Working in the real estate industry for the past 11 years, I have seen this scenario quite clearly for the past 4 years over and over again, & I wanted to see what others thought of this scenario:
A friend of mine bought a property for $160,000, held it for 12 months & watched the property prices rise until he sold it for $225,000 & made a net profit after tax of around $35,000.
After he bought it for $160,000 he was able to rent it out for $280 per week & thus, made a cash-flow positive return of around $25 per week after expenses.
Now my question is: Do you think in the above scenario it was better to buy & sell & make (in this case) the profit was $35,000 or keep the property as it was cash-flow positive at $25 extra per week??
I personally think it would’ve been better to keep the property; particularly when he was able to buy it REALLY WELL to start off with, & after 12 months was worth $225,000, & will continue to increase in value over the long-term; all the while having a cash-flow positive return for the next 1+ years, etc.
What are everyone’s thoughts on this?
Much appreciated. Col [biggrin]propertypowerMember@propertypowerJoin Date: 2006Post Count: 312
I think it depends on why one buys a property – is it a trading deal or buy & hold deal? I would have personally kept the property and redrawn equity to put into another deal. That would have increased the repayments and made the property cashflow negative or neutral but I would have reviewed the rent (in light of the increased property value) and therefore still able to keep is cashflow positive.
â€œThere is no passion to be found playing small – in settling for a life that is less than the one you are capable of living.â€ – Nelson Mandela
Many thanks Sanjiv for your comments.L.A AussieMember@l.a-aussieJoin Date: 2006Post Count: 1,488
Why on earth would you sell a property or any investment that makes a positive cashflow every week, and appreciates in value at the rate that this property has? Sure it won’t keep appreciating at the same rate, but as they say in the stock market;
“ride the winners and cut the losers”.
Unfortunately many people see the increased value as money that they can get their hands on to spend.
If you are selling to free up the cash for other investments then that’s possibly o.k, but to me the sensible thing to do is use your successful investments (access equity) to help buy more of same.
That way, you retain your winning investment; it keeps making you rich while you buy more.
Interesting question; Does someone like “The Donald” sell his money making deals?
“we get sent lemons; it’s up to us to make lemonade”
Thanks Marc for your detailed comments.
Yeah, that was my thoughts as well. The thing I see between people that sell the property & people that keep the property is that in the first instance, they can physically see that they’ve made $35,000 profit (or whatever the figure is), & in the last instance where they keep the property, they’ve STILL got $35,000 in equity sitting there in the property, but they can’t physically touch it so to speak. A bit of maybe lateral thinking is required possibly.
Col [cap]The ContrarianMember@the-contrarianJoin Date: 2005Post Count: 97
I tend to agree with some of the other statements on keeping the winners…
Ofcourse to sell, then repurchase…
you already loose out with exit costs, agent fees, Cap Gains Tax, only then to reinvest and pay again (in most cases) for stamp duty, legals, new loan fees, insurance etc… This can amount to 10s of 1000s of dollars.
You could instead redraw the equity and re-invest in other good cash producing assets…
It sounds like you are on the right track anyways…
Keep up the good work.
ACAUSPROPParticipant@auspropJoin Date: 2003Post Count: 953
I am often faced with this dilemma and assess the property on several criteria. I too am a fan of the donald and would take his advice f possibleCherry ProParticipant@cherry-proJoin Date: 2007Post Count: 22
Excuse my ignorance but who is
“the Donald” ?
Thanks.JFisherMember@jfisherJoin Date: 2007Post Count: 143Originally posted by Cherry Pro:
Excuse my ignorance but who is
“the Donald” ?
Thanks everyone for their comments thus far. [thumbsupanim]L.A AussieMember@l.a-aussieJoin Date: 2006Post Count: 1,488
It appears everyone would buy & keep the property if the return was right & just use the increased equity in the property to continue buying properties.
Cheers! [cap]landchasersMember@landchasersJoin Date: 2007Post Count: 20
What a great discussion. I own a nice single family here in the US that I purchased for $60k and have it rented on a lease option for $750/ month. The option has expired now, but in the beginning I often wondered whether I wanted them to excercise the option and walk away with the $15k I would make. I'm thankful now they haven't excercised that option as I'm making $250/month in positive cash flow with no time involved.I can't imagine selling property off like that and not having the positive cash flow. It seems foolish to let go of something that returns a solid profit with no time involved, even if it can make $35k when you sell it. At $25/wk, he'd have his $35k in 27 years and probably a lot more equity he could cash out.Knowing I can find more properties like I own now and better, I'd probably take that $35k and put into other properties here that could easily return more than I'm making now.Great discussion and great points, everyone.