Hello to all,
my first posting is a relatively simple question (hopefully) I have a negatively geared property that is a holiday house , very nice to have but returns are not great.In the experiences other people have had,is it better to hold on to this property and try and get a few positively geared properties on the go to make up the shortfall or would it be advisable to cut my loses (have only had the property 8 months) and “re deploy” my investment money into a positively geared property? I’m sure that there are people that have been in similar situations , what have you found through experience would be the best approach to take? Thanks for any experience you can share with me.I’d suggest you hold onto it for at least another 4 months to take you over the 12 month threshold, which will make you eligible for the 50% CGT discount. If you sell under 12 months, you will be liable for the full 100% CGT bill.
What you do from there is up to you. It depends on the value of the property; that is if it is growing in value, albeit with poor returns at the moment, I would be inclined to hold on to it, especially if you are not too deeply out of pocket each month.
Property is not a short term investment, serious investors realise this and are prepared to weather the bad times along with the good. Folding is a good strategy when deciding to walk away from a poker table, where you risk losing your shirt.
Jo
Hi Shackles Off,
I feel this is really a question that only you can answer… Just how nice is it to have that property? (vs how nice are the possible alternatives?).
If you decide to sell it though, I think it would be worth waiting for another couple of months as you will then qualify for 50% profit CGT free. You must hold the property for 12 months from signing the purchase contract to signing the contract to sell (I think). That is my understanding of the situation although I’m far from being a qualified accountant.
Regards
SonjaEveryone is assuming there are Capital Gains. The property was bought in the beginning portion of a downward or sideways property cycle 8 months ago so the Capital Gains, if any, would be minimal. You would probably even have a huge tax loss to offset against future income when considering costs to get in and out.
Unfortunately, the property being a holiday house (ie: not available for rent at market rates) may result in no deductibility on expenses.
I think it is up to you if you have an emotional attachment or want to turn over your funds to increase returns.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter: See – http://www.mortgagepackaging.com.au/index_files/newsletter.htm
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Hi Shackles Off,
Welcome to the forum and thanks for your post.
This forum offers a variety of opinions, which is good because it will help you consider your options from various angles.
For example, I do not share all of Jo’s general views on property. Historically, and statistically, property markets trend down and sideways for longer periods than they trend up. Having said that, they generally trend up over time, if nothing else becuase of the effect of inflation.
This being the case, investing for the long-term may seem to make money, but I question whether it is the most efficient way to maximise returns. For example, most sophisticated property investors I know generally do have a long-term horizon, however they regularly buy and sell to cash in and reinvest profits (to increase the rate at which their money compounds).
In your case, the help I offer is in an effort to understand the decision before you.
1. Holiday homes are a lifestyle decision. Whether you keep or sell depends on whether you want to maintain that lifestyle.
If you have a holiday home as an ‘investment’ then I think it’s easy to cloud the decision making process as emotion kicks in.
Ultimately, if you want a holiday home and can afford it, then what’s wrong with that? However, if you want a holiday home as an investment, then to evaluate the nature/performance of the asset you need to compare the financial outcome of renting (for the time you are away) vs. owning (i.e. the income and capital gains you are receiving).
The lesson: Be careful not to confuse investing and lifestyle decisions.
2. How much money could you earn elsewhere (also known as the opportunity cost). If holding this property is at the detriment of another investment, then you could be hurting yourself unnecessarily.
This said… what other opportunities do you have at the moment, and how much extra will you make by selling here and buying there?
3. Jo makes a good point about the tax, but in the same token, I don’t let the tax impact run my investment, I let my investment run the tax impact.
What this means is: don’t be afraid to take profits (or cut losses) if it is in your best interests to do so. That is, the tax consequences reflect your investment decision, not the other way around.
4. MA raises a good point too that not all properties will earn capital gains in all markets. What’s needed is a solid and workable plan for how you plan to make and take your profit.
Hope this has helped clarify the decision before you.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Originally posted by Monopoly:I’d suggest you hold onto it for at least another 4 months to take you over the 12 month threshold, which will make you eligible for the 50% CGT discount. If you sell under 12 months, you will be liable for the full 100% CGT bill.
If you hold for another 4 mths a Cap Gain will be the least of your worries.
And I’m not talking Sydney this time. Big house two Storey modern . Client bought just outside Jervis Bay, Great Water views etc. Bought 550K mid 2002 spent 10K on it got it valued for a divorce sep, and it came out at 580K.
We were pushing for a high value but valuer said on comparable sales that was tops, and from what we saw could not argue.
Waterfront at 700K. Great time to buy, but guessing it will get better.
gmh454,
True, another 4 months is not going to make a huge difference in terms of capital gains with respect to value of the property. My point is simply, why pay ANY capital gain, when you don’t have to. Even if Shackles off makes a loss, another 4 months won’t make a huge difference, and it will be a few months of extra claimable deductions. It depends on how much more Shackles off will lose if he/she waits as opposed to if he/she sells the IP now, which btw is not a good time, best left till after the holidays (hence 4 months is a good compromise).
Ultimately, the final decision rests with Shackles off after he/she weighs up all the pros and cons and has sought proper financial counsel.
Finally, excuse me if I am a little miffed at the prospect of paying ANY CGT but when you have paid out almost quarter of a million on your own to the taxman, you tend to advise people to steer clear of the taxman’s grasp as much as they possibly can.
Jo
I agree Jo. No point giving that measly bastard any more money than you have too!
Besides, 16 weeks is all you have to wait, and that’s about the time it’s take you to work out what you want to do. Plus use that holiday home for all its worth!
Ummm, silly question, but if it’s a holiday home… it would be kitted out ready to stay in. No? If it is, why don’t you do holiday accommodat for three weeks of a months and leave yourself a week a month to enjoy your holiday home. THat way you will still get some income and enjoy your lifestyle choice too!
Maybe, offer a slightly lower rental rate to ensure you always have someone in there. Well, to start with anyway.. As soon as you get people coming back regularly or they recommend it to others, increase the rent to near normal holiday rental prices.
Just a thought…
Steph.Success is 1% inspiration and 99% perspiration.
Thanks for your thoughts and input.
I think for now i’ll just cool my heels a bit and digest what you have said. Will see my accountant about the tax situation if i sell before the 12 months is up versus holding onto it for another 4 months.I think “lifestyle” says it all , it is a great lifestyle property but as an investment i’m not so sure? I have just finished reading Steve’s book and have a new outlook on what an investment property should be (creating a positive cash flow as opposed to creating a negative one)
Think maybe i rushed into the decision of buying it and never really gave it much thought, don’t want to make the same mistake again here………first lesson learnt “due diligence”
No doubt i will have many more questions as i start my journey towards financial independence and will be calling on your experience again along the way.
Merry christmas and have a great new year
Cheers
Shackles OffShackles,
Don’t sweat it. Some people know exactly what to do but rush in and do stupid things. I hold a Masters Degree in Stupidity!!!! Hardly any professionals I know (besides Steve and Dave) actually practice what they preach all the time.
It is all a learning experience and as long as you learn something you have succeeded as far as I am concerned. Money is just a bonus you get at the end of the day.
Robert Bou-Hamdan
Mortgage AdviserM: 0414 347 771
E: [email protected]
W: http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter: See – http://www.mortgagepackaging.com.au/index_files/newsletter.htm
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
Hi Shackles,
Seems like you got some good advice above, but would also like to add :
LOAN type : Are you on an Interest Only loan ??? if not, maybe you should consider that to reduce your negative gearing ??
RENO : Is a cosmetic reno possible, to increase the value of the property / AND / potentially increase the rent ??
Good luck with whatever you decide, and, yes, Jo’s right… avoid CGT if you can bear it……
Cheers
Scott
You may know the cost of everything…. but what about the value ????
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