Forced to Sell Investment Property at a Loss ~100k

UPDATE

  • Thank you for all your replies, I realise didn't make it too clear its already sold signed, so no going back and looking at the poll I don't have the "wish could go back and not sign" regret

  • The tenants are a normal family with 2 kids, new cars, on the annual inspection pictures from RE that are provided to us they seem to have normal furniture tv nothing crazy but not living on mattresses and saving big $.
    I don't mean to pry into their life but I am guessing they live on credit like most people these days. Going from a good wage to jobkeeper is a big adjustment to myself so I can imagine it is the same to them, kids are expensive too. Anyway I don't think legally I can pursue them for rent at this time anyway nor I would like to for somebody that is suicidal (benefit of the doubt)
    The straw that broke the camels back is really my job loss and bro's wage cut.

  • Couldn't evict them even if we wanted to at this time

  • This whole thing also made me realise I don't think I am cut out for the responsibility of being a landlord. Before covid it was pretty straight forward but now it seems fighting for a monetary loss from my pocket may bring a much bigger loss to somebody else even tho I am in the right.

  • Not sure what the agent told the buyer about current tenants/contract
    and what he is obliged to say by law. Pulled the trigger on a loss, paid his fees don't want to know :(


Me and my brother have/had a joint investment property (3 bedroom house in Melbourne south east suburbs).

We bought this place late 2018 for high 600K but with fees stamp duty and some minor touch ups it owes us ~730K. We had a deposit of 80k and at the time I had a ~100k pa job and my brother ~80K.

Place came with tenants on a yearly contract which took care of alot of repayments. We didn't struggle at all and happy to do any/all maintenance requests (which were all minor)

Obviously as covid hit everything lined up against us:

  1. Just before covid hit we had some damage to the plumbing by tree branches we forked out 6k each 12k combined - no problem we had cash on side for this
  2. Our tenants both lost their jobs (couple with kids) initially they agreed to pay 80% rent then 60% and then they said they are hardly scraping in, the female apparently had attempted suicide. Really tough situation, I got kids myself there is no way I want to leave some kids without a parent. Haven't pushed for rent last month and got none.
  3. going from 100k to 1.5k a fortnight taxed is a big drop so we applied for mortgage holidays which are approved but still getting interest added.
  4. boss told me unofficially a few weeks ago once jobkeeper is over cutting down to skeleton crew and can't afford to have me on, he doesn't mind im looking for new jobs while at work as there is not much to do, but there is no jobs!
  5. Brother had to take a 30% wage cut.

At this stage we have seen a few professionals for advice and we have been told to sell NOW for anything we can get, things will get worse and apparently the media and rba don't want cause a panic but its alot worse then they say.

Also the bank said for our own good no extension on the 6 month holidays will be given, between the lines they said exactly the same thing the professionals did.

The bank said its already on their record we are on the 6 month deferred mortgage payments and if we default on payments in the future that will be a big black mark on our names for a long time.

Speaking to family and friends, and with deep and long consideration we went to put the place on the market.

RE said no chance we will get what we paid, said start off with 20K discount.
Was no interest dropped by 5K per week at 30K we got alot of tyre kickers and lowballs. No genuine interest, after 4 weeks the best offer we got was 60K then what we paid. The agent said take it, said all sales are like that and his "inside sources" are saying it will get much worse. Once again got other advice and decided to run "before the market crashes"

60k off the price means we are really just over 100K out of pocket, so basically lost our whole deposit and a bit on top.

What else could we do? did the safe thing?

Id rather lose 50k now then 100k later I guess

Poll Options

  • 396
    Was the right choice in the situation
  • 52
    Should of taken a gamble and struggle

Comments

  • whats your situation like? age? spouse/kid? dependents? where are you living now? how much savings do you have?

    • When I was a kid in the late 70s and 80s banking sucked. You couldn’t get a home loan without 20% deposits and forget about it if you were not in a secure job.
      Heaps, and heaps of people couldn’t buy a home, and rented in very average quality housing stock.
      Macro stuff changed - banks were deregulated, got access to foreign funds, risk was ON!
      All of a sudden normal people could buy homes, loans were available, deposits required shrank.
      There were ructions as interest rates soared (briefly) to crazy heights. Wages grew pretty fast too.
      Those mortgages that were big and fat got eaten away by inflation and when you earned $12k per year and had a $40k mortgage you suddenly found yourself earning $25k but still a $40k mortgage - bank!

      I bought a flat in 1997 and was really nervous they lent me 3 times my income on 10% deposit - this was a racy degree of leverage. One lender was prepared to give me enough for a house! We weren’t that crazy.

      We paid our mortgage, lived our life, lived overseas for a bit getting a tenant, needed a new house in the mid 2000s as we now had kids.

      Houses had doubled in price, we were lucky cause our flat had too. Plenty of friends watched home prices grow out of reach. We bought a house and sold our flat thinking how crazy how high prices were.

      2017 and prices have doubled again. Friends who were priced out in 2005 are now either paying huge slabs of their income to pay mortgages, or worried about what will happen when they retire with no assets but meagre super. Friends kids are just giving up on the idea of owning a house, certainly not within an hour drive of mum and dad.

      Plenty of real estate investors seem to be getting very rich, but nearly everyone I know is worried about what will happen when their kids need a home.

      2020 - apocalypse for recent housing investors who were convinced house prices could only rise, but have seen their rent disappear and house prices start to fall. Negative gearing becomes massive distress as investments leveraged to 95% suddenly lose the 5% deposit plus extra losses.

      202? My kids and your kids might be able to afford a house to raise a family in.

      I’m not wishing any ruin on anybody, and I understand it must be devastating. But it is better for all of Australia if property prices drift back to a global average over the next decade, not go up.

      • My parents were the exact same, it's surreal to think of a world where this stuff is possible.

      • +2 votes

        doubled in price … doubled again

        Some of it was due to immigration, but much of it was due to the large decline in interest rates. We are at the lows now as confirmed by RBA Governor. In the coming years property prices can only go one way…

        Don't give up hope. Unless you're the ones buying in the last few of years and can't cover the higher interest rates (sort of similar to op with lower income - that is gap in ingo vs outflow).

        • Exactly. I bought my old 1920's house for just over $400k in 1994 when interest rates were 15% and I was on a salary of $60k. Using a loan calculator (as I can't remember), I could borrow $128k at that time. (I only borrowed $100k after we sold my wife's apartment and mine too). [https://moneysmart.gov.au/home-loans/mortgage-calculator#borrow]

          Fast forward to today and that $60k salary will be close to $99k with an average 2.5% p.a. inflation but interest rates now average a much reduced 2.75%. I could in 2020 borrow $589k, for the same inflation adjusted $99k salary.

          This is 4.6 times more borrowing power. Throw in the "Pig in the Python" boomer demographic buying investment properties to make up for their lack of superannuation adding excessively to demand and some immigration and you can see why over the 1994-2020 timescale, house prices have gone up 6 to 7 times (Location dependent). [Immigration comes in at a distant 3rd].

          It was a no brainer purchase for me at the time as inflation was high so my salary would increase over time, helping to make early pay back easier over time. My biggest downside risk in the 1990's was losing my job due to recession.

          Taking the lesson from this for today, when buying a house the driver of price has always been interest rates, with lifetime mortgage risk being mitigated by moderate inflation [lifting wages/salaries]. Recessions were always a big risk if you lost your job, but in the last 20 odd years only the 2008 financial crisis came close. So we've lost awareness of recession risk as they have stopped happening. Inflation has also fallen so that mitigation has also pretty much disappeared.

          I really feel for OP as he has been hit badly as a result of the RONA. Who could predict that? None of us could have!

          I was in the same boat as OP with my first apartment bought in 1987. I couldn't afford it by 1990 as my investment interest rate went up from 15% to 19.5%. I had to negotiate a repayment holiday with the bank over 18 months until they came back down. I had to maintain the higher repayments for several years to bring the principal back to the 25 year loan target. [But no RONA].

          Very unfortunately, OP's bank and advisors are right about things getting worse. This means there will be lots more OP's out there over the coming year or two. And every landlord will cop a hiding on the inability of tenants to pay rent, and on their mortgage repayment holiday, and every landlord forced to sell will cop a capital loss in a falling market. [We are heading - with tailwinds - toward the worst world economic situation since the 1930's Great Depression. The world may be lucky and avoid that. But the risk is definitely there].

          Best of luck OP! [You made the right "market & risk based" decision to ride out the coming recession/depression. It could have been so much worse for you had you delayed].

          [Added edits in brackets].

          • @Musing Outloud: Wise words from a veteran. See also my comment below re OP's situation.

            [Good job negotiating repayment holiday: 1. your age, 2. bank's flexibility/commerciality, especially during early days of deregulation. A lady on my street told me her bank manager knocked back her loan in 1966 because he went and inspected the property and said the eaves were too short!]

      • Houses had doubled in price, we were lucky cause our flat had too.

        Piggbacking off the first comment to post a thinly veiled humble-brag doesn't seem very nice, particularly in a thread about a guy taking a big loss. Just rubbing it in, really.

      • Negative gearing becomes massive distress as investments leveraged to 95% suddenly lose the 5% deposit plus extra losses.

        And that's when the Government realizes that they lose more tax with negative gearing than they get with stamp duty.

        So they abolish stamp duty ( Defer into some kind of LandTax ) and abolish negative gearing in exchange.

        This is written on 2 July 2020. Check back in 5 years.

        to OP, That is an expensive lesson, not as expensive as the people in the Mascot Towers in Sydney. Good on you two cutting your losses. Really hard thing to do.

        • Negative gearing is federal, stamp duty is state. Stamp duty is inevitably going to be abolished, but in favour of land tax.

      • tbh, lower deposit of 5% actually benefits the bank more than it does for the mortgage holders

  • +90 votes

    Hey man hope you're doing well.

    It looks like you're looking for some comfort for your decisions. Hopefully people on here won't be too harsh.

    What's done is done. Don't forget that stuff like covid happens only once every couple of generations, so we are undoubtedly going through some tough times.

    Wish you all the best man.

    Look forward to the future, look for a job (I know it's hard but it's the only thing you can do) and stay healthy.

    • And non permanent residents

    • I don't wish to pry into their affairs but seems they live on credit just like everybody else, 2 new cars, kids school etc from my experience going from a wage to jobkeeper is a big adjustment

      • Isn't that then their fault for making stupid decisions?

        • Haha people seriously negging this? Personal and fiscal responsibility is pretty stupid I suppose.

          • +14 votes

            @brendanm: I mean, the same rule applies to OP with regards to risk and personality responsibility, but it's a douchebag thing to point out. A lot of people are going through pretty crap times so calling people's decisions "stupid" is not productive or helpful to the family that has apparently had an attempted suicide, nor is it helpful to the OP who is about to lose >10% on an investment.

            • @pais: Allegedly attempted suicide.

              Buying 2 new cars on loans while living on credit and renting is stupid, and is the reason op is losing his money. I was in no way calling op stupid. If others had been mildly fiscally responsible, op would be able to keep the house.

              • @brendanm: I mean indirectly you are calling OP stupid since he is also living/"investing" on credit which isn't too fiscally responsible, which is completely true and fair…

                • @dsar: What? A mortgage isn't classed as "credit" like a credit card. If you can't understand the difference, I'm a bit worried for you as well.

                  • @brendanm: Really crappy situation for all involved. But you are wrong, OP took the risk and the investment has gone bad. This is not his fault or the tenants fault, it just is what it is.

                  • @brendanm: Oh. I thought credit was on the basis of a loan of sorts whether unsecured like a credit card or secured like a car loan. Why do you think a mortgage isn't classified as credit?

                    • @dsar: There is bad credit, and good credit.

                      Bad credit is flat screen TVs on credit card, and buying an Audi on a loan for 7 years as a $50k a year earner.

                      Good credit is buying something that someone else (renters if actually fulfilling their contractual obligation) pays off while you end up with an asset.

                      As I said, if you don't understand the difference, you have the same problem as ops renters.

                      • @brendanm: From my understanding, people commonly use the phrase good/bad debt, not good/bad credit. I apologise if I got it wrong, however, I do understand the idea of credit and debt. I would say OP's and most people's investment property purchase similar to people gearing for shares. It's good debt till it goes bad which then becomes really bad. OP took an investment risk and it backfired.

                        • @dsar: Property is a lot more secure than shares. When you are allowed to kick out people who are paying you no rent, it makes it a lot easier.

                          I used the word "credit" as that's how the person I was replying to phrased it.

                          • @brendanm: Property, like anything is a gamble, even if he was to kick out the tenant, who's to say that they'll fill it with someone else willing to pay even 50% of the original rent.

                            This is the risk across the board, as soon as the rents drop mortgages cost more to support, inevitably a positive feedback loop takes hold and foreclosures take over. Australia's market has been over inflated for some time and unfortunately the honeymoon is over.

                            • @Drakesy: I'm sure it would actually be very easy to find someone to pay 50% of the rent. Contrary to popular opinion, not everyone has lost their jobs.

                              • @brendanm: I accept this, but even then, if he finds someone that pays less rent than the previous tenants he will still have a hole to fill, which jobkeeper payments will only support until the end of September.

                                I think we have a lot of 'zombie' jobs out there waiting to be rolled onto jobseeker and this is the tip of the iceberg.

              • @brendanm: wait, did you read? do you want a new brain? is yours smooth?

                op was earning 100k- now earning 1.5k couldn't afford the house, the house instantly lost 100k in value. OP, like everybody else bought into a re bubble.

                the tenants also falling onto hard times was only a symptom, the real issue is much bigger. Please take your small smooth brain and exchange it for a big boy brain. 2+2 = 4. that lessons free.

                The world is falling apart.

                Also, shame on you for what you said about that woman.

                • @sarahlump: I know this seems to be difficult to understand for some, however:

                  The tenant entered into an agreement to pay rent in return for living in ops property. However they are now paying $0. If the tenants were paying what they should, or if they could be evicted and replaced with actual paying tenants, op would be fine.

                  The world is falling apart. Lol, no it isn't. Yours may be, I'm sure with the closing of a lot of cafes, you don't have as much dumpster food to eat.

                  Also, it's $1.5k a fortnight, not pa.

        • 100%. Australians in general suck at personal finances, living within our means, and being even marginally prepared for the unexpected.

        • One person’s investment is another person’s gamble.

          Oh, and a mortgage, like a car loan, personal loan or advance on a credit card, are all borrowings and hence a credit. As for calling the tenants stupid because they appear to be in financial difficulty, the Op just took a $100K haircut …

  • I'm sorry to hear, I hope your future is more fruitful.

    It is an investment so it does comes with risk. It is a tax write-off if that's any consolation.

  • Will the tenants not lose out anyway as you'd need to sell with vacant possession, no way someone would buy with sitting tenants that don't pay rent? Would they? Can they not pay the actual mortgage cost as a minimum, to reduce the burden on you as the landlord, and you then just have the maintenance which might be affordable? Effectively they'd get rent at your 'cost' price but not have the other hassles you have as the owners.

    Difficult times, investment properties are still that, investments = some risk. Les in B&M as you have a physical asset but it's really a long term thing. Getting out now will cost,m if you're cushioned to take the hits and have budgeted for running the property as negative geared or self financing without the rental stream then good, if maintaining it will bleed you by a thousand cuts then it probably wasn't the best time of life to invest and the 'cost' will be payment for the lessons and experience. Wish you luck and sounds like you're trying to do the right thing by the existing tenants as well, hope they know they're lucky to have had a decent landlord!

  • Whoever said that buying property is a sure investment may learn a thing or two from this post.

    • Now you get the guy who bought shares in March 20 and now up 30% - 100% believe it is their skill when it is the central banks and government coming to the rescue.

      You see those day traders buying into Hertz. Only in America do they allow a company in bankruptcy to continue to trade on the share market.

      • Current market cap is roughly $206M usd. Not bad, their assets are probably in the billions.

        • Reason they went under is because no customers and they don't have enough cash to pay the lease on their fleet of vehicles.

        • +10 votes

          And their debt even greater at $18 billion

        • Yeah good luck trying to sell hundreds of thousands of bog standard cars in to a US market deep in recession.

          • @ribze1: One careful lady owner. Driven to church and bowls club only.

            • @BartholemewH: Buyer posts on USBargain:

              "I bought a car. The seller said it was his aunt's, she was the only owner and she only drove it to church and the bowls club. It's only 2 years old, but after I bought it I realised it had 100,000km on it. Did the seller lie to me, or did his aunt live a long way from her church and bowls club? Can I get my money back? She has moved overseas. I paid cash and I didn't get any of the seller's details. I think I found someone that kind of looks like him on Facebook. Should I send them a message and tell them I want my money back?"

            • @BartholemewH: Story checks out as car is white

        • ummmm what assets.
          They probably lease their properties maybe even lease cars.
          Cars are the worst performing assests, lose 20% value per yaear.

          They only make money by claiming $500 per scratch, which they never fix, they only claim for.

    • The person who buys this property now will be getting a bargain.
      At this time, it is a "sure investment".

      • Maybe. Or maybe this is the first of a lot of these type of threads as mortgage holidays end?

      • Not really. Market may crash further. Further extension to evictions may occur. No guarantee it'll maintain $540k.

    • Nothing is a sure win, if any one believes there is, they should have sought independent financial advice first.
      Can't say this is op's own fault, but sh!t genuinely happen sometimes. I.e. now

    • i THINK if you are just learning that lesson now…you are extremely lucky or hve got no clue

    • Real estate investments = Long term + informed decisions

    • To be fair to property investors (I myself actually think they are mostly simpletons who think it's a sure fire investment and don't have the brains to invest in the stock market), there's no way could the current situation be foreseen.

      Property in this country sadly is pretty safe because of how horny Australians are for property. People here will have sex with houses more than an Aussie sexpat in SE Asia, they love them that much.

    • Investing 101, have a diversified portfolio covering different asset classes.

  • Sorry to hear OP! Stressful times for a lot of people. Hope things in the future work out better for ya

  • Thanks for sharing your experience so openly. Hope in time you are able to put this behind you. Not many people openly share these things (even on an online forum) - we only hear of the wins.

    Good luck with the job hunt and hope things work out.

  • +7 votes

    I hope you are not really asking for advice on here, to justify the decisions that you have made, because hindsight just makes us all experts.
    As you and others have said, we are heading into tough times. Hopefully you can cope with your financial loss and just move on and appreciate what you have.

  • I don't know much about buying and selling property but I would think it's not a good idea to sell as there would be high transaction costs.

    Personally I would have gotten new tenants in that can pay the rent and find a job (not easy I know) to maintain repayments.

    You can speculate all you want, but it's almost impossible to predict if and by how much the market will fall. You can look at the maximums and minimums and think that's what you would have done, but that's just crazy.

    Real estate is a long term game.

    Either way, I genuinely wish you some luck… sounds like you could certainly use it!

    • At the moment you can't evict for missed payments due to Covid so holding out for new tenants is going to be a long term thing. Only thing I will say is don't look to real estate agents for advice they make money of the sale so will of course recommend to sell. That doesn't automatically make it bad advice though…

    • my agent pointed me to Vic consumer affairs and the moratorium on evictions, can't get new tenants in for a while

      • Not saying you should do this, but if you need to you can still evict for other reasons such as needing to move in yourself and I assume if you need to sell it's OK too.

        • In this case that's probably what OP should have done as it sounds like they have lost their job as well

      • Don't the tenants get jobkeeper/ jobseeker? I'd be expecting some of that to go your way.

        • you think $1100 a fortnight will cover rent for a 3br house in Melbourne? food is a thing. In the same light it might not make financial sense for them to pay rent atm when they could find income later to cover repayments while not suffering any consequences such as eviction. I'd have thought the prevailing financial sentiment on this website would be not to pay rent atm.

          • @sarahlump: No, though some of it could and $1100 is just for one person. The couple may be entitled to more especially if they have kids. After food and water, I would think shelter would be the next priority.

            • @Hardlyworkin: they're a couple, they dont both get 1100, and depending on they previous? employers they don't necessarily both get $1500.

              As priorities in this site are about profit, saving, etc. Its in their best interest to weather the downturn in the market by not paying rent and then when they can find employment either paying back rent or having the rent reduced.

              • @sarahlump: Ok though I still don't understand why some of the money isn't going to their landlord? Food bills can be far less when you have lots of time in your hands. Take out utility bills and maybe a refinanced car payment and no childcare that leaves a bit leftover by my calculations. I don't think the whole hit should be upon the landlord, share the burden.

  • Jeez thats pretty ordinary, and also very upsetting for your tenants. I hate to say it but could there potentially be issue getting them out? They have no $ they wont get a rental property elsewhere with no bond etc?

    On the flipside what you lost isnt a huge sum, sure its a kick in the guts but as the adage goes there's always someone else worse off out there and it is very true..

  • OP…no one here really has the answers as no one knows how the markets are going to go, so the right decision will be determined in the months / years to come.

    Thankfully $50k is not that bad.

    • In the big scheme of things, and how other's are faring, 50k is 1-2~ years (average)salary. Given how much worse it could have been in these extraordinary times, I think that's an acceptable loss. I certainly haven't experienced an pandemic of this magnitude in my life time, nor have my parents.

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