Yet another Gladstone Property Drama

Discussion in 'Investment Strategy' started by Bejay, 3rd Sep, 2017.

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  1. Bejay

    Bejay New Member

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    Hi All,

    I'm looking at relocating to Brisbane for many reasons that I'm going to explain below and hoping that you guys can point out to me if there is a different way to tackle the same situation. So here is my story.

    We were living in a house in Bororen about 50k outside Gladstone (Central Queensland) worth in July 2015 at about $310K. For the sake of kids and many other reasons, we bought a house much closer to Gladstone about 2 years ago. It was a buyers market then and we bought the place for $480K and rented out the Bororen property. In last 2 years due to a massive change in the economic conditions of the industries in the region and due to a lot of redundancies a lot of people moved out of Gladstone, sold their properties and everything deteriorated further. In July 2016 when we got some valuations done on both properties Bororen was down to $275K but the new house had gone up to $500K. We thought ok this is not too bad and continued with our lives. Come July 2017 my daughter who is in Yr 11 has decided to go to Uni to study Medicine. So she will finish Yr 12 in Nov 2018 and will start Uni in 2019. Considering the employment market and the housing market in Gladstone, our thought was to move to Brisbane with her. This also avoids us having to pay for my daughter's accommodation and living expenses while she is studying in Brisbane. So we start looking into our finances and what we gotta to do. We got some real estate agents to come in and give another evaluation of our properties. New valuations for Bororen is at $200K and the Gladstone home came to $400K. This means the new house lost $80K in value which means that even if I sell it, I walk away with Debt of $75K. Now I'm facing the choice of continuing to live in Gladstone faced with all the uncertainty explained above and risk losing a lot more or minimise the loss by selling at the new valuation and move to Brisbane with a Debt of $75K. In either case, my maths tells me that moving to Brisbane(relocated and rent) and selling the Gladstone home at a loss will see me with a better cash flow position at the end of 7 Years than what I would if I were to stay. This cash flow position is important coz this will help me save up for my son who may go to Uni by then, he is 13 Yrs old now.

    I know it is a bit of a gaze into Crystal ball kind of a situation but is there anything else I should be considering? Or can I do this differently?

    I felt like asking coz I might not be thinking straight under all this pressure.

    Thanks again for taking time to read and give some advice.
    BJ
     
  2. bob shovel

    bob shovel Well-Known Member

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    What work are you in? Is it worth staying for eg island pay?

    Bris is likley to grow well before gladstone so while you're waiting for gladstone to grow brissy would have grown more
     
  3. Bejay

    Bejay New Member

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    Hi Bob,

    Thanks for the response.
    I'm a data analyst. So Island job is not an option for me, most of the jobs I do is now in Brisbane than in Gladstone. I have reached a saturation in my job too, Brisbane or any other capital city is definitely the next career opportunity for me.

    I couldn't agree more about the Brisbane growth as compared to Gladstone growth, but the catch will remain that I should be able to sell.

    A bit of luck and a bit of strategy that our Bororen house has been successfully renting ever since we moved out. We setup all our houses to be economical because of which we have been able to consistently attract tenants. Having said that though we have done that with Wurdong home too. But because it is 1.5 acres, I believe the maintenance of gardens would be a turn off unless there is someone like us wanting that lifestyle.
     
  4. Do Androids Dream

    Do Androids Dream Well-Known Member

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    I'm really sorry to hear about your situation and can't imagine the ongoing stress and pressure that this is causing you and your family. Unfortunately, there are many others in a similar position... but many hold on with the hope of things improving.

    Honestly, I can't see the situation changing any time soon.

    I think you know what to do ;)
     
  5. dabbler

    dabbler Well-Known Member

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    Does Gladstone not have a UNI or one near by ?

    You could always keep the one that has stayed rented and take the hit on the home, or vice versa if the current home will rent.

    On the bright side you only have as much in them as a unit or small town house on Syd outskirts
     
  6. Jaxon Avery

    Jaxon Avery Well-Known Member

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    Sounds like no one gave you any advice yet,

    So there are two options, maybe a sneaky third.

    1-you realise a loss and put yourself behind the eight ball,

    2-you stay where you are and continue to not care if your property is worth a stack or nothing just continue to pay off the debt

    3-you move and do not sell either, you rent them out, even AIRBNB or whatever you can to add value and get some rental income to cover the properties.

    In the future I would really recommend finding a really versed and knowledgeable financial team that is really well off and understand how to help
     
  7. Jaxon Avery

    Jaxon Avery Well-Known Member

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    I personally would only do 2 or 3 but I also would of only purchased near neutral or positive cash flow properties.
     
  8. Trainee

    Trainee Well-Known Member

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    And you would have missed out on most of the current sydney cycle.

    OP if you are planning to move away from gladstone long term, it may make sense to take the hit and sell. Use the money to buy in better markets.
     
  9. Sackie

    Sackie Well-Known Member

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    If your financial situation absolutely dictates that then I understand. But last Sydney and Melbourne boom cycle SO many ppl missed out on massive, massive growth for only 1 reason...they were convinced (like a gospel truth) they had to buy neutral and positive cf property no matter what. Couples on 200k+ incomes with no debt were doing that....

    They made a colossal mistake and fell into the 'cf positive only' trap.
     
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  10. Big Will

    Big Will Well-Known Member

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    I don't track Gladstone so take my thoughts with grain of salt.

    If you sold today you have confirmed a loss, how much cheaper can Gladstone goes before it will start to climb?

    If you sold now and in 12 months it increased by 10-20% how would you feel?
    If you sold now and in 12 months it had decreased by a further 10-20% how would you feel?

    If you bought in Brisbane and in 12 months time it hadn't increased or went backwards how would you feel?
    If you rented in Brisbane and in 12 months time it had increased by 10-20% how would you feel?

    If you get a yield of 5% Gladstone and rent in Brisbane for 4% then you can theoretically rent something better in Brisbane for the same price compared to Gladstone.

    How long were you planning on living in Brisbane? If it is only for a year or two it would be hard to make profit in this time after buying/holding/selling cost so would lean more towards renting.

    Would you ever want to move back to Gladstone and more so to your PPOR?

    I am a fan of Brisbane and think it will do well but selling & rebuying is a lot of money - you would look at about 50k just to change over so you would be expecting this over what Gladstone is going to do overall (include CF).
     
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  11. Tonibell

    Tonibell Well-Known Member

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    Agree.

    It is much easier to significantly increase the cashflow on a well located property compared to generating significant capital gain from a poorly located one.
     
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  12. TMNT

    TMNT Well-Known Member

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    Given all the bad stories about gladstone, a $75k loss isnt as bad as others,

    however I feel for your situation, it really sux

    unless you overpaid in the first place, real estate is seen as a safe investment, so these sorts of stories are an eye opener...

    you could knucke down and pay it off in a year or two, depending on your circusmtances
     
    Last edited: 4th Sep, 2017
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  13. Jaxon Avery

    Jaxon Avery Well-Known Member

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    @Trainee
    @Leo2413
    @Tonibell

    I would like to say I disagree with all three of you, not in what you stated holding some truth but in the mentality.

    I buy under market value with strong CF+, I havn't built a portfolio of 20+ properties to start looking at things that may or may not rise.

    I would rather do deals I know I am safe in the market rises or falling.

    I respect your opinions may suit your strategy and may even turn out better than mine.

    Trainee, I would like to say that positive cash flow deals have been done in sydney over and over. so thats not true, just look at Nathan Birch as a model.
     
    Last edited by a moderator: 5th Sep, 2017
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  14. Jaxon Avery

    Jaxon Avery Well-Known Member

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    My strategy is a buy and hold (for the accumulation phase), I understand how I am setting myself up and also how to add value (yes still can always learn more, as can anyone)

    If I was Bejay, I would focus on just getting the most rent out of those two properties, renting or buying in bris and continue to grow my portfolio, dosn't make much sense to sell unless I think the market will very likely crash dramatically more or rents will dry up. (which could be the case) then it may make sense jumping ship
     
  15. ellejay

    ellejay Well-Known Member

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    You seem very influenced by this couple you know on a high income who buy cash flow only :p:D : Just sayin' 'cause you mentioned them a few times. Isn't cash flow what we want to pay for our lifestyle? In most cases investors use capital from growth or subdivision to pay down debt on cash yielding properties, no? We look for ways to get the best cash flow we can from 'growth' properties (unless we're one of those investors who works forever in a JOB content in knowing they own one or two blue chip properties they can't afford to make cash flow positive, but in 30 years will help with retirement). I hold 4 properties that don't cash flow, and they annoy the hell out of me and I'm only holding them whilst waiting for growth to slow or until I can subdivide them so I can pay down more debt on my cash cows. The properties that pay my property bills, household bills and leisure are my forever favourites :)

    I'm also guessing that with a bit of creativity you could have had positive cash flow during the Melbourne and Sydney booms. This would have required a bit of effort. It's not so black and white, doesn't have to be one or the other. Pretty sure @melbournian or @skater could help.
     
    Last edited: 4th Sep, 2017
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  16. Eric Wu

    Eric Wu Well-Known Member Business Member

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    agree, I am with you, Capital Growth is where the real money is, good cashflow is to help to hold on to the portfolio at accumulation stage ( early stage). on the other hand, we all also want to reduce debt, when we have good capital growth ( equity), it is much easier to pay down debt ( by selling down, or other options).
     
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  17. hobo

    hobo Well-Known Member

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    @Jaxon Avery Gee, I wonder which Nathan Birch / Binvested employee you are...??
     
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  18. Sackie

    Sackie Well-Known Member

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    Its not just one couple I know of with high incomes who have invested in places that went no where just because they wanted positive cf and not lose any money. During my week I usually speak to many people about real estate, some potential clients, some friends of friends etc so its not an isolated case.

    Absolutely I agree with you it is, but there is a difference in how people go about generating that cf and in what sequence. I have said many times if a person's financial situation dictates that they have no choice but to get CF positive property then I understand that, but when people are on high incomes and can afford a whole range of properties, I believe there usually are better options for areas that may not cash flow at the moment and be a little negative, but the overall CG prospects are likely to be better. Of course there are exceptions but I don't think its the rule.

    I'm not saying there is one template to suit all. Different people's goals, financial situations and risk profiles will dictate how they strategize.
     
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  19. Trainee

    Trainee Well-Known Member

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    The number of properties isnt everything. In the current lending environment, high debt has become more risky.

    sydney investors have made great gains from negatively geared, even negative cashflow property. The op can choose for themselves.
     
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  20. Sackie

    Sackie Well-Known Member

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    I agree Eric, but it also depends on the persons goals. If someone is happy with 50k passive income then so be it. For others who want more then CG, add value then converting to CF is the way u would choose to go too.
     
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