buy & hold strategy... when to cash in?

[skuzy]

Hi Folks
Dumb question time..
when it comes to buy & hold strategy for IP's...
How do you know when to cash in and sell? thinking of letting go my IP but have had alot of family and friends always commenting never sell never sell...

IF you never sell.. then i the strategy is revalue, refinance, draw down buy.. repeat - correct?

Cheers

 

[Terry_w]

Not a dumb question, but a good one - there was a thread on this very topic just a week ago.

 

[Ace in the Hole]

What if everybody told you to cash in right now.
What would you do with the money?

 

[Rixter]

Hi Folks
Dumb question time..
when it comes to buy & hold strategy for IP's...
How do you know when to cash in and sell? thinking of letting go my IP but have had alot of family and friends always commenting never sell never sell...

IF you never sell.. then i the strategy is revalue, refinance, draw down buy.. repeat - correct?

Cheers

Yes, and that strategy is a very effective one for building real wealth over the long term for sure.. many people have retired on in it.

 

[Big Will]

It is up to the individual and how much risk they want to take on board.

If you have 10M in loans on 10 houses and was looking at retirement you might sell a couple to have an easier time servicing and lowering your risk.

Same time if you have 50 houses with no loans or total property LVR is 20-50% you might consider just keep holding.

However if you never sell then you need to revalue the houses and draw down equity to get the $$$.

 

[skuzy]

Yes, and that strategy is a very effective one for building real wealth over the long term for sure.. may people have retired on in it.

with this.. i assume in order to retire all the IP's accumulated would have to be CF+ ? (not even considering the rental yield)

currently am considering cashing in just to restructure my current loans (including the one against my ppor)... if for no other reason its a good one at that i think

 

[Rixter]

with this.. i assume in order to retire all the IP's accumulated would have to be CF+ ? (not even considering the rental yield)

Skuzy, you have a few options available in relation to the harvesting phase of your portfolio in order to retire.

Like any of the options there will be pro's & con's for each.

You will need to decide which one best suits what your wanting to achieve based around your risk profile.

Some options may include sell all IP's and put the profits into a cash income product, live off rental income, sell part of portfolio to payout your remaining part and live of rental income (LOR), Redraw equity to fund lifestyle (LOE), or a hybrid of LOR & LOE...

I hope this helps.

 

[skuzy]

Thanks again for your comments Rixter .. again the answer seems so obvious when reading if first thing in the morning over a cup of coffee..

 

[Rixter]

Thanks again for your comments Rixter .. again the answer seems so obvious when reading if first thing in the morning over a cup of coffee..

No probs.....gotta love a nice cuppa in the mornings.

 

[MTR]

.

However if you never sell then you need to revalue the houses and draw down equity to get the $$$.

However, if you have given away the day job the banks wont be too keen on increasing equity if you can not service the debt. Many banks also see clients that are rent reliant as higher risk.

 

[MTR]

Hi Folks
Dumb question time..
when it comes to buy & hold strategy for IP's...
How do you know when to cash in and sell? thinking of letting go my IP but have had alot of family and friends always commenting never sell never sell...

IF you never sell.. then i the strategy is revalue, refinance, draw down buy.. repeat - correct?

Cheers

I think this is one of those...."how long is a piece of string"

It is dependent on so many scenarios and your strategy moving forward. There is no right or wrong answer.

Some factors I would consider is -

Tax implications

Current Debt - LVR

Your ability to service future investments (selling versus holding)

Product (future growth and current market), where is the cycle??

Yield/cash flow

If you sold can you reinvest funds to make more money

MTR

 

[Loony]

depends on age and how many properties you have...

for people that have been investing for a while (assuming the property has good equity) I think its a good time to sell off something to pay down debt.

interest rate is low, cash out and offset.

from the little that I know, I think the biggest reason that Australia have this property boom in recent years is because of immigration.

immigration has been a big part of Australia but if you look at 30 years ago, European moved to Australia with nothing and since they worked very hard and became wealthy now.

But chinese and other cultures that move to Australia in in recent years generally come with some capital with them hence the reason property boom so much. Canada is a good example too.

so my guess in the very long term (20 years) it is hard to have the same situation repeat, therefore I think cash out now and offset is not a bad idea.

 

[hugh72]

Net overseas migration is likely to continue at a elevated level compared to the past as this has the benefit of slowing the aging of the population and will ensure economic growth and revitalization occurrs. This will help to keep us from becoming another Japan. So these factors are highly likely to repeat.
The one off effects of dual incomes and deregulation of the financial system will not.

 

[impermanence]

Net overseas migration is likely to continue at a elevated level compared to the past as this has the benefit of slowing the aging of the population and will ensure economic growth and revitalization occurrs. This will help to keep us from becoming another Japan. So these factors are highly likely to repeat.
The one off effects of dual incomes and deregulation of the financial system will not.

I agree and believe this will be a big theme in the coming years. The Intergenerational Report released last month mentioned this actually:

Lower overseas migration will lead to:
- lower economic growth
- lower participation rate
- lower tax base

However they had the forecasts for NOM dropping from 1% currently to 0.5% over the next 30 years. Given the statement above about lower migration I think these forecasts are quite contradictory.

Australia needs skilled overseas migrants of working age over the coming decades to offset the effects of the retiring baby boomers and strain on public health/reduction in the tax base. However I get the impression that if the Government actually came out and said this it would be quite unpalatable to the voting public, hence they are sweeping it under the rug for now. A case of saying one thing and doing another.