IP is costing me. Should I keep it or not?

[joesanga]

Hi there,

With all the crazy interest rates, I will have to pay an extra $300 per week to retain my one and only IP.

IP is an older property, freehold, bought in 2021, 3bed + 1 bath, in Hamilton, in a good school zone with shopping mall within walking distance.
Total land size is a little over 600 sqm. So it has enough land to build a two-storey 3 or 4 beddy on it.

Am I financially able to service this extra $300 per week and keep the property? Yes.

If I am building I will only able to build in three years time, and not before.

But does it make financial sense to keep this or no due to future developmental potential? Many thanks in advance for your thoughts.

[chook]

Hi there,

With all the crazy interest rates, I will have to pay an extra $300 per week to retain my one and only IP.

IP is an older property, freehold, bought in 2021, 3bed + 1 bath, in Hamilton, in a good school zone with shopping mall within walking distance.
Total land size is a little over 600 sqm. So it has enough land to build a two-storey 3 or 4 beddy on it.

Am I financially able to service this extra $300 per week and keep the property? Yes.

If I am building I will only able to build in three years time, and not before.

But does it make financial sense to keep this or no due to future developmental potential? Many thanks in advance for your thoughts.

Hi,
Unfortunately you bought at the peak in the market, I am sure the value has dropped considerably now. So question you have to ask yourself is do you sell now at a loss or hold on, which could be another 10 years in the cycle to get back up there and make some capital gains.

[joesanga]

Thanks for your response.

After I bought, the estimated value of the property went up by about 100k and then dropped. The current estimated value is about 20k less than what I bought it for.

[chook]

Thanks for your response.

After I bought, the estimated value of the property went up by about 100k and then dropped. The current estimated value is about 20k less than what I bought it for.

If you need to get out, then now is the time.

[Frezzinghot]

What is the current market value of the property?

[joesanga]

What is the current market value of the property?

About 680K

[Frezzinghot]

About 680K

This is not financial advice but more food for thought.

"The median house price in Hamilton City grew at 7.08% between Jan 2000 and Dec 2022 ($165,000 to $791,550)."

Given your CMV, one could suggest if you kept your property potentially you are losing a gain of 7% capital growth each year you hold the property moving forward, this is assuming we go through a growth period over the next 20yrs,(highly likely) so potentially you are missing out on 47k per year! Or if you sold now you crystalize the loss now and lose over $100k. The real question should be do I have the ability to lose $15k per year now with the potential to make 47k down the track, how bad is the cashflow now, do I take the hit, learn from it and move on?

Only you will be able to answer this. $300 per week is a lot if you have rent to pay or your car breaks down!

What is your appetite for this?

[Jeffa]

What you can and can’t afford should already answer the question for you

Ill buy it off you then mow the lawns, fix the letter box then sell it back to you in 2030 for twice the price ..

[joesanga]

What you can and can’t afford should already answer the question for you

Ill buy it off you then mow the lawns, fix the letter box then sell it back to you in 2030 for twice the price ..

Haha! The property hitting 1.4 M in 2030 is unthinkable honestly!

[joesanga]

Given your CMV, one could suggest if you kept your property potentially you are losing a gain of 7% capital growth each year you hold the property moving forward...

Only you will be able to answer this. $300 per week is a lot if you have rent to pay or your car breaks down!

What is your appetite for this?

You mean if I sell now I will lose a gain of 7% each year?

Also, do you mean 17% per year rather than 7%?
(791,550 - 165,000)/22 = 28,479 pa.
28,479/165,000 x 100 = 17 %

I have some funds for emergency also. $300 pw extra is definitely a lot though.

And you haven't considered developmental potential in the above property aye?

[Frezzinghot]

Haha! The property hitting 1.4 M in 2030 is unthinkable honestly!

It’s chump change, a property I have here in Auckland increased 600k in 12 months

[Frezzinghot]

It’s chump change, a property I have here in Auckland increased 600k in 12 months

After the plandemic of course

[hawkeye]

You aren’t guaranteed any capital gain in the near future of course.

Look at the opportunity cost. If you sell and put money in term deposit how much interest would you get? How much is rent less the expenses you will have to pay.

the difference between these values is the amount you are losing each week by keeping it, not the extra $300 you have to pay each week.

So that is the amount you are foregoing to get any possible capital gain. Also factor in interest rates could rise again. How secure is the job you are topping it up from. How much debt do you have on your own place.

[chook]

You aren’t guaranteed any capital gain in the near future of course.

Look at the opportunity cost. If you sell and put money in term deposit how much interest would you get? How much is rent less the expenses you will have to pay.

the difference between these values is the amount you are losing each week by keeping it, not the extra $300 you have to pay each week.

So that is the amount you are foregoing to get any possible capital gain. Also factor in interest rates could rise again. How secure is the job you are topping it up from. How much debt do you have on your own place.

Thankyou, 100% right.

[McDuck]

Hi there,

With all the crazy interest rates, I will have to pay an extra $300 per week to retain my one and only IP.

Some really nice insightful and expert opinions so far.

I can give you one really long term observation.

The low 2% interest rates of your youth were unsustainably low.

There is a possibility that these higher rates will become the norm for the kids of today.
There is also a less likely possibility that the money people will figure out another twist on the ponzi.. and keep it going some more.

The question you need to ask yourself is..

Can I stay liquid in either scenario.

It's all bout cashflow these days.

And how much you are willing to give up should things get really tight.

At the end of the day, It's really up to you to decide your appetited for risk and your desire for reward.