If you were me what would you do?

[senator]

I have a property valued at $445,000 currently rented at $310 pw with $100k mortgage.
Should I sell it and borrow a bit more from the bank and buy something with a better return or..... should I borrow against it and buy a cashflow pos property?

There is a fair amount of equity there but it's not getting me anywhere as it is.

What should I do??

[waxhead]

I have a property valued at $445,000

Big question
Valued by who?
List it to sell,see what you get offered to find the real value
That may help you decide

[senator]

im not too concerned with that figure. I have 3 valuations around that mark. I know it's only the market value that counts at the end of the day. Its really the situation i need advice on.
I'm stuck in a rut.

[FrozenWaves]

I would have thought that $310 rent per week would be cash flow positive by quite a bit on a 100k mortgage, or am i missing something.... Why not refinance and then buy another one with the equity rather than selling?

[senator]

Yes frozen you are right im just not sure if i should buy something with a better rental return?
Yes maybe keeping and the property and borrowing against it is the best idea?

[freezinhot]

I would keep and borrow against, as long as bank will allow this. (which is becoming harder)

FH

[FrozenWaves]

At $310 per week on 100k borrowings that around a 15% return, i would definatly keep it and borrow against it. I am by far means no expert tho! Just my 2 cents worth!

[Rosco]

Hi Senator,

You need to relook at your overall strategy and aims.

What do you aim to achieve from property?

Is this property helping you achieve your aim?


Also I would review the property

1) is there an opportunity to add value or to increase income? Add bedroom, convert garage to sleep out, subdivide, add minor dwelling etc? Most people look at buying another property, when they can get a much better return from tweaking their current ones
2) What is the future of the property? Is the property in a good area and likely to obtain good capital growth in the next 5-10 years? Its cash return is poor, around 3.5% return on value, so this property is not going to give you the cash return, but is it going to give you capital growth? If neither then sell it, its a "LEMON".

For property investment you normally get A) good cashflow, bad capital gain, B) bad cashflow, but good capital gain. Either scenario can be OK depending on your circumstances.

Generally I think investors should never sell, unless they have a Lemon!

Hope this helps

Ross

[Monkeyboy]

Hi Senator.

There are heaps of individuals in your position who probably bought the house a long time ago, have little or no mortgage and want to keep going. There is nothing wrong with your property being valued so high. In fact great, use the equity and go and buy another property.

What are your goals? Do you want to move forward?

Yes you should buy a positive cashflow property, along with one that will give you high capital growth and perfect tenants. While I jest, this in reality is what I would love to achieve with all my properties.

[spurner]

Depends on your situation and objectives of course; but I think you'd be much better off selling, and putting the money into a higher priced property with a higher return.

Currently, $16120pa in rent less rates $1500, insurance $500, and loan payments $6000 leaves gross profit of $8120pa.

If you can clear say $300,000 you could buy an $850k multi-income property with a respectable LVR of 65%. Being multi income I'd expect a 7.8% gross return, which is $66300pa less rates $2500, insurance $800, and loan payments $33000 leaving a gross profit of $30000pa.

A no-brainer really. Your income will be 400% of what it is now, and capital gain will be 200% of what it is now. Being multi-income you'll have less risk, and the cashflow you're creating reduces risk even further.

Of course most investors wouldn't do this, which is why they remain equity rich and cashflow poor.

Happy Investing!

I have a property valued at $445,000 currently rented at $310 pw with $100k mortgage.
Should I sell it and borrow a bit more from the bank and buy something with a better return or..... should I borrow against it and buy a cashflow pos property?

There is a fair amount of equity there but it's not getting me anywhere as it is.

What should I do??

[Dean@Massiveaction]

If you are after cashflow primarily you could sell and replace the property with another returning closer to $700 a week so i would do that in this market. Why have $310 a week return on 100K when you can have $700 plus.
In addition your 400K net would buy a 500 to 550K property easily in this market so you'd add 50 to 100K paper equity, (assuming you could sell for close to valuation of course).

[Monkeyboy]

You may well have to pay depreciation back which could well eat into some of that equity. You can also achieve similar things to what Dean and Spurner talk about by leveraging off your current property

[Keys]

I think FrozenWaves and freezinhot shoud get together.

May raise a little steam?

[senator]

Hi Senator,

You need to relook at your overall strategy and aims.

What do you aim to achieve from property?

Is this property helping you achieve your aim?


Also I would review the property

1) is there an opportunity to add value or to increase income? Add bedroom, convert garage to sleep out, subdivide, add minor dwelling etc? Most people look at buying another property, when they can get a much better return from tweaking their current ones
2) What is the future of the property? Is the property in a good area and likely to obtain good capital growth in the next 5-10 years? Its cash return is poor, around 3.5% return on value, so this property is not going to give you the cash return, but is it going to give you capital growth? If neither then sell it, its a "LEMON".

For property investment you normally get A) good cashflow, bad capital gain, B) bad cashflow, but good capital gain. Either scenario can be OK depending on your circumstances.

Generally I think investors should never sell, unless they have a Lemon!

Hope this helps

Ross

Some very good points Rosco. It is in a great area but I don't feel the capital gain is going to increase much more anytime soon.
The return overall isn't really enough for me to do much with either.
After reading everyones comments perhaps selling is the best idea.

[senator]

If you are after cashflow primarily you could sell and replace the property with another returning closer to $700 a week so i would do that in this market. Why have $310 a week return on 100K when you can have $700 plus.
In addition your 400K net would buy a 500 to 550K property easily in this market so you'd add 50 to 100K paper equity, (assuming you could sell for close to valuation of course).

Yes Dean I suppose you are right. Will be interesting to see what market val is.Even though my valuations say $445k i think $350k is more realistic judging by comparable sales.