Should I sell? Bought at Peak and it's now worth alot less than purchased price.

Hi All

First post here. I'm from WA and have been reading on and off for a couple of days now especially the "Post your worst price dropped ip" post. But now I'm hoping to hear some advice or comment for people who might be able to share their "word of wisdom"

We have 3 houses between myself and wife. 2x houses in the same suburb and 1x house in next door suburb. Over the last few years, the suburb has been developed like crazy due to the rezoning and high demand due to its infrastructure and proximity to CBD. However, the property market in the area has been so bad compared to other suburbs when mining/resource industry is down.

Investment Property 1 - villas
Bought in 2014 for $430k.
Currently valued at $370K by the bank.
Similar houses sit near by are marketed/currently selling price is from $320k and above
Rental income at it's peak = $420/week
Current income = $320/week
Mortgage repayment/month = $1800+/mth
Out of pocket/month = Approx $600+/- without counting the expenses involved.
*Assuming I've sold it at $360k. That's $70k gone in a simple calculation.

Investment Property 2 - villas
Bought in 2010 for $380k.
Valued by the bank at $460k in 2016. (which was a bit of surprise when we refinancing this property to get Property 3).
Recently one of the villas was sold for $353k.
Rental income = $320/week
*Assuming I've sold it at $360k. That's $20k gone in a simple calculation.

Property 3 - house (we are living in it now)
Bought in 2016 for $525k

Property 2 and 3 are under one finance package.
Total Repayment/month = $2500
Rental income from Property 2 = $320/week
Out of pocket/mth = $1220 +/- without counting the expenses involved.

Total out of pocket/month = $1800 +/- without counting the expenses incurred by these properties such as insurances, fees including council, strata, and management.

Why did we buy?
Our original intent is to buy and keep for my children as we are worried that Perth will become the next Sydney and Melbourne. Imagine if your children can't afford a house when they grow up and the stress they will endure. At least we can sell our house to them at "family price" and we can use the money as our retirement fund.

It was also tempting at the time as the rental income was almost enough to cover the mortgage repayment. Hence the "why not" purchase behavior.

Why are we feeling nervous?
However, I'm having a second thought about this as we are barely saving any money from our total income and been feeling nervous about this due to:
- Property maintenance. What happens if we need to fork out big money for renovation and etc.
- Property value decreasing further.
- What happens if one of us lose our job?
- We have 1.5 years old son. Wanted to raise him in the best environment possible. What happens if we have a second or third baby?
- What happens if there is an emergency within the family that requires money to settle? Eg Sickness and etc.

What should I do?
- Keep continuing paying the mortgage? And see it as our saving? My own dad told me this. I still don't see how it can be your saving if your property value keeps going down.
- There are some signs of the mining boom recently. Finger cross and hope for the best? Then maybe sell?
- Should I sell all investment properties? Then go on and live a simple life.
- Should I sell all investment properties? Get a new loan and reinvest in an old property with big land that is ready for subdivision in the future. Keep it for the children?
- Should I sell all investment properties? Buy a bigger house in a good location (eg near beach and etc) and enjoy in the future? Keep property as an investment property?
- Is there a financial advisor/accountant specialize in property that can give us advice on how to manage our money better?

Or Am I worrying too much?

Apologise if my post is overloaded with information. Really appreciate and thanks in advance for those who take times to read and willing to provide some insights.

 

Sorry can you please elaborate more?

If I can sell at my estimated price... I believe it should clear off all my owing and ignore all the contribution/effort that I have done in the past. But i did not consider the agent fees and such. So i might need to sell at higher $$$.

Again... I'm not entirely sure what you mean when you're asking "If I can actually sell and get out?"

 

I am assuming all the properties are in Perth which I know little about however I would go with 'hold' if possibile.

Reason being is according to HTW property clock you Perth is at the bottom of the market - use this with a grain of salt.

If mining picks up more you would think Perth will shine again.

For a bit more of a short term pain I think it would be a long term gain - however is it this year (doubt it) is it within 2 years (maybe), 3-5 years possibly, 5-10 years you would have to think so.

If money is really tight and the PPOR is a good rental property you could do rentinvesting if palatable - as the interest would then be deductible - seek expert advice.

 

Here is the HTW property clock mentioned.

 

Agreed.

@bigwalker Its a good opportunity to learn from the situation and help educate yourself against making a similar mistake in the future. For example - how well do you know the market currently?

From your descriptions so far, it sounds like you bought one of those dime-a-dozen villas that sprung up in a suburb full of villas - they were always going to sub-par compared to other options moving forward.

If you know the market sell, you should be able to accurately assess the sale price and also growth (or negative growth!) prospects of your properties compared to other options (such as just cashing out).

What does your research tell you?

 

Thanks Big Will. Our current finance situation is considering okay i guess. But better be prepared rather than sorry later.

" Holding it" is definitely an option at the moment as we still can afford the "out of pocket" expense at this stage.

When you've mentioned "expert advice", who can I reach out to? Would like to reach out and let someone to assess our current financial state.

 

I see this a bit when families try to setup their children, absolute best way to do that is to put yourself in the best financial position.

Do you have personal insurance (income protection, life, TPD, trauma)?

Are you currently struggling to make your financial commitments?

Do you believe Perth is going to get worse or improve?

 

If your original goal was to buy properties to help your kids out (presumably in 10-20 years time), what's actually changed?

* Are those houses will likely be worth quite a bit more than you paid now over that time frame?
* Can you afford to hold them?
* Would selling now and taking the lose give you the opportunity to make better decisions?
* Given other markets in the country have reached a peak, would you actually make better decisions?

 

Yes you are right the suburb is full of villas and in fact, I could see some apartments as well starting from last 12-24 months ago.

I haven't done much of research but I do keep on eyeing the market at other suburbs and comparing to mine. Here what I've realised:

- House is always better than units/villas. As they tend to have a better chance at appreciating.
- Land with subdivision opportunity is always in demand.
- The rise of apartments in my suburb, it will probably cause the market in the area worst off. But i'm still can't understand why developer willing to build apartments at this time of the market? If there is demand, then why the price dropped? Do they think there will be a surge in demand in the area?

 

Someone with accreditation is the only person who can give advice.

Otherwise you might get ideas/opinions from mortgage brokers, accountants, mentors/forums or go find a financial planner - we use all these plus we discuss things together (as I am sure you guys do aswell).

 

No I don't have personal insurance but I am starting to look at it right now. But they are not cheap. And again is it worth getting one?

My wife and myself are not struggling to make financial commitments. It's just that we don't save as much as I would have thought and wanting to prepare now for the worst. Just in case. As mentioned earlier, it would be anything from property maintenance to sickness in the family.

I believe Perth will improve but:
- when will that be?
- would we see the same peak as what has happened during its glorious day?
- is it worthwhile for me to keep doing this or should change my strategy? Who should i reach out to for advice?

 

Theres little information here. Its just fear that perth will stay down.

Only question is do you think perth will go up long term? Or is there somewhere you can make better returns?

Also review your entire mindset. Your buying process was fear of missing out with property selection = shiny. You want to do this properly, you need some idea of what you want.

 

Thanks for the advice. Would start with my accountant who I will see to do my end of financial year stuff...

I was being told that financial planner only work with people who owns business and stuff. Am I right? Sorry didn't really do too much research on this as I wasn't care about it too much until recently.

 

I think a few investors are waiting and looking at Perth to see if it has bottomed out .
Are the locations good? Will the suburbs preform well are the they Owenr occupier friendly.

Seeing you purchased next door I say answer would be yes.

Can anything be improved in villas to get a bit more rent. Small update or tidy or paint.....?

 

Q1 = This is my worry as well. I am not entirely sure. To be honest, I don't think it will. I've been talking to some elders and they have never seen this happens before. Assuming this is the first time such a boom happened in WA, this could become the ceiling that people will use as a reference.

Q2 = Yes for now assuming our situations stays the same until we pay off everything.

Q3. = Most probably. However I think I would concentrate on buying land with subdivision potentials.

Q4. = Not sure about this. Are you referrring to investing in other stat

 

@bigwalker my first two points are asking if you can hold the properties until the market turns and they're profitable. The second two questions are about the opportunity costs of holding. Does selling give you the opportunity to do something more useful than holding them?

I really don't have answers, but these are questions you need to consider before making a decision.

 

You haven't mentioned whether you're paying interest only or principal & interest on your loans (it may not be possible to refinance to IO if serviceablity is tight or values have dropped etc) but it may reduce your repayments.

You say that you're not able to 'save' much, in which sense of the word? Is it you're not seeing your savings bank account/offset account appreciate or in the sense of your tax being reduced (saving of taxable income) or that the balance isn't reducing?

 

I would say the location is very good. 15 mins drive from CBD. 10 mins from the cafe/restaurant strips. 10-15 minutes walk to the train. 5 minutes drive to the "soon to be" biggest shopping mall in WA.

But my doubt is there are too many properties including recent apartments, lots of options/competition in the rental market and yet the value is going down like crazy compare to other suburbs which is further away from CBD and lacking of public transport

 

Can I ask what suburbs in Perth? I am from Perth.
Developers went hard in certain suburbs in 2012/13 and there is certainly a glut of cookie cutter villas, not too mention oversupply of apartments.

Shame you can not offset losses with profits, that's life.

At the moment what I am seeing in Perth is oversupply and all markets are price sensitive IMO.

However in desirable locations ie inner city, houses are flying out the door at the entry level point. This market has not where it was in 2007 when the Perth market crashed.

My point is if you are looking at upgrading primary residence you could not pick a better time IMO and timing is everything.

Perhaps Identify suburbs that you want to move to and find out what is happening ie volume, days on market, sales price, who is buying etc. You may be able to claw back your losses this way, however it will take courage to take a hit today.

Holding property today that is costing you $ is not my idea of fun, also need to consider the risk, interest rates are on the way up how will this impact on your bottom line.

When will this market recover ? No one knows, its all guess work and predictions that are meaningless unless we see jobs and economy improving. Small mining projects will not replace a mining boom, we need more than this. WA has worst economy in Australia, don't mean to be negative, but the reality is unless this improves which could take years we will not see a boom. On top of this we are also facing a credit squeeze.

I wish you all the best whatever way you decide to go.... justMy 20c worth

MTR