Should my son hold or sell in Mount Gravatt East?

Discussion in 'Investment Strategy' started by wylie, 22nd Mar, 2017.

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  1. wylie

    wylie Moderator Staff Member

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    My son has a house at Mount Gravatt East that he is thinking of selling. He doesn't like having a $434k mortgage and feels like I've pushed him into this purchase. I did push him insofar as we used a deposit left by my late mother as deposit. I wanted him to use this windfall before prices rose out of his reach. He couldn't buy the same house now.

    This house costs him $10 per week to hold. As soon as the rent goes up by $10 it becomes neutral, and from then on it puts money in his pocket. The land value has just risen to $500k.

    With hindsight it was a big mistake, and I believe he wants to sell just so he can feel he owes us nothing.

    If he sells now, after fees, he is likely to come out with $20k to $30k cash. (This is because we would take back and keep the deposit until he reaches 25 as per my mother's wishes.)

    He paid $485k eighteen months ago, and latest desktop valuation was $534k.

    I'm at the end of my tether trying to make him see that he is giving away future growth just to not have to ever say he owes me anything because this was my idea.
     
  2. MTR

    MTR Material Girl

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    Well done for trying to help your son. He is very lucky but does not realise this yet.:)

    Someone told me that if you help your children financially, it can also backfire because it will be perceived as controlling, no idea? Do you think he feels this way?
     
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  3. Kassy

    Kassy Well-Known Member

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    Hi Wylie,

    My 2cents is that he should keep it. Mt Gravatt east is a good location. Close to the arterial and the freeway, close to Carindale, close to good schools. We have a house in Mansfield (ex ppr) and I noticed when Carindale went up, Mt Gravatt east would also go up. When Mt Gravatt went down, Mt Gravatt east would stay the same or even go up.

    $10 isn't even 2 coffees here in Canberra. Ask him to hold on for another year and see if he stil, wants to sell.

    Kassy
     
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  4. Agent30yrs.

    Agent30yrs. Well-Known Member

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    @MTR is right, he doesn't know how lucky he is. My real estate hat says hang on, There is plenty of growth to come out there and if it's wiping its own bum..... Can you get him to talk to an independent financial advisor so it's not coming from you ?
     
  5. wylie

    wylie Moderator Staff Member

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    Thanks all. He's just read these answers and it's made him more determined to sell.

    I've actually made a big mistake, but he will sell. When he sees he could have held on and made another $300k in a few years he may regret it. His bad...
     
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  6. bob shovel

    bob shovel Well-Known Member

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    Don't be a goose! Listen to your mum!!
     
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  7. Dan Donoghue

    Dan Donoghue Well-Known Member

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    Hi @wylie, if you take the deposit back until he is 25, what will you do with it? No matter what you do with it I bet it doesn't grow like it will in that property. It's hard to see these things when we are young but basically the short of it is that he can either have that amount when he is 25, or a larger amount when he is 25 because the property has appreciated which will be a great start for him.

    Obviously the choice is his but either way he doesn't get that money until 25 (except the 20 - 30 grand which will not really go very far in this day and age).

    to turn it around, why does he want to get rid of it? In debt to you sounds a bit off, he is your son, you want to give him every opportunity in life which I understand would be why you have helped him in this way.

    One thing no money is worth is family stress, if he insists it has to be this way, you don't really have a choice, none of us ever learn from our parents experience, only from our own and all you can do is be there to help him when he does decide it is his time to invest.
     
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  8. Rolo

    Rolo Well-Known Member

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    you learn from your mistakes i guess. when i was 23 i could either buy a unit in Sydney or move to London. spent 8 years there and came back with a small amount of cash and a wife. we got married, built a house in western sydney and now we own 3 investment properties. i never regretted my decision to move to London, it was the best decision i ever made. i understand where your son is coming from, i think its admirable. im the same - i never want to feel like i owe my parents money. i'm proud that my wife and i did it all ourselves. hindsight's great but its not everything.
     
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  9. Creamy

    Creamy Well-Known Member

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    As a mid 20's guy. To give another perspective. Perhaps he feels that it's tying him down to Brisbane, to a job and a commitment.

    Perhaps all he wants to do is take a couple of years off and travel? Having the stress of a property and tenants might not be worth it to him.

    I had those same thoughts a couple of years ago, however I came to the conclusion that having an IP anywhere in a capital city is actually a backup plan. I now have the freedom of working overseas or wherever and if I need a place to stay when I come back, I can always make the IP my home. If I have a family, I might not be able to afford to buy in MGE or similar in 10years, but I already have an IP there so it's a non issue.

    When away, tenants will largely take care of the rent. A property manager will take care of day to day issues.
     
  10. bob shovel

    bob shovel Well-Known Member

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    pick one: :)
    upload_2017-3-22_16-3-28.png
     
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  11. Rolo

    Rolo Well-Known Member

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    your own mistakes, not other peoples.
     
  12. magyar

    magyar Well-Known Member

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    I would tell him wait another 12 months. That area is going gang busters at the moment. Lucky to find a property under $600k. Friend of mine bought a 400m2 block for 450k , just about finished building and will be listing for 1.2m. I believe some if not all of that area is in the Mansfield High catchment Also which is a very reputable public school. Tell him he can have 60k in his pocket if he sells this time next year. Prime real estate in that area. It is one place that I spent a lot of time looking but unfortunately a little bit out of my price range. That's one area that will see some solid growth. You just need to look down the road to Carindale. What size is the block the house is on?
     
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  13. highlighter

    highlighter Well-Known Member

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    Tough one... I'd personally say hold.

    I am a pretty bearish guy being Irish, and will happily advise people to sell fringe suburban assets, apartments or assets in the bubbliest cities. But Brisbane is really not very bubbly and honestly I think it has Australia's best prospects for long term growth.

    Suppose the bubble does burst - suppose the worst of the worst case scenarios ever does happen: Brisbane doesn't have very far to fall. I am not going to sit here and say Brisbane wouldn't be caught up to some extent in any widespread downturn, but bubbles tend to correct to around the long term mean of the median multiple, and Brisbane isn't too far away from this - in fact it is one of our most affordable capitals. Add to this that Brisbane is a large, economically sound city, it's by the beach, has good infrastructure etc. If we see any significant market correction and buyers are turned off Sydney or Melbourne, Brisbane offers an extremely attractive prospect.

    In USA this was what happened in California (even LA which was one of the bubbliest cities, seeing a 50% correction during the GFC). Other major markets were mostly very overpriced, but most of California was in a milder bubble, so as a lot of ships went down, investors all jumped aboard the ship that seemed to be sinking least - this bouyed Californian markets. They bounced back very quickly and have all seen most of USA's house price growth since.

    Brisbane is at less risk of over-correcting than Melbourne or Sydney simply because it isn't as overpriced. Now - another thing is slower market growth. In Brisbane prices have not grown rapidly and so have also not priced buyers out of the market. There are fewer over-leveraged investors likely to bail in Brisbane, contained growth supports the argument it might not be in a bubble at all. This is a good thing for a long term investor. You don't want to be caught up with that tide of inexperienced investors. Rapid price rises are a risk - a real risk. If prices in Sydney can rise 20% a year they can sure as hell fall at a similar rate. Brisbane is unlikely to see that pace even in the worst case scenario, because it hasn't been targeted to the same extreme by noob investors looking for a quick buck.

    You also own one of the best forms of asset right now: a quality detached house in a good suburb, that is a golden asset, a safe harbour asset. Even if the market corrected, that asset type would likely remain in high demand. It's not some crappy fringe suburban house-and-land package on a postage stamp block an hour from the city. It's not a dog box apartment identical to thousands of other apartments. It's a house, the asset targeted primarily by owner-occupiers (people most likely to hang on for dear life). You won't be exposed to developer discounting. You won't be competing with a lot of impatient, inexperienced investors who'll baulk at the first price slide.

    Good quality houses will always be in demand. As long as you can easily service the mortgage, I say hell yes keep it. If a correction occurs you might see a drop but you will likely see a fast recovery and have great prospects for ongoing growth - perhaps excellent growth. If there's no correction on the near horizon even better! You're holding an asset that is steadily appreciating and bringing in good rent. You're almost neutral. I think he'd be nuts to let it go.

    I find a lot of young people right now are very gloomy on the property market right now, so it might help to acknowledge that fear if he has it (not necessarily saying he has). For the reasons above though, and from a guy who lived and invested in Ireland during the downturn, certain assets remain high quality assets even in a crash. He's getting great rental income - a recession would only drive this up (in Ireland by 2009 rents were spiking 5% per year or more because banks wouldn't lend). Honestly, absolute worst case, I see him possibly dipping into negative equity for five years, then seeing strong growth. Homes like your son's in Dublin, Cork, Galway - they are growing at 10-15% per annum now. No one I know who held a good quality detached house in a good suburb has not made their money back and then some. A good friend of mine easily stayed afloat during the worst with strong rent alone.

    The alternative is to sell now and possibly get back into the market if prices drop (if prices keep going up he may well be screwed). But he might find it incredibly hard to borrow, with banks already tightening their lending. He's not in a grossly overpriced city, risk is low, he can easily afford the payments. I think he just needs to be patient here. He should be in this for the long game. Not much you can do though if he insists.
     
    Last edited: 22nd Mar, 2017
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  14. KayTea

    KayTea Well-Known Member

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    I would think that this would be even more of a reason to hold - while a lot of other younger ones are lamenting the fact that they will never be able to get into the property market, he already has a 'win' under his belt. He's achieved what many others from his generation are likely not to be able to do, and that should giving him bragging rites with his mates.

    Years from now, he'll look back at having to spend a whole $10 per week on the place, and give himself a smack upside the head..........
     
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  15. vudu

    vudu Well-Known Member

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    I think the "telling" may be part of the problem. Is there a viable way of relieving him of the responsibility whilst maintaining the investment? Perhaps to be returned in the future?

    It may be more about self worth or some-such. It can be a difficult thing growing up and conversely raising children.
     
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  16. Big Will

    Big Will Well-Known Member

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    Simple maths - property cost him $10/week or $520 a year

    Property worth 500k & grows at 5% that is $25,000 gained, both of these numbers are conservative if you did 534k & 7% growth that is $37,380 and 10% would be $53,400.

    I would spend $520 a year to make $24,480 a year, I would do it 500x if I could (damn security and service calculations)

    I bought my first house at the age of 24 (2011) for 510k in Melbourne fast forward six years pretty much to the day and I had a bank val last year (May) for 750k, today the property is worth 850-900k (conservatively, houses do sell for over 1M in the suburb) but a bank will probably value it at 800k. So lets call it 300k I have earned in the 6 years this is a PPOR so no income but boy I wished I bought 2 back in 2011 (needed more deposit or I would of).

    I am turning 31 and yes I had to go without from 18-24 to save my deposit which seems like you son hasn't had to do it but maybe this is why I value money and understand the value of investing more (plus my mentor).

    Up to him what he wants to do, he can blow his money or stick with the property as the buying costs are stupid and same with selling costs. In five years time (or less) he might be looking at buying another one which I did and this time I bought in Brisbane.
     
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  17. Propertunity

    Propertunity Well-Known Member Premium Member

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    Hi @wylie. Most young men's brains do not reach maturity until 25 years old. Is there anyway to convince your son that your intentions are not to control but to help him financially? He (rightly) wants his independence from mummy but at how many $100Ks if he were to sell? Young man how about you hold until 25 when you can make a rational decision?
     
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  18. Bran

    Bran Well-Known Member

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    I'm disappointed that I didn't get an inside angle on this. I'd probably buy it ;)

    It's a no-brainer to me. He should keep it. It's worth more than 534k - you can't really buy anything in that street for less than 550 - not even mine anymore.

    Can he outsource the debt?

    What's he going to do with 20-30k, buy a Kia?

    Mt Gravatt East is golden. So accessible, and in the middle of its gentrification. Look at Mt Gravatt Marketta for example - people can walk there from his house.

    Why doesn't he get some bank vals done? Do some val shopping, show the gain, and he might want to keep it!
     
    Last edited: 22nd Mar, 2017
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  19. EN710

    EN710 Well-Known Member

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    If it's a good property I think he should keep it.

    The man can work and pay back the deposit but by but if that's what he need to feel better...
     
  20. KayTea

    KayTea Well-Known Member

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    Hey @wylie - A few of us PC Southside Brissie locals catch up at Stones Corner for a chat and a beverage on the odd occasion - maybe you could get him to join us. Hearing it from someone other than his parents may be all it takes?.........
     
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