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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Grogounet on May 19, 2017, 04:33:36 PM

Title: IP - Keep it or sell it
Post by: Grogounet on May 19, 2017, 04:33:36 PM
Hi All,
Bought a unit in Australia as investment back in 2015. In New Farm, QLD to be precise.
Turns out that it has currently one of the highest rental vacancies of the area.
It is negatively geared and I have used some of the equity of my PPOR to buy it, 100% LVR on this particular property.
At this stage, it costs me around $2k to $3k per year (Maybe more in future if rent continues to go down) to keep with current market conditions, before the expected rise in interest (another hit potentially).
It has barely kept with inflation, I bought it for $495k (below valuation of $505k) and is now worth maybe $510 to $520k.

If I sell now, I would have lost $25k of purchasing cost and would still pay around $20k to the bank to close the loan - approx.

The reason for me to consider selling is that the rent will not increase in the next few years I believe, and It see limited CG in the next few years.
The other reason is cash flow.

The reason to keep is that we might leave Australia and the other unit we've got will balance this loss, and that could leave a legacy to kids when we pass (I'm only 37 now though!).

I would add that, for now, we're on reasonably high pay so marginal impact to that regard.

1/ Would you sell it and take the $20k hit, but bank the $2/$3k per annum into value shares or similar that actually make money? So 10 years to "recover" from this
2/ Stay with the very long term strategy with the hope not to count on this money until very late in life, and have a legacy for kids

Title: Re: IP - Keep it or sell it
Post by: Scortius on May 19, 2017, 04:52:31 PM
You should ignore 1) what you paid for it and 2) the profitability of any of your other investments.

In isolation, given what you have in your possession today, will you end up with more money in the future if you keep it or if you sell it?
Title: Re: IP - Keep it or sell it
Post by: Grogounet on May 26, 2017, 03:28:23 PM
That s a good question we don't have the answer for:
- Prospective rent (growth?)
- Capital appreciation

What we can say, is that, after a very long time, RE remains still a good investment.
As we leave Australia, we would have two appartments and the proceed of one "might" cover for the loss of the other one.
Title: Re: IP - Keep it or sell it
Post by: Sydneystache on May 27, 2017, 04:51:07 AM
1. No
2. Real estate is a long-term investment. Ask this question again in 5 years or 10 years' time. New Farm is near the Brisbane CBD, it will be a good pied a terre for you or the kids unless it turns ghetto, in which case you wait for a generation's time for it to be gentrified.

Property shouldn't appreciate 20%, 30% etc a year nor should an investor expect this. It sounds like New Farm isn't in a bubble which is a good thing.

The question for you really is why did you buy it in 2015 and only for you to think about selling it two years later? Looks like flipping to me. Or you didn't do your due diligence when you first bought it re: vacancy rates, rental returns, demographics etc.

Should have bought shares if you had a short-term investment horizon.
Title: Re: IP - Keep it or sell it
Post by: marty998 on May 27, 2017, 05:49:23 AM
Agree with Sydneystache. Your expectations of capital growth have been too high.

Property goes long stretches of flat to negative growth and then 1-3 years out of 10 you'll have a bit of a boom.

Have patience.... and in the meantime start to pay down the loans if that helps to reduce the negative gear.
Title: Re: IP - Keep it or sell it
Post by: Grogounet on May 28, 2017, 05:42:31 AM
Thanks everyone.

I know I know - In an ideal world you would want to wait. It's just that this is going to push FIRE date longer as I:
- have counted to negative CF on this IP for the next 10 years
- Turns out that it might be now even 15 possibly even more which sounds stupid when you want to RE

The one BIG mistake I have done: I bought thinking that the multiple rising buildings in the other surrounding areas would not affect... it did, pretty badly.

In any case, I'll stick with the previous plan and as we leave OZ, the IP loss should be offset by the PPOR excess