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What would you do in this situation?

Discussion in 'General Property Chat' started by jaybean, 21st Jan, 2016.

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  1. jaybean

    jaybean Well-Known Member

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    In this scenario imagine the following three things are true:

    1) You have a property that isn't going to grow, but you're pretty confident it's not going to drop either. It'll probably go up slowly with inflation but you don't expect anything more or less in the next 5+ years.

    2) You maxed out your borrowing pre-APRA, so even if you sold it, you wouldn't be able to "redeploy" the money elsewhere. You have no ability to swap it out with a better performing one.

    3) You don't intend to really do anything in the next 5 years. No new purchases or refinances. You have all your other loans refinanced for IO so you're good for 5 years.

    Would you sell the property? I'm in this situation now. I have a beautiful warehouse style apartment in Melbourne CBD. It has 3+ metre ceilings, double the size of most modern built apartments. But because of the massive oversupply in Melbourne I don't expect it will do anything in the short to medium term. But on the other hand, I maxed myself out before all this APRA stuff so even if I sold it, I wouldn't be able to redeploy the money. Since all my other loans have been recently refinanced for IO, I have a good 4-5 years before this becomes dead weight to me. The risk is 5 years from now the market takes a drastic turn for the worse, in which I may find it difficult to refinance. On the other hand, you'd think rental increases on all my other properties would help shore up my borrowing capacity.

    What are your thoughts? My plan right now is to stay put. But I'm just wanting to make sure I haven't missed anything.
     
    Last edited: 21st Jan, 2016
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  2. Perthguy

    Perthguy Well-Known Member

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    Personally I would keep it. It's not your run of the mill, cookie cutter apartment. If you sold it now and decided to buy something similar in 5 years time, how possible would that be?
     
    Last edited: 21st Jan, 2016
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  3. MsAli

    MsAli Well-Known Member Premium Member

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    @jaybean - what's the current cashflow for the property?
    What has been the capital growth since you purchased?
     
  4. MsAli

    MsAli Well-Known Member Premium Member

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    True, there are selling costs and then buying costs...

    Also depends if selling means parking funds in offset elsewhere for better use
     
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  5. jaybean

    jaybean Well-Known Member

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    Well, as I said I expect it to go up with inflation *at best*, so to answer your question - I think 5 years from now I will be able to pick it up for roughly the same price. That's the crux of this question - if you don't expect any growth, why keep it? Generally the answer would be simple...but since I have no options to "redeploy" the money, it makes it more interesting...
     
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  6. jaybean

    jaybean Well-Known Member

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    Zero CG. Bought it 3 years ago.

    As for cashflow, it's pretty good. Yield is 6% if you don't include the equity in it (the initial 20% deposit).
     
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  7. Perthguy

    Perthguy Well-Known Member

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    Sorry, I meant to say that it's not your average, run of the mill, cookie cutter apartment. I have been looking at Melbourne apartments and have not seen anything like that for sale. Perhaps if you tried to buy in 5 years time, no one would be selling anything like this? I'm not sure how unique it is but most of the apartments I have seen in the CBD area have been very boring.
     
  8. JDP1

    JDP1 Well-Known Member

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    If you dont need the money, take a longer term view. The fundamentals of cbd melb are strong with large pop growth expected. When the current and near future supply gets absorbed (maybe even 5 -7 years time) you will see stronh growth. In addition, the wharehouse style will generally be more desirable because of larger size and lower bc than the new units on the market. This is a differentiator vs new stuff. This has also been the case in other cities with similar market behaviour eg sydney.
     
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  9. jaybean

    jaybean Well-Known Member

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    You could be right about them not being for sale. The good thing is the building has an unusually high number of owner occupiers. I think it only has like 70-something apartments in it, and what's surprising is they are tightly held. I've looked back at the history and over the last 5-8 years, only 2-3 get sold each year, at most. In fact in the last 3 years I think I've only seen 2-3 of them get put up for sale. I check Realestate.com.au daily and barely any of them go up for rent either...maybe a few times a year. I talked to one of the other owners there and she said they all take great pride in the building. That's the reason I fell in love with it in the first place. It's not your standard mega-skyrise you see going up everywhere. It still astounds me when I hear that these new buildings can fit 300-500 apartments or something. I can't even fathom that.
     
  10. jaybean

    jaybean Well-Known Member

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    Yeah. It's painful though, because if I could move this money to Brisbane I could be looking at faster growth. But it is what it is I guess. No one could have predicted APRA would come down so hard and so fast.
     
  11. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    I would keep it. I like properties with a unique factor.... ;)
     
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  12. JDP1

    JDP1 Well-Known Member

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    That is one ofbthe drqwbacks with illiquid assets such as property - cant move that easilly and cheaply depending on changing market conditions.
     
  13. BigKahuna

    BigKahuna Well-Known Member

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    " I have a beautiful warehouse style apartment in Melbourne CBD. It has 3+ metre ceilings, double the size of most modern built apartments."

    Sounds beautiful.

    I would keep it. It may not grow in value over the next couple of years. But large inner-city apartments will eventually be really hard to come by. I'd keep it, if just for the fact I could decorate it. Lucky you.
     
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  14. dabbler

    dabbler Well-Known Member

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    Well, it does not sound like anything average to me, they were a trend for people buying up here years back, who knows if they will still be in after 5 years.

    Sounds like it may also not be hard to sell, but is all the supply on the market now down there, or coming up this year and next ? also, what will happen if OS investors dump other empty units, lot to think about.

    If things get bad, maybe you can save money by living in it ?

    The other thing is, maybe you can organise to swap the security but keep loan the same.
     
  15. jaybean

    jaybean Well-Known Member

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    Yeah I've thought about that. But the problem is I've gotten too used to living with a backyard!
     
  16. dabbler

    dabbler Well-Known Member

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    When things are bad, you do what you have too.....or sell at a loss.....
     
  17. USC

    USC Active Member

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    What is it costing you to hold each year?
    If it is not much, I would lean towards holding it. Especially if you have no other plans for the money.
     
  18. WattleIdo

    WattleIdo renovating Premium Member

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    I would keep it for sure. And I'd live in it and walk to yoga classes and grow sprouts in a wall garden. Having a back yard is nice too.
     
  19. hobo

    hobo Well-Known Member

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    I want to buy it and use it as a holiday apartment for when I need to escape the heat.... :p