Forums / Property Investing / Help Needed! / To sell or to buy. What strategy to use?

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  • Profile photo of jcross02jcross02
    Participant
    @jcross02
    Join Date: 2006
    Post Count: 4

    Hi,

    I’m new to investing in property and I was hoping to get some advice/opinions from people more experienced than myself. I bought my first house at the end of 2012 on the Gold Coast and have had some pleasing capital gains since then. I believe that I bought below market value at the time and have also improved the appearance of the property with a basic cosmetic renovation. I live there with my partner (no kids). My income is relatively low (60k) so the temptation is there to sell up in the next 6-12 months or alternatively purchase my first IP. If I use the strategy of selling soon and then looking to buy again when/if prices fall, due to the market cycle, am I losing valuable time in the market.

    Alternatively, if I use the equity to purchase an IP (most likely on the Gold Coast and most likely negatively geared) I feel I would be buying in at the wrong end of the cycle and should the property prices decline it may take years to see any capital gain. I feel it’s a bit of a catch 22 where the strong growth gives you equity but I feel that a purchase now may not be wise.

    Any thoughts from people who have been in this position before? If I sell, I wouldn’t like to see my cash slowly dwindle whilst I wait for the next ideal buying opportunity. On the other hand, I am worried about paying too much for an IP. Am I looking to much into into the property market cycle? Thanks for reading and any thoughts would be appreciated.

    JC

    Profile photo of crjcrj
    Participant
    @crj
    Join Date: 2004
    Post Count: 618

    Do you expect your house to drop in value? Bear in mind the high costs of entry and exit probably about 10%. What will you do if prices don’t fall?

    Profile photo of jcross02jcross02
    Participant
    @jcross02
    Join Date: 2006
    Post Count: 4

    Hi Crj,

    Thanks for your response. I guess that I don’t know the answer to your question. I am making an assumption that what goes up eventually comes down and that the rapid growth may not be sustainable based on historically low interest rates and other economic factors. I guess I always have that buy low and sell high mentality but it’s hard to know what will happen in the market. If prices don’t fall and I do sell then I would definitely miss out.

    I have heard a lot of people saying that there is still buying value in qld and Brisbane. What are your thoughts Crj?

    Cheers JC

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,325

    Hi JC,
    A good reply there from CRJ – but lets visit their warning :-
    “Bear in mind the high costs of entry and exit probably about 10%”

    Going by your words, I “think” the property you are talking of selling is your own PPOR – is that right? If so, then one of the common costs (CGT) of selling has gone away. But yes, there are still several other costs to consider when buying/selling.

    My income is relatively low (60k) so the temptation is there to sell up in the next 6-12 months or alternatively purchase my first IP.

    Another option would be (subject to serviceability) to borrow against the Equity to provide a deposit for IP#1. Do talk with one of the Finance Advisers re your possibilities (you may be surprised at how many options you might already have). Of course, any final decision should be taking you closer to your goals, not further away.

    Re Gold Coast, I have the impression that GC prices (like Brisbane’s) have been suppressed for some years. With Brisbane now moving, it is likely the GC will be moving already, or might be ready to start moving. We had our dip following GFC – now, 6 years later, I’d think a gentle increase is on the cards. But note, I don’t “follow” the Gold Coast in any depth – so that’s really just another opinion…..

    If I use the strategy of selling soon and then looking to buy again when/if prices fall, due to the market cycle, am I losing valuable time in the market.

    I was just reading one of Jason’s recent Articles – and one of the points made therein was on that very subject !! Go here to take a look:-
    https://www.propertyinvesting.com/the-7-most-fatal-property-investing-mistakes/ Now scroll to subject “#5 – Buying at the Wrong Time”. Have a think around that, as it also has a bearing on “Selling at the wrong time”.

    In short, know WHY you are wanting to sell before actually selling. Know just how the figures will work, the advantages selling will provide you, and the disadvantages too – BEFORE you sell. Having a chat with one of our members who is an adviser on money matters would be a good idea too. Use the knowledge of someone else who knows things you need to know – and maybe make them part of your “team”.

    Benny

    Profile photo of jcross02jcross02
    Participant
    @jcross02
    Join Date: 2006
    Post Count: 4

    Thanks Benny. Definitely some food for thought and Jason’s article was informative.

    Yes, the house is my PPOR so CGT isn’t an issue should I sell. My goal was to either buy or sell in the next 6-12 months so thanks for the input and I will ponder further from here..

    JC

    Profile photo of Tom@SadhanaConstructions[email protected]
    Participant
    @spartantom
    Join Date: 2015
    Post Count: 17

    Without generalising too much (although this is general advice only) the majority of property investors buy and hold with the exception of the renovate to sell crowd. I have no idea of percentages but this is generally what I come across.

    The first thing you need to think about is what your goals are and what you hope to achieve by selling. You’ve already said that you want to take action in the next 6-12 months. This being the case do you simply want to upgrade your PPOR, buy a PPOR which you can then renovate to artificially increase the equity or would you prefer to stay in your current residence and buy an investment property. If you are seeking to upgrade your PPOR or want to renovate a new place have you considered converting your current PPOR into an investment property and buying a new PPOR? This is a very common strategy. If as you say you bought below market value and you have performed some cosmetic renos then it is entirely possible there is equity available for you to use as a deposit for your new PPOR.

    If you decide selling is the best option for you right now then the entry and exit costs are the biggest concerns at this point. Real estate agents selling fees and stamp duty on your purchase are the biggest killers as CGT isn’t an issue for you. Is this outlay going to be offset by the gain you expect in the near term from purchasing the new property?

    Of primary importance is where you think the market is going to go and how this sits with your goals and preferred investment strategy. Sure the risk of the market falling is very real, however will this fall by 5%, 10% or 20%? Given that exit and entry costs could be upwards of $30k for a $300k property (guessing as I don’t know the specifics) do you expect the market swing to be greater than this? You also have to factor in the hassle of selling and buying and the risk of storing cash in an account somewhere waiting for the “right” time to enter the market.

    Something to consider when thinking about your goals and intended investment strategy is that for a buy and hold strategy, the entry point is very important, but more so is the exit point, i.e. for a true buy and hold there is no exit point. This would mean the down swings in the market “don’t” affect you as you just sit back and wait for the upswing OR (and this is the ideal) this is when you buy your next investment property. So timing the market will be less critical than if your strategy is strictly buy, improve and sell which will then be severely hampered if the market takes a dive.

    [email protected] | Sadhana Constructions
    http:\\www.sadhanaconstructions.com.au
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    Perth builders of developments and bespoke homes

    Profile photo of jcross02jcross02
    Participant
    @jcross02
    Join Date: 2006
    Post Count: 4

    Hi Tom,

    Thanks for your input. Your right in saying that I need to think about my goals as I have never really had a plan and am unsure whether I do fit into the renovate to sell crowd or the buy and holds. I have built some equity in my PPOR so my thoughts were to either sell and wait for better buying opportunities in the future (whilst renting which I am ok doing) or use the equity to purchase again, making the new property my PPOR whilst I renovate it.

    To be honest, I have been tempted to take the “quick money”. As the saying goes, a bird in the hand is worth two in the bush, and with the property market heating up it has been tempting. On the other hand there are definite pros to buying my first IP rather than selling and it may be a safer “long term” option.

    You make a valid point in saying that timing the market is less critical in a buy and hold strategy and I will definitely keep this in mind when I crunch the numbers and make my decision later in the year. It’s hard to speculate on how much property prices will take a dive (if at all) and to compare them to entry and exit costs but I’ll have to see what happens and weigh it all up when the time comes.

    Thanks again

    Profile photo of Howard MoralesHoward Morales
    Participant
    @howardm673
    Join Date: 2015
    Post Count: 16

    Consider a mortgage broker. A mortgage broker is there to help you find the right home loan for your situation. Since this is your first home loan, a mortage broker can show you the ropes and explain all the features available.

    Howard Morales | Selling investment property in brisbane
    http://www.mcbeathrealestate.com.au/

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