Significant debt on IP, do we wait it out or offload?

Hi All, new member and would be interested in peoples opinions on the best course of action moving forward - below is a summary of our situation:

Current situation

1 investment unit $180/w rent, $5600/yr body corporate, owe $167 000 (interest only)

1 investment house $220/w rent owe $294 000 (interest only)

1 investment house $240/w rent owe $275 000 (interest only)

Multiple other Lines of Credit (borrowed against above houses plus owner occupied), owe $350 000

Total debt $1.05M

Rough values of assets

Unit $170 000

*House 1 $280 000 (see * at end)

*House 2 $280 000 (see * at end)

Owner Occupied $500 000

Shares $ 20 000

Properties were purchased approx. 10 years ago, with 2 incomes before kids. Now we have 4 kids and 1 income.

The 2 houses are beside each other in Townsville on large blocks, with one on a corner block, with ability to subdivide off an extra 2 and possibly 3 lots from the rear of the 2 properties (ie total would be 2 houses plus 2 vacant lots or 2 houses plus 3 vacant lots). Very rough estimate cost would be around $150 000 to subdivide, with blocks worth $120 000 to $170 000.


Current difference between living expenses (ie, not including any investment costs) and salary is approx. $2150/month or $26 000/yr. IE – we have potential to ‘save’ $26 000/yr in our favour.

Current difference between rental income and loan repayment and ongoing investment costs of 2 houses is $22 000 – ie:, we need to find and extra $22k to cover the shortfall. We also have an additional $16 500 of interest/yr to pay other lines of credit.

So in summary, we are losing approx. $20 500/yr ($26k -$22k - $16.5k). This can be covered by other cash income from hobbies/odd jobs.

Our net position (ie, owing $1.05M) has remained for about the last 8 years.

If house prices go down and/or interest rates go up – we will be in serious trouble

If house prices go up, it makes things a lot easier, and could potentially offload properties (would have to be within 3-5 yrs) and be close to debt free on owner occupied.

If we were to sell both *houses (at 2 x $280k), we would be left with a debt of around $350 000, which could be put against our owner occupied. This leaves us P&I repayments of approx. $2300/month which is $150/month more than our current ‘savings’ – so achievable and pay off debt in 20 years.

If we were to sell both *houses plus unit (2 x $280k plus $170k), we would be left with a debt of around $230 000, which could be put against our owner occupied. This leaves us P&I repayments of approx. $1200/month which is $900/month less than our current ‘savings’ – so achievable and pay off debt in 17years, and allow some $$$ to save/invest elsewhere.


*In terms of sell price of the 2 houses, it is hard to judge – since the 2 properties have potential to subdivide, logic suggests selling together should be worth more than the sum of the 2 individual properties to the right buyer.

 

whats the expected growth like?

No point in keeping a property if it won't grow (unless some other potential)

There is an opportunity cost of holding on.

 

The unit is clearly the one you should cut first. Costs are rediculous.

 

Woah. That unit!!! You could maybe make an argument for the houses. But that unit needs to be gone. Yesterday!

Even if you owned that unit outright, you'd still be bleeding money.

 

5600 in body corporate fees !!! And its worth 170k !!

That undeperformers fired

 

Almost fell off my chair when I read 170k asset and $5,600 BC.

 

Welcome to Queensland.
Stamp Duty can be less than other states but depending on location we get hammered by rates, body corp and insurance.

Yep you need to play the hand you are dealt @unsure. Take a bath on the unit and get on with a plan to cope with P&I on the remaining ones. The houses have some development upside so I agree with others about which one to cull first. But doing nothing seems a poor option.

 

I'd consider selling the lot. Are you really going to subdivide?
Although I like the price range, it seems the rents are not high enough to make holding on worthwhile.

 

That unit, increadible. Have you missed one "0" (i.e., $1.7 mil value or $1,8k/w rent) or put one more "0" (i.e. $560/y body corp).
Otherwise, sell it yesterday please.

 

Throw in things like swimming pools and spas and the BC fees can easily get up around those numbers ,but the rent is quite low..
We looked at numerous apartments in NSW years ago and come across numerous BC fees around $500 a quarter with absolutely no amenities.

 

Well for me, I'd never buy an IP unit with that sorta BC fees. Never .

 

Dangerous game if you cant handle what you mentioned, you need to be able withstand that sort of scenario because you cant bank properties keep going up and rate stay the same.

Plan for 7% interest and properties drop 10-20% and hope for the best
you plan for such event but you hope it would never happen but if it does you got your base covered.

and like other mentioned 170K unit on 5600 BC that just ridiculous ..3.2% of the unit price gone to toilet each year, you want that sort of cost down to 1% or less on investment

 

Here comes the rate hike
Big four banks to hike home loan rates as funding costs soar: Citi

 

I agree with this.

Not advice but if I were you OP I'd consider selling and putting the money into something else (like shares), or into a smaller number of quality properties (quality over quantity). It sounds like you're just treading water right now, and if a downturn or interest rate rise would sink you, you need to reconsider your position.

 

Cut your losses get rid of them, the unit first, after 10 years their will enevitably be large maintenence bills coming, higher interest rates, higher council rates, dud tennants. You may find their is a year comming soon, where your expenses have gone up another 20k. You have little in the way of buffering.

 

Why would CIti be commenting on what other businesses may or may not do?

 

Drum up business for themselves by implying others are increasing rates, but they are not.

 

OP where are your properties? That may be a factor e.g. if we're talking regional, city etc.

 

If you lose your job, what's the plan?
At around 20k loss per year, that's 100k over five, 200k over ten years.
I would not want to be in that situation.
Then, if you add on paying P&I, well, you will be in trouble. Given IO is generally for only five years, with minimal chance of refinance, I would look to do something. You may want some professional advice regarding which place to sell first (if you decide to do so).