All Topics / Help Needed! / We are doing a health check on our current IP – hold, or sell and buy?

Viewing 8 posts - 1 through 8 (of 8 total)
  • Profile photo of EIEI
    Join Date: 2011
    Post Count: 3

    We think it is time to do a health check on our current investment property.
    The question we are asking ourselves is – Do we continue to hold it, or sell it, and purchase another that has better prospects at long term growth. We don’t need to make this decision now, but want to start thinking about it.

    Any thoughts you have that will help us think through this are much appreciated.

    Our aim is to only have the 1 Investment property at the moment, whilst paying down our mortgage on our PPOP.
    Our current financial situation dictates that having 2 IPs isn’t feasible, and if we sold and re-bought, it would be for a similar priced property (400-500K) – we are comfortable it being negatively geared if it meant better capital return.

    We are questioning its performance over the last 5 years – and not too sure how to gauge how it and Torquay may perform in the next 5-10yrs.

    Background details for our current IP.

    — Torquay Victoria. 500sqm land. Old typical beach weatherboard that is on a little lean. 4 Bdr.
    — Purchase 2006 for $327K
    — Valued end of 2010 ~ $460-510K
    — Securely rented at $375/wk
    — Beach side of Hwy, backing onto large reserve, but also closest house to the hwy

    Thanks – Alex

    Profile photo of DerekDerek
    Join Date: 2004
    Post Count: 3,544

    Hi Alex,

    No-one really knows how any area will go in the future – your knowledge of the area will give you some clues.

    But as for your existing property.

    Normally buying for the long term is the key to wealth. You have now had the property for 5 years so you could reasonably have expected to have received some good profits to date.

    When determining if you should sell – ask yourself what will you do with the proceeds and can these be put to better use?

    If you sell you have a few options.
    1. Sell and use profit to reduce debt on your home. Then re-enter the investment property market with a reduced non-deductible debt level. (Personally – I think there are generally some advantges to this if the profit margin is 'reasonable')
    2. Sell the IP and re-invest in another IP – only really suitable if your property is a dog, will remain a dog and never be anything but a dog. (Buying and selling like this does have a lot of waste in CGT, Stamp duty, Agent's fees etc)
    3. Sell and use the realised funds in other investments.
    4. Retain and keep the properties – head down, tail up and wait for the rewards to come.
    5. Seel the IP, use the profits to pay down the mortgage and sit on teh sidelines.

    Peter Spann says buy for the really long term unless; you get an offer too good to refuse; you need to shoot a dog; or you can put your money somewhere better.

    Any decision you make will need to consider CGT, and buying and selling costs.

    Have fun.

    Profile photo of swampy30swampy30
    Join Date: 2003
    Post Count: 85

    Hi El,

    Well, if one uses the lower price of your current estimated price, the property has increased in value from $32K to $460K, roughly 40% in about 5 years. At about 8% per year, I’d say that wasn’t too shabby.

    Gross rental of $375 per week is 4% – again, not too bad.

    Be very careful about selling and re buying. If you sell, you’ll be up for CGT, which takes up a massive chunk out of your equity.
    Or looking at it another way, by selling, you would be eroding your capital base. Using *very* rough figures, you’d be up for around $30k CGT, plus costs of selling, plus costs of buying.

    Sale price $460k
    Less CGT $30k
    Less commission $10K
    Legal etc $3k
    Net value $417k

    Re buying another property
    Purchase price $400k
    Stamp duty $20k (check that!)
    Legals $3k
    Total costs $423k

    Can you see how the new property would have to grow by 15 % just to get you back where you started (property value of $460k)
    Think very carefully, does it make sense to sell an asset that has generated 8% capital growth for the last 5 years, to find an asset that will have to grow by 15% to break even.

    Do you really *need* to sell? Or are you just wanting to fiddle with your portfolio? Only you can answer these questions

    My perspective, anyway. Hope it helps


    Profile photo of Jamie MooreJamie Moore
    Join Date: 2010
    Post Count: 5,069
    swampy30 wrote:
    Hi El, Well, if one uses the lower price of your current estimated price, the property has increased in value from $32K to $460K, roughly 40% in about 5 years. At about 8% per year, I'd say that wasn't too shabby. 

    I was thinking the same. It's performed ok so far. We've hit a bit of a stagnant patch now but what makes you think this won't continue to be a good investment in the long run?



    Jamie Moore | Pass Go Home Loans Pty Ltd
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Paul DobsonPaul Dobson
    Join Date: 2003
    Post Count: 1,196

    Hi Alex

    I often suggest to investors to consider turning their IP from negative to positive cash flow by selling their property with vendor finance but only if it's a bit of a "dog".  In this case, if it were me, I'd keep it.

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
    Email Me | Phone Me

    An alternative way to finance your home.

    Profile photo of JackFlashJackFlash
    Join Date: 2011
    Post Count: 66

    Blimey it scares me the way people do investment analysis in here sometimes.

    So lets look at some REAL figures not airy fairy BS stuff plucked out of thin air.

    Your real buy cost is closer to $350K

    Your real sell cost less expenses 460 – 45 = $415k

    Leaves approx $65k gain over 5 years.

    You haven’t stated if its positive or negatively geared!!

    Your actual REAL net CG return is 3.5% compounded pa

    So lets summarise; you have an old beach side banger that has a net return on capital of around 3.5%pa. The 4% rent yield is probably a mirage as well.

    I don’t know about you but that’s somewhat of a dud investment in my book.

    Profile photo of Garry MacGarry Mac
    Join Date: 2010
    Post Count: 22

    The most fundamental question is…do you believe you can achieve a better return somewhere else? If you believe you can AND you are comfortable with the associated risk, then go for it. Conversely if you believe you can’t, stick with the status quo.

    Having said that, it appears to me there may be better opportunities available, however whether or not you take those opportunities will be determined by such things as your knowledge of those investments and your tolerance for risk. For example you might consider an ‘add-value’ strategy such as a duel occupancy property (which is relatively low risk) OR some form of small development (slightly higher risk)..


    Profile photo of EIEI
    Join Date: 2011
    Post Count: 3

    Thanks all for for replies. We are on the steep part of the investment learning curve, so found it really useful seeing how you all thought through this – great learning for us and we’ll now go away and crunch our numbers and think a bit broader about our options. Swampy, we are not under pressure to sell at the moment – but finding it great to have the time think this through, ‘talk’ to others, and make any decisions if we have to.

    Jack Flash – The total loan is ~$350K, but the tax deductible portion of the loan is only $110K, which isn’t giving us many happy returns come tax time. Complicating it is that it was our PPOR for 2 years…… Its something that we need to factor in, as well as the real costs that inc buy, sell, CGT etc – to determine whether the performance of our IP is good enough for us, or in fact proves to be our dud dog!

    A quick question – Property Investor data says Torquay has grown ~45% in 5 years. I assume this data is gross as well? Does this mean our place has roughly, generally, performed on par with the rest of Torquay (though there has been a lot of new construction there in the last 5 yrs)?

    Thanks again – Alex

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