Early last month I said that the case for investing in real estate was less compelling than earlier this year. One of the facts which influenced this view was teh rise in interest rates and the prospect of further interest rate increases. The subsequent fall in interest rates has changed things and it is once again possible to get positive carry on residential properties.
I still kept looking at properties although less frequently. This week I saw an apartment which was available at slightly below bank valuation (rare in the current market) and at a discount to the market value. Succumbing to temptation, I put in an offer. After a small amount of haggling a slightly higher offer was accepted.
The flat is in a building that is in the process of completing a refurbishment of common areas. It has open but unspectacular outlook, including a limited view of the smog that hangs over Victoria Harbour. The interior of the flat is a dump. It will need to be gutted and completely refurbished.
The good news is that a mirror image flat in the same building which had been refurbished to a high standard just sold at a price which should allow me to achieve a reasonable profit if I decided to refurbish and on sell rather than retain for long term rental income.
The bad news is that while I can complete the purchase with bank funding, I will not have the cash available to undertake the refurbishment until January or February next year unless I either sell something else or use the money I am setting aside for my taxes (due in January). The alternative is to do nothing until January - I would have to hold the flat and meet the mortgage and other outgoings with no rental income. I negotiated a three month settlement which means that it is only the period from mid November until early January that I will not be able to pay for the refurbishment. That six to eight weeks is going to be painful but I am more inclined to do that than to sell something else. Raiding the tax money is not really an option.