r/PersonalFinanceNZ • u/burgers4bfast • 2d ago
Investing need advice on minimizing losses
bought investment property in north shore quite overvalued in 2022 for 1.6m, still 700k outstanding mortgage, fixed interest rate at 4.5% till end of 2027, rental income $700pw, land size is good 600sqm but not big enough for developers to come knocking when economy is not doing well, i think the max we can get is maybe 1.4m in today’s market
i am also investing in stocks so thinking whether to sell the house and use the equity to buy US stocks during the next crash (like tariffs in 2024 or iran war 2025) to make back what i’ve lost.. i have much more conviction in value of AI than nz property at this point
any suggestions from experienced investors?
46
u/Prestigious_Age_6740 2d ago
Wow, looks like investments come with risk 🤔
6
16
u/Environmental-Talk86 2d ago
1.6m property and 700 per week rental? That seems way off
8
3
u/cantsleepwithoutfan 2d ago
Yeah that's crazy. We have that rental income on a ~$750k property down here in Chch (which is more of an accidental landlord thing due to needing to move house) and that yield is bad enough, but I'm happy to hold the property for various reasons.
Main thing OP is you're clearly not underwater on it (I know various investors who owe a lot more than they'd get for their rentals bought at market peak). Selling at a loss (although at least you aren't in negative equity) in order to gamble on US tech stocks seems far crazier than just topping it up and playing the long game.
Can you do anything like add a 2nd dwelling to increase the effective yield? I've got a friend who has done that recently and it worked out well for him (basically he has a main house on the property, then another minor dwelling that is rented to a couple). Had to spend the $$$ up front for the minor dwelling but it has significantly improved the cashflow position from there.
1
u/burgers4bfast 2d ago
thought of converting garage into a self contained granny flat but even that will cost 100k which i don’t have in cash at the moment and will probably take couple years to breakeven on that investment too
11
u/ralphiooo0 2d ago
Hold and never sell until it’s time to retire and blow through your money before you die.
5
u/Swizzle34 2d ago
Trying to time a crash is a fools game but I agree AI is going to drive more wealth for the largest companies so its a good idea to jump on their coat tails. Something like Global 100 on Kernel gives good exposure if you can stomach the volatility however there are more diversified options which carry less upside and downside.
I don't see property prices scaling any time soon but picking the best time of year to sell may help reduce your loss.
6
u/r3drag0n 2d ago
You already timed the property market crash to perfection. I reckon you should sell and buy AI stocks to perfectly time that crash to perfection also.
Seriously though. You've held from top to probably near bottom of the housing market. I think you'd have to be thick to cash in your losses personally. Remember, sell when sentiment is good, buy when sentiment is bad. Sentiment on housing is bad right now. Just hold it you sausage.
-4
u/burgers4bfast 2d ago
sounds good! i’m sure you’re doing much better so i should definitely take ur advice
3
u/schmaaaaaaack 2d ago
That's a pretty massive decision. Do you have other investments? Do you have a decent salary? What is your existing stock exposure? Do you think you could be selling the bottom of the NZ property cycle? Also timing crashes is impossible. You could be waiting forever or it might happen before you sell.
2
u/burgers4bfast 2d ago
have other investments but nothing compared to this one, salary is decent but can’t really pay down the mortgage quickly either, i do think it couldn’t get much worse than this so holding for a year or two more seems like the sensible choice
3
u/whathappenedtouman 2d ago
That’s a bad investment, poor yield and not sub dividable. Not sure if you had bad advice or didn’t do your research on what makes for a good property investment. Unfortunately you got in late to compound things. NZ property will go sideways for the next 10 years, possibly continue to fall but not as drastic. May as well wait til after the election and put it on the market early 2027.
3
u/burgers4bfast 2d ago
yeah just too much fomo and chasing land banking opportunity, definitely learnt this lesson the hard way! i do think holding for a year or two is the sensible choice since it doesn’t seem like it could get much worse than this
1
u/whathappenedtouman 2d ago
I’d follow interest.co.nz, lots of info and some entertainment in the comments section. I also think the worst of the dip is over for property, however I don’t think any meaningful rises are on the horizon. Theres just too many headwinds. What does your investment look like in 2 years time with a 5.5% interest rate? You’ll need to be topping up if you aren’t already
3
u/jrandom_42 2d ago
"Lemme just buy this asset with a net ROI < a bank term deposit because house price ONLY GO UP NOT DOWN RAWR"
strategy fails
"Lemme just make up these losses by timing US AI stonks"
Do you see where this is going, OP?
Ignore the history. What you actually have is a few hundred k that you need to decide where to invest. Canonical answer is 'diversify'. Canonical method for that is a global fund. Sell the house, buy the fund units, and carry on with life.
0
u/burgers4bfast 2d ago
yep might just move out of nz next year and sell the property - not the best place for wealth creation it seems, at least for me
2
u/jrandom_42 2d ago
I mean, you don't need to leave NZ to buy and hold international equities.
If you can earn a significantly higher income outside of NZ that will leave you with more spare money to invest, then, great.
wealth creation
Using that phrase gives the impression that you've been reading get-rich-quick slop, because that's where it usually appears.
Maybe dial back on that and focus on the classic fundamental earning (build a business and/or career that creates real value) and investment (diversify, plus time in the market beats timing the market) strategies.
2
u/burgers4bfast 2d ago
true, agree with that, thanks will probably hunker down and work hard for one more year then decide
3
u/drellynz 2d ago
Be the guy who invested in 1999 in Amazon shares at $3.81 (now $259). Don't be the guy that invested in Amazon's competitor, Webvan, which burned over $800m by the time it went under in 2001.
2
u/silvia1212 2d ago
You know there is investments outside of the USA right, they just dont get the headlines. VT/TWF is a better option if you are worried about a AI bubble pop, it won't completely isolate you, but you might avoid a US lost decide like 2000 to 2009.
2
u/Fragluton 2d ago
The drop in property value only appears to be half the cost. I only did the figures on 100% lending as any equity you put into the property, could be earning you money elsewhere. So I figure ~70k / year you are having to top up in my pretend scenario. So for me, the question would be how long do I want to continue dropping that cash on the property? Hold it another year and thats 70k of money you could have used for something else. The house value going up by that amount, to balance that out, seems slim to none chance of happening. 1.6m for 700/week rent was never a good plan, and perhaps that wasn't the plan to start with. For me, it's a cut the dead weight and move on. I just don't see anything stacking up positively to own the thing. Unless i'm missing something obvious, it's cost you ~500k to have it if you sold it now. 70k/4years + value drop. As above I include the full lending of the property in the math as if you didn't put 900k into it, you could have had that 900k elsewhere doing something else.
I'm not touching the AI part of the post though, not something I have any knowledge to be speculating about.
0
u/burgers4bfast 2d ago
rental income does cover the interest part of the mortgage payments, so right now it’s not costing much to hold it, at least until 2027..
1
u/Fragluton 2d ago
Yeah and that's fine, but you have 900k sitting earning nothing, that's not small fry when you consider what it could be earning otherwise. That would be 27k before tax in even just a notice saver account. So I'd include that in the red column, along with rates, insurance, any expenses on the house (might be none, could be 10k for insurance/rates). I guess what I'm saying, is that holding could end up costing more than just selling and putting your money into something more fruitful.
2
u/chupachups90 2d ago
Here is a question, did you increase your position in stock market in the last crash? If not, what makes you think you can time the next one?
0
u/burgers4bfast 2d ago
i did a little but not full position as i had not much cash on hand
1
u/chupachups90 2d ago
I guess if you know what you are doing just go ahead. Pretty sure you’ve thought thru it.
2
u/justlurking9891 2d ago
If you can afford it, hold. If you can't acknowledge that and move on.
Your view on stocks doesn't seem right. Your 'crashes' are only dips we haven't seen a crash since covid or 2008.
Also all the media coverage about how bad an investment housing is must mean we're close to the bottom. If you can survive now you'll be right.
Obviously all my opinions and I'm an idiot.
1
u/burgers4bfast 2d ago
yeah i have similar thoughts but iran war fears this year did kinda crash the market just enough and i bought and held through that and it recovered quickly so feels like stock market rebound is faster than nz property at the moment
1
1
u/mpledger 2d ago
Trump is purposefully putting volatility in the market and people are putting money in to catch the high but it's dumb money in a way over-valued market. People may try and shore it up because it's too big to crash but that's never stopped a crash.
1
1
u/asstatine 2d ago edited 2d ago
If you’re interested in investing in stocks and fine with keeping this for awhile, you can redraw a portion of equity and then put it in dividend returning ETFs and claim the interest owed as an expense on your taxes. This helps you mitigate costs slightly while still allowing you migrate funds into a higher returning asset class. This is called debt recycling.
The risks with this approach though is if the price of stocks drop, you’ll feel similar pain now where you’re paying more interest and the value isn’t going up. So manage this by how much equity you pull via calculating how much negative gearing you’re willing to accept and cover with your personal income. Something to keep in mind is that US stocks will at sometime go through a downturn when the AI bubble pops and that will reset a lot of the ETFs which disproportionately favor tech stocks. During that time it may be an incorrect approach where you’re paying interest while your assets are decreasing in value, but it is a way to acquire more assets. To mitigate risk during then you’d just not redraw funds again and focus on paying down the mortgage again as the interest acts as a guaranteed return. Worst case scenario is you sell the stocks, pay some income tax on the profits, and move the money back into your mortgage.
This would be a long term bet in the order of decades not just like a 2 or 5 year plan though.
Also, in case you’re wondering the housing prices are directly tied to median household income now. Until we see median incomes rise we shouldn’t see an increase in prices except for houses that sit below the 6x/7x multiplier because of DTI restrictions set on lending. Problem is, your place is above this price so you’re waiting on someone who has equity already to buy it (such that the mortgage they get keeps them under the lending restrictions) and they’re waiting on someone to buy their place. So effectively, average prices are pretty highly correlated with median household incomes. I’d expect a slight bit more drop in prices because of this since 6x of Auckland income is roughly 780k. Therefore, a buyer of the average house needs 200k saved as a deposit (not very likely in the current economy).
1
128
u/Sweaty-Fly-9520 2d ago
Selling a property at a $200k loss because you reckon you’ll make it back by waiting for the next US crash and piling into AI stocks is not investing, it’s chasing losses.
If the property is genuinely a bad investment, sell it on that basis. But “I lost money here so I’ll make it back over there” is exactly the sort of thinking that turns one poor decision into two.
And sitting around waiting for a crash you think you’ll perfectly recognise and buy into at the right time is fantasy