Hi all,
This is my first post, but have been a long time reader…
With the current economic situation being rather uncertain, I was just wondering whether it may be a good time to sell property? My current situation is as follows:
Living in Perth:
– I'm single, 34yrs old, earn about 60K
– PPOR Inner City Apartment which i own outright worth about 470K
– Own a Block of land worth about 350KThe plan:
– Sell the PPOR, and rent for a year or two at about $350p/w
– Build 2 townhouses on the land with renting them out in mind.
– look to buy another property over the next year or two, where i believe prices will plateau (or hopefully decline a little), as an IP initially, with a view to it becoming my PPORThe reasons:
– I Dont think perth prices will go up much further, and would eventually prefer to get out of apartment living.
– 470K in a bank account earning 7%+ will more than cover rent
– will have some cash to help fund the development of the townhouses.The questions:
1) Well, is selling the property (cashing in) the right thing to do, even though i own it outright?
2) Should i use a portion(or all) of cash to fund the development of the land?
3) Is there any other strategies i should investigate that may be more fruitful?
4) Is there something else i should consider that i may have missed?I know some people advocate to never sell unless you really have to, but to have my money work for me over the next couple of years this seems like a good idea. It may be rather speculative, but i just feel it may pay off. I'm definitely going to crunch some numbers and investigate my options thus this topic to ask a wider audience.
Looking forward to hearing your comments.Tony
Tony,
You haven't mentioned if you owe any money on the vacant land and this needs to be taken into consideration first.
C2
Own the block of land outright.
So i'm pretty much debt free at the moment!NEVER SELL, NEVER SELL, NEVER SELL, NEVER SELL.
got it?use your existing equity to buy more.develop the land, sell a couple and keep one or two as cashflow positive IP's with nice depreciation deductions.
470k at 7% interest also becomes taxable income, so you will not get 7% and also you would have to spend some of that money on rent for your own place to live.
Currently your tax bracket would be 30c in the dollar, whereas if you earnt 7% of 470k, you would have a taxable income of $92900, bringing your bracket to 40c in thd dollar, all of a sudden making your 7% more like 4.2%. (e.g. currently your net income is $46376p.a and with your interest earnings will only become $67056, which is only $20680 you would keep out of your $32900 earnt in interest). Doesn't seem that good when the government is taking $12220 of your interest in tax.
I think over the long term your inner city department will get more than 7% growth and if you didn't sell, the equity is not taxable and you could use this to fund further projects and you would be way better off than selling. Capital Growth is not taxable unless you sell.
If you want to get out of the inner city apartment, you could rent it out and refinance to use the equity to do whatever you want with it.
L.A Aussie wrote:NEVER SELL, NEVER SELL, NEVER SELL, NEVER SELL.got it?use your existing equity to buy more.develop the land, sell a couple and keep one or two as cashflow positive IP's with nice depreciation deductions.
Gee what great advice……lol Of course you could always look at putting your money into where ever you are going to maximise your return instead of blindly holding on to property just for the sake of it. Try reading some books on people who have actually MADE IT and you will see they very often sell and move there money around to maximise profit. Pretty narrow minded comment there LA….
blogs wrote:Try reading some books on people who have actually MADE IT and you will see they very often sell and move there money around to maximise profit.Hi all. Very new to all this, so I am doing a lot of reading and researching right now. What books do you suggest blogs?
Gee mate there are all the normal property books that you will hear about on this forum BUT dont be scared to think outside the square, try reading Kerry Packers unauthorsied auto biography-fantastic read, but more importantly is showed he wasnt scared to sell up and take a profit when the time was right. Just look at when he sold Chanel 9 to Bond-everyone would have been saying 'NEVER SELL' blah blah blah yet that one action made him more money than you or I could ever dream of-sold it for $1 BILLION and bought it backa few years later for a quarter of the price. Same with all the moguls such as Branson, Trump etc rich people arnt happy to just sit on 5% growth if they can profit take and put the money somewhere else and make 10% growth!!
Gee what great advice……lol Of course you could always look at putting your money into where ever you are going to maximise your return instead of blindly holding on to property just for the sake of it. Try reading some books on people who have actually MADE IT and you will see they very often sell and move there money around to maximise profit. Pretty narrow minded comment there LA….[/quote]
Guilty of being biased towards property Blogs.
That's all I've ever done investment wise, and it's been good to me. You could do worse.
What makes you think I haven't MADE IT?
Writing a book is not the only yardstick for that.
NETT WORTH is.
And I don't mean nett worth from PPoR's and doodads like cars and boats. I'm talking about Investment Nett Worth.
My first post was basic admittedly, but it is a wise saying. Time to elaborate.
Assuming that Tony13 has no other investment knowledge, and obviously already has some success with property, I'd encourage him to do what he is already knowledegable at, become expert at it and keep on going.
You talk about property as only ever getting 5% growth in the last post, and the Trumps and Packers sell and put the cash into other investments.
Yes, you can sell and move the money around, but you can also HOLD the property and use the equity towards other investments. Selling attracts lots of selling fees and cap gains tax, and is not always the best move financially. This is what I have found.
And, this can easily be more property. While one market is stagnant, there is always another one booming, so if you are constantly studying the market and looking for areas that are about to boom, or are booming, whilst still retaining your other property, your wealth will continue to grow at varying rates, and if selected wisely, will be easy to beat your 5% average.
To assume all property goes up at 5% is narrow minded.
L.A Aussie wrote:Guilty of being biased towards property Blogs.That's all I've ever done investment wise, and it's been good to me. You could do worse.
What makes you think I haven't MADE IT?
Not meaning to insult you there LA-I spose we all have a different idea of at what level we have deemed to have 'made it'. My point was that the richest people in the world, many of who are entrprenuers have made their mony through profit taking and chasing maximum returns. Thats not to say that your method hasnt or wont work BUY to say no matter what dont sell is narrow minded
L.A Aussie wrote:To assume all property goes up at 5% is narrow minded.
I never said that property only grows at 5%????? I used those numbers for explanatory reasons lol. At what point do you sell then? When you are ready to retire and want to cash in? If you keep using the equity to purchase more proerties where does the positive cash flow start to come in?
Thanks for your comments…
I'm pretty much from the school of "dont sell property if you dont need to", but i dont want to narrow my options down by not looking at other areas/methods to invest, thus my post here to hear other points of view.
Selling my current apartment which is my PPoR wont incur any CGT costs, only selling costs. How would holding the property and using the equity towards other investments work with claims/tax issues later on? Equity and the tax system is a bit of a grey area for me. I've never used "equity" for other investments.
The theory behind me selling and renting a place is that i will save on strata fees $2400pa, council rates $880, and water/sewerage costs roughly $500pa. Growth looks to be minimal so holding it and having 470K tied up in it, doesnt seem to be a profitable strategy.
Personally, as i have stated, I eventually want to move out of apartment living, so selling it now as a PPoR wont incur CGT, and being on my own i could comfortably find a rental in the 320-350 range to suit my needs. I'd eventually look to buy another place initially as an IP (for initial tax benefits) with a view to becoming my PPoR.
I suppose that is why i'd rather sell now…but selling and renting is out of my comfort zone…but something that may just be the right move for me.I suppose i'd like to be convinced that selling is a good idea, because most people (myself included) think HOLDING property is the best course of action.
blogs wrote:L.A Aussie wrote:Guilty of being biased towards property Blogs.That's all I've ever done investment wise, and it's been good to me. You could do worse.
What makes you think I haven't MADE IT?
Not meaning to insult you there LA-I spose we all have a different idea of at what level we have deemed to have 'made it'. My point was that the richest people in the world, many of who are entrprenuers have made their mony through profit taking and chasing maximum returns. Thats not to say that your method hasnt or wont work BUY to say no matter what dont sell is narrow minded
L.A Aussie wrote:To assume all property goes up at 5% is narrow minded.
I never said that property only grows at 5%????? I used those numbers for explanatory reasons lol. At what point do you sell then? When you are ready to retire and want to cash in? If you keep using the equity to purchase more proerties where does the positive cash flow start to come in?
If you study the richest people in the world, you will see that they continue to accumulate growth and income producing assets. They buy far more than they ever sell.
With the gearing aspect; it is possible to buy positive cashflow after tax properties, that cost you nothing to hold, and go up in value steadily. The rents also go up, so the cashflow becomes positive very quickly.
I have the mindset of never sell Blogs.
The selling and purchasing costs, plus the cap gains tax will swallow a lot of the profit from the sales, as you need to re-invest the funds as soon as you have made the sale of the last asset.
That's not to say that I never will sell, but I believe that there is more money to be made by holding the properties, even when the market is flat, and accessing the equity to do more things.
For example, if I continue to buy a property every 2 years, and only buy in areas that are about to boom, or just starting, then after 10 years I have 5 properties, all bought in a boom, so will perform above the average for a good time.
Say they grow in value by 7% per year (which is about the historical average), then I have 5 properties doing that, and along the way I access some of the growing equity to maybe buy a business, or buy some shares, and of course; more properties.
Now, I have compounded the returns on the properties I own, even if they are not doing much for a time.
Don't forget; the rents are always going up along the way, and there will also be tax benefits and depreciation. The whole thing is like a tree growing upwards and outwards; it's exponential.
So, it's not just a simple case of selling to take a profit and re-investing the funds. I agree that in the short term selling will improve the cashflow, as you have more cash to offset the loans, but you are eroding away the cap growth that has been built up through the transaction costs and cap gains tax.
My plan is to keep on accumulating (without selling) my whole life, and to be able to amass enough wealth and have a low enough LVR to be able to live off the equity. LVR currently is 58%, which is a good number to do it, but the asset value needs to grow a bit more.
On retirement, sell off enough of the assets to pay out any debt, and live in comfortable retirement on a good passive income.
In respect to selling; one of my strategies is to do smaller subdivisions whereby there are say 3-5 townhouses or units built. Maybe 3 or 4 are sold off, the loans are paid out and I am left with one or two units in the complex that are totally debt free and positively geared with massive tax benefits and deprecation. This would be a sell scenario for me, and would be repeated.
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