PROPERTY

Ask Paul: No-one wants to buy our mining town investment properties

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Q. What do we need to do with property that isn't selling, even with a price drop to match market conditions?

We purchased the property in 2009 through our family trust.

The purchase was for three new three-bedroom, two-bathroom townhouses on a DA-approved lot in the town of Dalby, in south-east Queensland.

Ask Paul: Should we sell investment properties to fund retirement?

The townhouses had renters signed up for 12 months and options to extend the rental agreement. Then the wheels started to fall off.

As with most property around that time the rental returns were great, but with the downturn off the GFC and the end of the mining boom the returns have dropped.

We currently are lucky to have them all rented on six-year leases.

We have had the property on the market for two years, with one inquiry.

With the ongoing cost of holding property and lower rental return, it's now cost us thousands yearly with rates, loan repayments and general running costs.

Could you please give some insight into what steps to take to get us out of the hole and on the right track? - Jamie

Hi, Jamie. Unfortunately, neither my decades of experience with money nor my rather flawed crystal ball are going to help you.

The lesson is one you already know.

Buying property in one location, meaning you have significant risk exposure to one area and, in this case, one industry, is just not the way to go.

You have done the only thing you can, which is drop your asking price. The other possibility, of course, is some sort of employment revival in the Dalby area.

The one bright piece of news is you have them rented for six years - that is positive for potential buyers and helps cover your running costs.

I really wish I could pull a rabbit out of a hat for you, but there is no magic here.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.
Comments
Robert
August 7, 2019 5.10pm

Their price has obviously not met the expectations of the buyers.

If they put them on the market for $1000 each they would sell.

So the market price is somewhere between $1000 and their asking price!

anon
August 7, 2019 8.56pm

It is not the GFC or Mining Down turn that caused this issue.
The mines were going through a construction phase, so when the construction components of the projects were finaliased contractors no longer required this portion of the transient workforce who then moved on. In this time of increased housing need there were a portion of the community who thought they could capitalise upon the increased demand for accommodation and concluded that they knew better than their superannuation funds, so cashed out their funds and sunk it into a market that was never going to maintain its returns or appeal. Moranbah is a prime example, people where renting out old Fibre Queenslanders for $3,600 per week and the properties where selling for upwards of $700,000. The stores in the towns had greatly inflated priced for consumer good. There came a point where the big mining companies moved to a completely Fly in Fly out model of employment ex Brisbane, Yes, fly their entire workforce from Brisbane was cheaper than using the exorbitant local realestate rentals. Again when those SMSF 'Investors' that grossly overcommitted to buying out the market now had to consider only getting fair market value they cried poor......

Marc
August 7, 2019 9.52pm

It's simple.....
You either drop your price enough to tempt a speculative buyer as Robert suggests or hang on to them whilst sucking up the ongoing losses in the hope of an upturn in the market, which could take many years.

It all boils down to how much you need the money in the end.
It's painful selling at a loss but at least you can move on and right it off against any future capital gains.

Mee Lin
August 9, 2019 12.20pm

Why put all eggs in one basket? If you can afford to buy 3 townhouses, you should buy somewhere more stable for income and not greedy to think of getting rich quick. As Paul says, you are lucky to have tenants in all 3 of them. Just bite the bullets and sell it at a lost. If the market price is $250,000.0 each, sell it for $230,000.0
This is a big lesson for all of us. Property investment always have to prepare for at least 10 years time flame. If you do not have enough cash float, just buy only one where you can afford.

Bella B
August 12, 2019 5.26pm

I lived and worked in Dalby awhile ago and am surprised that you received approval for townhouses in an area mainly set for families and rural industry - which usually requires long term residents. Perhaps advertising to a younger, more transient market (like young couples starting out together) might help or just try to make it so darn extremely worthwhile for your tenants to stay as long as possible in your properties and not want to move and buy their own home.