Right area, wrong house

Discussion in 'Investment Strategy' started by Aj Mato, 26th Feb, 2020.

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  1. Aj Mato

    Aj Mato Member

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    I bought a bayside house close to the CBD in Melbourne. Unfortunately in hindsight I believe I bought the wrong house.
    It’s on the corner of two main roads and doesn’t have good parking. The house itself is fantastic though. Close to the beach, close to lots of amenities. I bought in mid 2017 so due to the downturn, my recent bank valuation came in at 150k lower than when I bought.
    ive never been in this predicament where I’ve
    bought and it’s dropped dramatically. Cash flow is not a problem, tenant is renting it and I can cover the repayments. I’m fairly confident that the value will come back but may take some time.

    My question is would you sell and seek other investments that will have a faster or more stable growth trend or just stick it out?
     
  2. Trainee

    Trainee Well-Known Member

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    Do you have this faster or more stable investment in mind?

    Maybe learn to read the cycles instead. Resi prop is too expensive cost wise to move in and out of.
     
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  3. Aj Mato

    Aj Mato Member

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    Yep true, thanks for the feedback
     
  4. Beano

    Beano Well-Known Member

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    I would not be concerned with a drop in the valuation.
    Although property generally goes up over a decade or so the road is seldom linear . They go down ,they sit for a long period , they shoot up.
    So long as they the cashflow is good and substainable hang on to it.
    Ps what is the net yield?
     
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  5. Aj Mato

    Aj Mato Member

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    Net yield is just over 2.5%. Not great I know. This area is more known for capital growth. In the run up from 2012 to 2017, YOY increase was circa 10%
     
  6. Trainee

    Trainee Well-Known Member

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    Would you buy this property now at its current market value?
     
  7. Aj Mato

    Aj Mato Member

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    Potentially yes. The hesitation is I would obviously prefer not being in a main road.
     
  8. The Y-man

    The Y-man Moderator Staff Member

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    Why did you need to value it?

    The Y-man
     
  9. The Y-man

    The Y-man Moderator Staff Member

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    Corner of 2 busy roads? Prime commercial proposition. :)

    The Y-man
     
  10. Aj Mato

    Aj Mato Member

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    Refinancing
     
  11. Chabs

    Chabs Well-Known Member

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    The math is simple, after factoring in 2.5% selling costs and the next opportunity having 5% purchasing. costs, is there another property you have in mind to change your investment to?

    Eg if it’s worth 1m, you see another property worth 1m, does that property have more than $75k upside? (25k+50k=75k)
     
  12. albanga

    albanga Well-Known Member

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    Corner block on a main rd near the beach.
    Sounds like a future gold mine to me.

    Some things to note;
    - Property investing is a marathon not a sprint. Don’t expect too make a mint in 3 years.
    - Bank Valuation’s are subjective. If you had 1 done then you have 1 opinion. For peace of mind have your broker run you a few more Val’s. You may be surprised to see the next one come in much closer to purchase price.
     
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  13. The Y-man

    The Y-man Moderator Staff Member

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    Although if refin/pull out equity is what the OP is wanting to do, then they are going to need a fair bit of growth on top of the purchase price.

    The Y-man
     
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  14. albanga

    albanga Well-Known Member

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    No doubt, but I read his post as considering offloading based upon the val.
    My post was more around peace of mind. Dont take 1 val as gospel and definitely dont base a selling decision on it.
     
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  15. The Y-man

    The Y-man Moderator Staff Member

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    Oh yeah - missed that in the original post.... but got thrown by the OP saying they wanted to refi in a later post

    The Y-man
     
  16. craigc

    craigc Well-Known Member

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    If that is your concern, add about 10%!to the bank val and you might be closer to a realistic market price from my experience.
    Check with a couple of local agents and do some research on what things are selling for, it could be very different to the bank valuation before you consider panic selling.
     
  17. croseks

    croseks Well-Known Member

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    Don't sweat it, anything Bayside is a win over the long term.

    Think of it like this, there was something about this property that got your attention in the first place, so obviously at one point you thought this was the best investment to make.

    The valuation is for bank purposes, they are looking to cover themselves as much as possible while trying to meet your goal equity as they want your business (if that was the purpose of refinancing). An RE agent would probably give you a much higher valuation (as he wants your business lol).

    In 5 years time, you will be sipping Mojito's and saying to yourself "if only I could buy any Bayside property now for the same amount" :)
     
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