A pickle of a situation, how to make the best of it?

[nicsa122]

In hindsight, I can't remember why I ever thought it was a good idea to invest in property or that I would be any good at it, but now I'm in this situation Im trying to think of best way out.

Bought our first house in Dunedin almost 3 years ago; mostly because we fell in love with it, didn't do a great deal of research and were a bit silly-but I also thought it had potential as its on a fair chunk of land and is being rezoned to medium density. Trouble is there is no way to gain reasonable access except through my neighbours property and she is unwilling to sell, and even then access and development would be rather tricky as the land is quite steep. I've also realised that there is a lot of spare land in Dunedin to develop so there won't be a demand for mine in a hurry even with access.
In hindsight, we paid far too much for the house at 227k. Have invested about 20k in it plus many hours of labor and stress. Oh how beautiful hindsight is. We tried renting it at 390, then at 360 with no luck (at the busiest time of year). So have put on market. Agent gave us initial selling range of 275-320k (which we knew was too high) but then came back and said other agents at her agency have said 240. (I said I wouldn't sell and would leave it empty instead for that much). I think with agents fees we would make a minor loss selling at 260k (it's GV) but are aiming for 280k. We won't get enough back out of it to invest in another property-in Dunedin or Chch where we are now.
So. How low should we go? Do we try rent it at 330 with a different company and have for sale at same time? Do we sell at 260 (if we can even get that) and lick our wounds? Do we hold at low rent, wait for elderly Neighbor to sell (she is 87 and her house isn't worth much) and buy it if we can and put in access then sell? Do we just hold and hope the Dunedin economy will recover? Do we forever give up on any ambitions on being property investors?
many thanks in advance

[revdev]

If you sell, you'll crystalize any loses, that much is guaranteed.
If you hold on to the property for the long term, natural gains will iron out your buy price.
If you decide to cut your losses and sell, then you'll have to accept the market price, not what you need. The market doesn't care how much you are about to lose on the deal.
From your description, developing the property (even if you had access) sounds like a bad idea (too much supply)
With residential, if you find the right price you can always rent it out. Doesn't make it any easier to swallow though.
Trying to rent it out, while selling it probably won't work. At best you'll probably have to discount the rent even further.

So. How low should we go? Do we try rent it at 330 with a different company and have for sale at same time? Do we sell at 260 (if we can even get that) and lick our wounds? Do we hold at low rent, wait for elderly Neighbor to sell (she is 87 and her house isn't worth much) and buy it if we can and put in access then sell? Do we just hold and hope the Dunedin economy will recover? Do we forever give up on any ambitions on being property investors?
many thanks in advance

[artemis]

Good advice from revdev. As I see it there are two issues - stress and losses. Capital loss on sale, weekly loss while vacant or rented at less than expenses.

Suggest consider these two issues separately to figure out which is most important and how much weight to put on each. That will help you make a decision.

If it were me, I would lower the rent, get a decent tenant to minimise losses meantime, and put off a decision until situations clarify.

There was a thread here not long ago about someone who wanted to buy an elderly neighbour's place, similar to your situation. Might give you some ideas.

About redevelopment, demographics are changing all over and there could be an opportunity to redevelop to match those changes. For example, Housing NZ says demand is huge for 1 bedroom places now rather than 3 bedrooms. Not that you would be redeveloping for that demographic, it's just an example. In Wellington we find 2 bedroom places easy to rent.

[HattrickNZ]

my 2cents and some Qs for you.

Based on the info you have provided, I would be more into long term holding based on some Figures.
> 330*50 # RENT/Income
16500
> 227000*7/100 #Expense
15890


Have you considered selling privately? (potentailly reduce your losses)
What would you do after you sold? (what is the alterenative?)
Can you use this as collateral to fund another investment, maybe a better one?

Whilst the neighbour is an option this would be a plan B as there is no knowing what can happen here.
DON"T GIVE UP!!

[elguapo]

If you sell, you'll crystalize any loses, that much is guaranteed.
.

The loss is crystallized regardless of if you sell or not. If you sell now you do not benefit from any potential future gain, however you prevent any additional loss. The true question to ask is; Would you buy the property today at the price it would sell for on the current market? If the answer is no, then selling is an option.

If you hold on to the property for the long term, natural gains will iron out your buy price..

What natural gains?

[motivated]

2 suggestions
See if you can get an option to buy neighbours house
See if neighbour will sell a portion of land to allow the access you need rather than the entire property

[elguapo]

So. How low should we go?

Have you actually checked out what the going rate for similar properties in the area is? Without that, your blind to what the market rate is.

[Rosco]

Hi nicsa122,

You need to work out your holding cost. What is the rent (I'm guessing from your post $330pw) less all your expenses on the property including reasonable repairs, property management, accounting, insurance, rates, travel etc plus any tax refunds?

If this is a loss, over 5 years how does this compare to your estimate of capital gain? For example if it was costing you $5k per year, so over 5 years $25k, but you thought it would only go up $10k, then you would want to sell!

What is your opportunity cost? If you sold now, could you get into a better market? Talk to a mortgage broker and get the exact story on what you could do if you sold this property cheaply.

It's all about gaining information so that you can make informed decisions.

I would also

- get two property managers to give a rental appraisal, so you get professional information on what the rent should be
- get two other real estate agents to give an appraisel

Ross

[Maccachic]

Are you on the Dunedin To Rent facebook page? seems to be a lot of demand on there for properties. However depends where you purchased I guess. The thing I like about Dunedin is our occupancy rates have been high and tenants have all been good. We purchased peak of the market and our value have increased only slightly since then in 8 years however it was our home initially and now tenants are paying down our mortgage.

[Damap]

Given disposal costs and the end result being you can;t go again finding a way to keep it and let time fix your value and yield would seem to be a good option. Unless you're in a location that is complete sh*te.

[nicsa122]

There was a thread here not long ago about someone who wanted to buy an elderly neighbour's place, similar to your situation. Might give you some ideas.
.

Lol that was my thread...but yes. We're pretty stressed. Not sure that was what you meant by stress but it might be worth selling just to be rid of the stress.

[nicsa122]

Unless you're in a location that is complete sh*te.

That's a bit hard to judge, I mean Caversham is rather shite, but not complete shite.

[revdev]

What natural gains?

CG. But you knew that already right...

[jimO]

That's a bit hard to judge, I mean Caversham is rather shite, but not complete shite.

its slowly turning back into a nice area but it may take a while otherwise its not a bad rental spot

[nicsa122]

Hi! thanks very much for the comments, very helpful. We have low equity in the property and as we are in Chch now we would probably not want to reinvest in Dunedin if we could reinvest...so we could really only afford a tiny unit in phillipstown...which might be ok.
I'll need to sit down and do those calculations...but from memory when I worked it out roughly before, we would need about $410 per week rental to be cashflow positive (we borrowed against house to buy our cars, have a very large mortgage, but then the only other option was a 15% car loan, or not have a way to get to work).
Wev'e had one other appraisal done and they came up with a figure of about 260-280k sale. It was advertised late on Friday asking price $289k and first open home on the Sunday had one couple through, not feeling too positive. If we sold at 280 we would end up with about 25k after paying for everything...we would likely end up putting 10-15 of that into doing up our house in Chch and then taking a holiday for first time in four years, then perhaps borrowing against chch house to buy a rental, or building and renting out our Chch house once our house is built...I'm just concerned that the banks have tightened up on lending since we bought and wont loan us that much money again, so we will be going down to one house which will feel like going backwards.