When do you let a poor performer go?

How much is too much? I have a property in North Qld which has shown small growth in the 3 or so years that i have owned it. The rental has been consistant and increased slightly also. The strata has increased sooooo much that i am still not making a profit on this property. I heard that the Qld gov might get involved to curb the pain of strata insurers in north Qld but that is probably unlikely. I bought this for cash flow but it has all been negated.
If i was to sell i would pull out 40k at best. Would you sell it and park the money elsewhere?
Cheers guys

 

I had a unit in Mandurah that was not going anywhere in terms of capital growth and was costing me money. So I watched the market, picked a good time to sell and got rid of it. I had an opportunity in Perth I wanted to pursue, so I had a good reason for pulling my cash out and reinvesting it. The upside of this is that the new investment has performed very well.

So if you have a better investment opportunity for the funds you get from the sale of the property, my advice is to consider selling up.

 

How long is it going to take to sell?

3 years isn't a long term hold - what was your strategy when purchasing this property? Has insurance increased because of cyclone loading?

 

It was purchased as a cash flow property. It had a 9% yield on purchase price and was making an income from day one. Then came a special levy, then an increase and another and so on. It has increased $1600 since I bought it.

 

Where in North QLD?

 

That's the problem often with cf+ properties. They can become negative quite quickly sometimes.

I think 3 years is way too short. Unless you don't see any growth happening in the medium term and it's really costing you alot to hold.entry/exit costs are just too high.

 

It is in Cairns.

That is why i am on the fence. Im not sure that there is much growth coming up that way, and now that my cash flow has been negated, there isnt much point holding it, especially when there is potential in other markets.
Cheers
Michael

 

How much negative is it a month?

 

CBD or the Beaches? Reason I ask is there's been a couple of developments approved for the CBD which would flood the unit market in the short to medium term with shiny new units whereas there's not much planned for the beaches and the unit market has been fairly solid.

I don't hold much hope that the insurance situation will improve in the foreseeable future unfortunately though there is action happening to try and rectify the ridiculous premiums.

I would just look at the opportunity cost at holding vs selling also taking into account all the transaction costs of buying and selling and see if the capital can be put to better use elsewhere.

 

Agree with @Kinnon Bell. Very good advice.

 

Hi @mike8t1
I guess it depends what your expectations were and whether you could put the remaining funds to better use elsewhere after transaction costs.
Looking at the gross yield I would assume you talking about 1 or 2 bed unit in either Woree, Westcourt or an M suburb. Those sort of gross yields are generally obtained from properties in the 120-200k range. In terms of timing buying in 2012 would have been a good time other than for some insurance premium increases.
3 years is a short time frame to hold IMO. You have mentioned that you estimate your cg over 3 years is around $40k? or is that just your deposit? If thats the case and I've made plenty of assumptions here then that is a good gain on a sub 200k investment
Can you provide any more details?
Hugh

 

I have a rudimentary feaso template that looks at the opportunity cost of selling a property and buying again.

You need to make some basic assumptions and allow for transaction costs - This may be useful for some.

 

Yep. move it on and put the money into another possible better investment.

It's sorta like old stock in a shop - sell it to get the cashflow and reinvest it in better faster-moving stock hopefully.

 

Hey Chris White,

I think you are bang on as the cost of selling and buying again can be massive!

Once you are out of the market, unless there is a huge correction, you will not gain a huge deal. Chasing the market is not ideal.

I feel that Australia is built on negatively geared properties as we are told that it will be a great way to offset your earned income. My concern is how fast can we build wealth on this strategy if it hits our pocket on a monthly basis.

If you are able to negotiate with your lender a better deal so that you are locked in to a neutral or positive cash flow scenario on the property in question and let the full market cycle of 7-10 years do its thing that would be more favourable!

We make money when we can hold the asset!

Good luck