Going against you're beliefs

[RPI]

Hi

I have always beleived in buying property and never selling, I don't want my kids to sell anything when I die, but I am in the process of selling 2, probably 3 of my properties. It is definately a new experience for me and one I'd never thought would happen. I'm a firm belive in you never regret not selling your properties but in future will regret selling them. I'm sure in some way I'll regret selling them and I'll definetly miss my Queenslander that my wife and I have lovingly restored and extended over the past 6 years (we bought it when we so poor we had to save up for a can of paint).

So why am I doing this? What would make me go against my core property strategy?

In short my son and his future brothers and sisters.

I found almost a quarter acre block less than 4km to Brisbane CBD with a boat ramp and deep water access, in the middle of parkland and on a no through road. It'll have great cityviews once I raise it. The minute I saw it (and I wasnt even looking at moving) I thought how great it would be for my 18 month old and his future brothers and/ or sisters to be able to run around a big yard, play in the parks next door etc.

This will be my family home and one that I would not be intending selling for sometime (if ever) I never thought that I would live in a house like this, and not long ago I would have thought it was very self indulgent to spend so much on my place of residence, but things change, it's no longer my place of residence it's a place to raise the kids. I've bought it primarily for the block as I said above, but then my property investor brain kicked in asked myself could I use this to make money as well as for family purposes. After doing some research I have decided I will spend the best part of 12 months undertaking some major renovations. Even considering the family I do not need to live in a house this nice, however I can utilise my skills to make a lot of money while living in such a place.

There is a small (<80sqm) federation house on it at the moment that I am going to renovate and turn into a 600+sqm federation house with lots of verandahs and lace etc. I am currently finalising the design but need to make another trip to the state library to make sure my roof design and pitches do conform with the federation era. We normally do queenslanders or Pre 1900's workers cottage and have not undertaken a grand federation renovation before so though it's similiar, some more research is warranted.

Why am selling a couple of properties? My broker say I could buy the new property without selling though this would knock my cashflow very badly. My aim is to keep my negligble mortgage on my PPOR and not increase it so I need to sell so I can largely pay cash for the house and the renovations. When I finish the renovations I plan on revaluing and draw down a new line of credit to replace the investment properties I sold and add a couple of extras. I guess it helps my SANF if I don't have much personal debt, the less the better, but the more investment debt I get into the better I'm doing.

Looking forward to some thoughts on this.

Darryl

[duncan_m]

Why am selling a couple of properties? My broker say I could buy the new property without selling though this would knock my cashflow very badly.
Darryl

I heard someone say "no-one ever regretted buying a property, just selling". It seems you're selling the farm off when in you've admitted that you COULD keep the IP's. You're not delaying your gratification, you're trying to benefit from your investing success prematurely.

Sure your cashflow might take a hit, if it gets too hard THEN is the time to sell. You seem to be preparing for the worst now and doing yourself a disservice in the process.

Thats my thoughts :)

[ggumpshots]

I understand everything except
keep my negligble mortgage on my PPOR

why is that so important? Is the answer a gut feeling or an actual calaculated dollar response
Any way good luck and thanks for sharing

[always_learning]

I say this is the point of investing! Investing is a means to an end and a happy family is very much a primary goal!

So I say go for it, enjoy your success, enjoy your life!

RPI, do you really need 600m2 of house? Do you want to make a statement? This is the only factor I see that doesnt sit right with me, will your family be that much happier than if it was 450m2 or 300m2 or 250m2 of home?. "Oh dad I love you so much more since we have 4 bathrooms and the indoor gym, your the best!". Personally I believe it is better to trim it a little and spend the rest on generating quality life experiences for the family (trips abroad, gaze at Everest, have they seen NY?, educational opps, a boat, more time together). My greatest joys have been spent with my kids, just being together. I remember sitting in a Luxury hotel thinking, gosh this is nice, just wish my family was here, how pointless was the hotel and the good food without my family to enjoy it with me!

[geoffw]

I can see both sides here.

Darryl, youj've got a chance of getting a dream- one which probably seemed out of reach not too long ago. And you've got a reno project which will add super value to your property (I assume you've done all due diligence).

And I can see where Dunc is coming from. A property is performing well- why sell?

My impression is that your MB is doing OK by you telling you not to sell. I guess (s)he will benefit by you maximising loans. But it seems good advice to me.

You seem to be structuring to maximise tax benefits of interest payments on a PPOR. But don't forget that you will pay CGT on the sale of your IPs. That may easily be a lot more expensive than having a "tax free" home mortgage.

Take the time to work out the benefit of either approach. Get an IP savvy accountant to help you. Crunch the numbers either way- and try to be impartial before you arrive at your final answer.

[crest133]

I say this is the point of investing! Investing is a means to an end and a happy family is very much a primary goal!

So I say go for it, enjoy your success, enjoy your life!



Always Learning, can I chisel that in stone please ? You've got it in one.
cheers
crest133

[skater]

RPI, I have to say that I agree with Always Learning. I am also in the process of selling a well performing IP to pay off PPOR. I have done well from the boom & believe that selling this property will be of great benefit.

There is nothing wrong with taking a profit to enjoy a better lifestyle along the way. I don't want to sound morbid here, but not everyone lives to see old age & if you delay everything there is a small chance you will not see the fruits of your labour. I say go for it, but don't sell all your investments. Keep looking toward the future, but enjoy the present as well.

Best of luck

[perky29]

Darryl,
The only question I would ask is - are the IP's in an area that will continue to grow over the next 5 years - or have they boomed so much in the last few years that growth is unlikely to occur (or minimal growth at best) .If this is the case, then go for it.
But on the other side of the coin - does your new PPOR need to be so large ? Would something a little smaller mean NO mortgage ? Then if this is so , even better to have the "medium" sized house.....

[see_change]

You're not delaying your gratification, you're trying to benefit from your investing success prematurely.



That's about the most twisted bit of logic I've heard Dunc.

Why the ..... shouldn't he buy the house that he wants, and feel comfortable about it financially.

Who's to say it's premature ? Just because it involves selling a precious IP !!!

IP's are a means to an end , Nothing Less , Nothing More.

I think you need to look at investing from a different perspective.

See Change

[asy]

Congrats Darryl!

Irrespective of the financial and investorial implications of such a move, you're an extremely smart guy, and I'm sure you've thought of all the permutations and this is the one you are most comfortable with...

I am thrilled that you have found your 'home'.

Have fun with it, and I hope your kid(s!) love it there.

asy :D

[duncan_m]

That's about the most twisted bit of logic I've heard Dunc.

Why the ..... shouldn't he buy the house that he wants, and feel comfortable about it financially.

Who's to say it's premature ? Just because it involves selling a precious IP !!!

IP's are a means to an end , Nothing Less , Nothing More.

I think you need to look at investing from a different perspective.

See Change


Sorry, I obviously wasnt clear.

By all means buy the house, I never said he shouldn't. The part about delaying gratification was directed at wanting to have a good cashflow situation. He's admitted that he COULD keep the IP's AND get the new house. Not doing that appears to me to be a short term mindset, why not have a crack at keeping the IP's?

[see_change]

Sorry, I obviously wasnt clear.

By all means buy the house, I never said he shouldn't. The part about delaying gratification was directed at wanting to have a good cashflow situation. He's admitted that he COULD keep the IP's AND get the new house. Not doing that appears to me to be a short term mindset, why not have a crack at keeping the IP's?

Actually Dunc you were clear, and it was that aspect I was commenting on.

Maybe I wasn't clear :)

If keeping the IP's is going to take him out side his comfort zone with regards to his cash flow , why shouldn't he sell. While some people may feel comfortable pushing the envelope , other may want to take a more conservative approach.

See Change

[duncan_m]

Actually Dunc you were clear, and it was that aspect I was commenting on.

Maybe I wasn't clear :)

If keeping the IP's is going to take him out side his comfort zone with regards to his cash flow , why shouldn't he sell. While some people may feel comfortable pushing the envelope , other may want to take a more conservative approach.

See Change

Great! Glad I'm still capable of communicating clearly.

I feel uncomfortable inside a comfort zone.

[Aceyducey]

Darryl,

Good on you.

Why do people invest if it's not for gratification of desires at some point along the way. The freedom to choose to make this type of step is a solid reason for investing in the first place.

You've cleared stated that you are adverse to personal debt but don't mind IP debt - so why are you buying this place in your own name?

Why not buy it via a Trust & rent it back? Therefore no personal debt.

You'll have to check the arms-length details with an accountant, but this may be an effective solution & allow you to be more creative in what you do with your other IPs.

Something else to think about - while your huge family home is nice to look at & live in, it may be a bugger to sell when you choose to downsize in twenty-thirty years.

Smaller family sizes & the loss of interest in gardening means that many of the grass castle being erected in burbs may also become expensive liabilities.

When planning it, see if you can structure the dwelling so you have some flexibility - can break it into a number of smaller dwellings easily, subdivide easily, or otherwise ensure that you do retain value in the property.

One of the reasons we selected the current property we live in is that we can easily split it into two residences when we move on.

Cheers,

Aceyducey

[RPI]

Hi guys,

AL. I bought the block for the kids the size of the house is primarily a financial decision. This was the reccommendation after talking to some of my trusted local real estate agents. Their general opinion was that I need to build a house commensurate with the block of land for resale purposes (and valuation). Also I will be building it, not managing subcontractors to build it for me but physically building the entire thing myself. My best mate is an electrician and another mates a plumber so my labour costs for these two services are beer and BBQ (and return labour to help them). So I am only up for material costs for the house. Also is this is a Federation QLDER so a lot of the size is mad up of decks. I can build a 50sqm deck for about 8 grand in materials.

Basically the bigger the house is up to around the $600sqm (this includes over 150sqm of decks and verandahs) the more profit there is in it for me.

Why is it important for me to keep my PPOR mortgage negligible. Because if I pay for my PPOR loan with no help from anyone else where as investment loans are helped paid for by tenant and landlord. Also if I sell IP's and pay cash now and then reborrow for IP's later rather then borrow for renovations now it means that I don't have to make the repayments while I'm renovating (the houses I'm selling are negatively geared).

The CGT is a non issue as neither myself or my wife have any taxable income and we have deductions and carried forward losses (in trust) that will still keep our income areound zero.

My broker says yes I can afford not to sell but as I said it will greatly affect my cashflow. I haven't worked this hard to have to go back to living on a shoestring. I will still own 9 properties so even if I never bought another my financial future is secured.

When I do the figures on it yes I would make more on paper money (eg capital growth) if I didn't sell the Ip's and still did the reno but would be living as a pauper. As I have said in previous posts for me a big part of investing is for the lifestyle of not having to work for anyone else and choose when I do things.

Anyhow thanks all for the comments.

Darryl

[keithj]

RPI,

You're a legend. You're doing what most people on this forum only dream about - being able to continue not working, and also be able to design & live in your dream home.

I think most people here are in the accumulation phase, you're in the retirement phase.

KJ

[superted]

One life, live it as anything could happen.

[harrywyborn]

Dear RPI,

Im only new to this game but i will be in your shoes one day. Whats 2 IP's when you will still have 9 to keep you going, probably not much in the grand scale of things. Especially when you are finished you will be able to buy plenty more. But most important you will have happiness.

[Patosan]

Dear RPI,

I tend to agree with those that cheer you for enjoying some of the fruit of your labour thus far. Certainly if you'd mentioned having 9 IP after selling this batch I suspect the picture would've looked different for most of us.

What came to me today when mulling over your decision and peoples views on when to sample some of the gratification was indeed AL's wonderful point about investing being a means to an end. My question from that is apart from your soon to be erected home "what is your goal ?".

Actually you don't have to air the details in a forum, but is your "end" visualised ?
Will selling these IP compromise it ? If not then there is no issue.
On the surface having a wonderful home plus 9 IP sounds pretty good. Though it's all relative to your end goal isn't it ?
As KJ put it I think most of us would love to be in your dilema.

I wish you heaps of happy family times in the new home.
Enjoy !

[McKlusky]

Sorry, I obviously wasnt clear.

By all means buy the house, I never said he shouldn't. The part about delaying gratification was directed at wanting to have a good cashflow situation. He's admitted that he COULD keep the IP's AND get the new house. Not doing that appears to me to be a short term mindset, why not have a crack at keeping the IP's?

I think its pretty clear that if he doesnt sell the IPs he cant (or with much difficulty) service the high mortgage on the PPOR. Also isnt it better to decrease non tax deductible debt (PPOR) as much as possible?

My opinion is go for it as per Sea Change post, my sentiments exactly, for yourself and your future family. Sometimes a narrow minded view of investing holds you back, financially and personally.

[kissfan]

Well done RPI and congratulations. I'm in agreeance with those that commend you on your new venture. You've obviously thought long and hard about this and done your sums, so go for it. I hope to be in a similar situation in the future ( hopefully within 5 years). There has to come a point where you can enjoy your hard work and careful planning, which doesn't mean you have to stop investing, maybe not at the same rate of accumulation but who knows. Once again, well done and good luck to you and yours for the future.

Regards
Marty

[duncan_m]

I think its pretty clear that if he doesnt sell the IPs he cant (or with much difficulty) service the high mortgage on the PPOR. Also isnt it better to decrease non tax deductible debt (PPOR) as much as possible?

Of course its better to reduce non-deductible debt, thats a given. No one denies this. But if it involves taking a Capital Gains Tax hit, agents fees, legals etc then maybe the numbers just don't stack up.

This thread seems to have become somewhat of a cheering squad for reaping the rewards, of which I have no problem, provided its the right time.. I'd like to see more numbers as the original post lacked content and witheld important facts. Lets not also get hung up on the number of titles, sure there'll be 9 IP's left.. but its a largely meaningless number.. are they humpies in some far flung community? I have a theory that there's some ratio's involved that could deliver a deeper insight into everyone situation.. eg:

1. Value of PPOR / Value of Investments.
2. Total Rent Income / Total Income
3. PPOR Debt / Investment Debt

My ratios are:

1. 12% (ie my PPOR is worth 12% of my portfolio)
2. 53% (ie, I earn 53% of my income from rent)
3. 6% (6% of my debt is PPOR related)

I'm sure there's some other measures that could be applied to determine a 'prudent' level of PPOR value? Non-deductible vs Deductible etc..

So before we get too carried away on our joyous celebration of success, lets take a somewhat deeper view of the situation.. if the original poster (or anyone else) is willing.

I feel some 'not good' ratios or the ratios you might expect of someone who's only been portfolio building for a few years might be something like:

1. 50% of total Portfolio value being PPOR
2. Just 20% of income being rent
3. 50% of debt being PPOR related..

[Ecogirl]

1. Value of PPOR / Value of Investments.
2. Total Rent Income / Total Income
3. PPOR Debt / Investment Debt


I think this is a great way of quantifying where you sit with your investments. Then you need to set your targets for a certain % of each. When you have reached those goals then redefine them and move on.

So has anyone worked out what their targets are?

I'll have a go:
1. <10% - I want a high value portfolio
2. 100% of passive income (75% rent, 25% shares)
3. 0% PPOR debt

These are rough figures - I'm sure they'll change as my knowlege and experience change.

Ecogirl

[duncan_m]

I think this is a great way of quantifying where you sit with your investments. Then you need to set your targets for a certain % of each. When you have reached those goals then redefine them and move on.

So has anyone worked out what their targets are?

I'll have a go:
1. <10% - I want a high value portfolio
2. 100% of passive income (75% rent, 25% shares)
3. 0% PPOR debt

These are rough figures - I'm sure they'll change as my knowlege and experience change.

Ecogirl

I started a new thread (http://www.somersoft.com/forums/showthread.php?t=16525) about Ratios.. perhaps we can continue it there?

[RPI]

Hi All

Duncan

First of all thanks for bring some balance to this discussion.My post was meant to be more a philosophical post then a quantitative. I put some figures in to help but was more dealing with why I would sell, when I never thought I would. I didn't mean it to be an indepth expose'. I didn't post to get a pat on the back, I like the forum because it gives you a chance to air some of you're thoughts.

I mentioned the number of properties in response to some of the posts incase people thought I was flogging my entire portfolio. As for humpies. I Currently only invest in Brisbane, primarily QLDer's <5km CBD.

I think you're ratio's are a good idea, though I am not as concerned with no. 2 as I invest for CG not rent.

Currently
1. 15%
2. 60%
3. 6%

Though no.1 and 3 will increase and no.2 will decrease during the building period they will only be minor and temporary.
I will be in a better position financially following the renoivation than now and plan on using increased equity to buy more properties. As I am not borrowing any more for my PPOR or the renovation then cashfloww is not affected (actually improved as properties being sold are negatively geared).

Patosan
No this will not compromise my endgoal. The house I am building will be used to help promote my quality QLDer developments. My current goal is to do 4 of these next year. This is as much a philosophical goal as a financial. We buy a pre war qlder on a double block (or splitable block) that could have townhouses or units built around or possible removed. We then move the qlder onto one lot and build a replica beside that can not be distinguished from a renovated original. We go for quality - solid timber windows and doors, VJ interior, 3m ceilings, polished suspended timber floors on both levels etc. The resulting houses are then way too expensive for any one to knock down and build units or townhouses. I don't have a problem with townhouses or units and wish to de some developments of that kind in the future,just not at the expense of qlders.

As far as delaying gratification goes -I do not live opulently at all. As I have said in previous posts I don't want a BMW (Until my son was born 18months ago I drove a car that was worth $400 I then paid cash for a $20000 8 year old 4wd that was big enough to nto need upgrading if I had 4 kids.)or any other posh car, for me it has always been about not having to work and having enough money to do the things I want to, like travel.

I did not mean for the house to sound oppulent,as said earlier the size is based on real estate agents advice and getting the best out of the increased equity vs actual money spent ratio. Even If I was paying a builder to build it would probably still cost me less than the payments on a BMW, although don't quote me on that because I have no idea what the repaymetns for a BMW are.

Thanks for all the positive words. i hope I have answered peoples questions.

Darryl

[Peter 14.7]

Darryl

This is a no Brainer. Sell.

You own nine IP, you will own you PPOR. You will have minimal CGT. How good does it have to be?

My 2 cents worth are:

1. In 1990 a lot of IP investors had only seen good times as well. Then for five years it went flat and in some cases very backwards. 2004 is the same IMHO. Good times do not last forever.

2. No debt is not bad.

I sold in July 2003 a very good IP for $570k now worth $520k and renting for $20 a week less. Rates are also 0.5% up. I killed my PPOR and the bank has offered up to $3.0M any time I want it to get back in. Watching prices drop in inner Sydney and feeling very happy.

regards Peter 147

[RPI]

Thanks Peter

If I thought either of the properties were going to go 20%+ like last year I might have second thoughts, then ago the property I've bought for my PPOR is a rarity so wating a year alos wouldn't be an option.

I like you're thinking

Darryl

[McKlusky]

Darryl

This is a no Brainer. Sell.

You own nine IP, you will own you PPOR. You will have minimal CGT. How good does it have to be?

My 2 cents worth are:

1. In 1990 a lot of IP investors had only seen good times as well. Then for five years it went flat and in some cases very backwards. 2004 is the same IMHO. Good times do not last forever.

2. No debt is not bad.

I sold in July 2003 a very good IP for $570k now worth $520k and renting for $20 a week less. Rates are also 0.5% up. I killed my PPOR and the bank has offered up to $3.0M any time I want it to get back in. Watching prices drop in inner Sydney and feeling very happy.

regards Peter 147

This the best post in this whole thread. Here is a person in touch with reality.
Reality of life and reality of investing which seems a bit of a rare commodity on this forum.....ahem.... Good on you Peter, great post and i agree wholeheartedly.