make sure it can run P&I - or pretty close to it....so it can service itself with either no contribution from you, or very little contribution from you. 1 or 2 or 3K per year per property is manageable..... but 13.6- 16.2K per property per annum just to hold onto it - and none of it is tax deductible because its all principle. Ouch.

It's also why Ive stated that the removal of IO quotas will only damage investors capacity further if they start being offered 10 year IO again.... because under todays assesment rules it ensures that when your IO periods mature, you are refinancing based on 20 years P&I . Ouch again.

Buy investment properties that can pay for themselves. Use P&I. Pay them off. Even if "conventional" wisdom says that using P&I is not the smart play. Even if your accountant says its not tax effective. Even if the pre APRA generation says to go for growth. Be smart. Understand the lending rules have changed . Forget speculative strategies with a P&I time bomb built in 5 or 10 years later. They are now incredibly dangerous .

 

could also incorporate vacancies,

very unlikely to have 13 props 100% occupied all the time

 

Anythings possible I guess, but I think it's unlikely any portfolio would suffer sufficient vacancies to be responsible for cash flow reductions of between 13.6-16.2K per property, per annum. If that had occurred, the loses would be deductible , so 32.5%, 37% or 45% could be negatively geared. Principal repayments cannot be claimed though ... which is why I think they are the more likely source of the huge change in holding costs.

I'm sure @GentleChief will fill us in....

RE vacancies- my portfolio includes 15 properties and it would average 2-3 weeks total vacancy across the entire portfolio per annum, over the last few years. If that. To be fair though, I have a lot of NRAS and Dual Occ so it provides the portfolio with fantastic cash flow and the NRAS also provides fantastic insulation against vacancies. One day, the NRAS will end and I wont have that competitive advantage anymore... but I have moved the majority of my debt to P&I already (well before I was required to) because when the game changed I could either resist it or accept it. I chose to accept it , forfeit the several years of IO I still had up my sleeve and get on with it, safe in the knowledge my portfolio was stacked with sufficient cash flow to afford it. Now, instead of rolling out of the NRAS years with no debt paid off, I will have paid down a decent chunk of the principle when that occurs - 20% or thereabouts- and my rents will also increase 20% at that time as they return to normal market levels .... Sure, it takes a good amount of the shine off what would have otherwise been 8-10K CF+ properties under IO conditions, and sets them back to @neutral - but the way I look at it , if I can run neutral or thereabouts and continue to pay down the debt, allowing the portfolio to return to CF+ territory over the next few years , while also assisting with restoring future capacity , all while never having to sell anything ( doesnt mean I wont - just means I wont HAVE to) and avoiding any chance of a P&I cliff putting my portfolio at risk - I say that makes my portfolio pretty damn safe for the near term and the medium term and the long term

 

Wise words

 

You can invest in property directly that is passive, some people buy houses and think they are investing in property but unless you want the building allowance write off and depreciation benefits, buying residential is often just buying houses .Residential is good for storing wealth in a tax efficient manner, and with the higher leverage it gives for diverse income and asset growth. If you don't want any of the negative things listed don't buy houses. I have property that is totally passive don't even have to increase the rent because it is indexed and leasee pays rates and maintanence.. Couldn't careless if property went down would be able to buy more, and be able to reduce my share holdings that have had large CG, leveraged of some property enabled from deleveraging with the sale of some property 5 years ago, when the coming lending restrictions became evident with FSL or whatever it was report that instructed APRA to act . Unless they are an expert most people would be better of letting the experts do it by investing in RFF and getting the 300% CG in the last 5 years and the 30% dividend on a 2014 investment even the net 5% on an investment now is better than most will achieve from residential.

 

If she lived there for 3 or more years she would have saved 60k in rent payments and be ahead after allowing for the first home owners grant. While it is sad, in reality she probably wont be much worse of and got a valuable lesson.

 

More like 23 IPs .. all purchases were in Logan LGA

Fairly automated process - all achieved with one broker and 2 buyers agents.

Definitely gutsy - I didn’t believe the guy until he one day asked me to check RP data valuations of his portfolio.

 

If he or she did that 5 years ago, then theyd be in the bahamas right now.

Still short term cashflow mightnt be good, but with subdued growth or no growth expected in the short term, its not a bad investment

 

Thanks for the kind and the not so kind comments

I am happy to answer any questions,
Available for a call to share the Investment journey.
This is the position as of 31st Jan 2019.

Australia (13 properties) - Minus 11,019
Atlanta - (16 properties) - Positive 13,240
Detroit (56 properties) - Positive 28,376

Most happy to share details with those who are interested over a call or a coffee (if you are in Sydney). I am available on Skype, Zoom etc if you're interstate or overseas..

Can deep dive into the spreadsheets and show exactly step by step how we took every step in this journey.

Monthly Rent collected - 83,790 AUD

Rule # 1 - Retiring from your Day job in Australia will take your Property portfolio into Negative territory.

After 23 years in Treasury & Banking software, I quit my day job in April 2018.
The Aussie portfolio went into Negative territory straight dive.
Depreciation benefits are no longer available.

Met with my CPA yesterday in Sydney Norwest to discuss options.
(Btw the CPA is the brother of a well known member of this forum who also happens to be a fellow US investor too) Options discussed include paying a salary in Australia from the US income. (being looked into)

 

... and others would say “silly investor with bleeding” .

To me, bleeding is fine as it will heal with time.

Haemorrhaging is a totally different matter; one doesn’t have time on their side .

 

Money talk?

 

Same for people who bought a few properties cant make enough in properties so start business in buyer agents, brokers and advisory etc..

 

I think everyone is over thinking it
from memory (ss forum) , gc was involved in moranbah or similar town

so.two properties there would of been renting for 3000 a week about 6 years ago
now might get 600 a week

 

if need be, declare bankruptcy? cut your losses? start fresh? learn a better way to make a living?

 

He’s explained it ; it’s not a mining town issue . He has stated that he doesn’t receive any salary in Australia any more since resigning from his full time Australian job, so has nothing to offset his Australian property expenses and depreciation against . He has also explained that he will need to repatriate some or all of his surplus US income to Australia in order to create an income stream here against which he can claim - something I would have thought should have started occurring immediately following his resignation here ... and something that’s going to answer some of the questions posed by me and others about how surplus US income from US properties is treated when repatriated here. The taxes already paid in the US will offset against what’s payable here - and the losses from his 13 properties will also be offset against the repatriated income , I would imagine .

 

Not if you have refundable tax offsets from the National Rental Afforability Scheme

 

I am not an expert but, to me, this is NOT a financial problem, this is NOT a negative equity problem, this is NOT a cashflow problem, this is NOT a property problem, ...

To me, this appears to be a planning (lack of) and structuring problem. Fairly simple to solve.

@GentleChief, if this is stressing you out too much, I am prepared to take the whole portfolio off your hands .

On reflection, nah. To me to have an additional 85 properties added to my portfolio is way, way too much work .

I have better ways to spend my spare time .