Do we sell or do we keep?

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From: Paula Dee


Can you please give us some advice. Hubby and I purchased an old unrenovated Victorian double fronted home in Sydney on a busy road 3 years ago. It was a very good price at the time because it did not sell at auction (we never buy IP's at auction). Anyway we had the place re-valued by our lender (not a bank) at the end of last year to increase our LOC. We were happy with the valuation at the time because it came in at $100,000.00 above what we paid for the home. Now we are finding similar properties, though on quiet streets and totally restored are selling at auction at 250% more than our valuation came in at.

Questions:
1. Should we sell now in the hottest market we have ever seen? If so, should we sell as is and get a profit anyway (and grit our teeth when handing over the CGT to the govt). or spend $100,000.00 and restore the home to that comparable to the recent properties sold, then sell? (more teeth gritting)
Would the time taken to restore the place take us to a period in time were the market has cooled considerably? i.e. Spring with more sellers in the market? Nuclear war in India etc?
2. Should we hang on for the long term? If so, what should we do about the valuation that is so far away from recent comparable sales? It cost us $250 for the val. Even then, the lender would only increase the loan by $60,000.00. Can't buy much with that in Sydney! Please advise. We apologise for the long post.

Paula Dee
 
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Reply: 1
From: Nigel W




You're wrestling with one of the fundamental investing questions ie. sell or hold?

The question I always have is: assuming I sell for the price I want, what will I do with the money? Can I put this money to better use in another project? If the answer is that I can't earn at least another 2-3% more on the proceeds in another deal than I am in this deal then I'd hang onto the place. I suspect that property in a good location in Sydney is a pretty good investment option from a growth perspective - so maybe you should stay put?

The other question of course is: do you need the cash now? If you don't then I wouldn't sell.

In terms of the reno - is the property costing you anything at current rental yield? If it isn't then maybe you should hold off on the renovating - but bear in mind you're probably just postponing the inevitable as the rent will not keep pace with the market without at least a freshening up.

CGT won't, of course, be payable if you don't sell so is there a way for you to get at the equity you've got without liquidating? I understand Steve Navra has some interesting options (why not search the posts?)

If you spend $100,000 on the reno, it better raise the value of the property by at LEAST $200-250K and boost the rent by say $50-$80/week or it's just not worth it!

It sounds like your lender may be the real barrier here. Why not talk to Rolf Latham (the forum's resident mortgage broker extraordinaire) Rolf's contact details are also on the forum posts somewhere. A refinance of your whole portfolio may do wonders for your LVR!

There's more than one way to skin a cat, so don't give away a portion of your wealth to the tax man if you don't have to.

Just my random thoughts. Get advice from your accountant and your lawyer relating to your financial position.

good luck
N.
 
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Reply: 2
From: Rolf Latham


Hi Paula

Hold onto it unless its a dog.

The costs of getting out and relacing the asset value with another property can commonly be as high as 6 to 8 % of the sales price.

A lot does come down to your emotional attitude to money and all that goes with that, debt, risk, fear of loss etc.

If you havent done so as yet putting togeher a plan ir a view to where you want to be in 3 5 and 10 years time may clear the fog a little.

Ta

Rolf
 
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Reply: 2.1
From: GoAnna !


Hi Paula

Congrats on your great buy :eek:)

A couple of thoughts:

Why not apply for a renovation loan, collect data on similar sales and after the renovation is complete ask for a revaluation? They may even do this automatically as past of the renovation loan application. And then let and hold it.

Or after preparing your data on equivalent sales approach other banks and see if they can come up with more realistic valuations. Afterall I assume yours is not the only financial institution interested in doing business with you.

I have learnt a lot from others on this forum over the past year on the power of a well sold valuation. It is the best return on your time you will ever get.

Good luck!


GoAnna !
"Lethargy, bordering on sloth, should remain the cornerstone of an investment style"
Buffett
 
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Reply: 3
From: Neil Iffland


What suburb is it in Paula ?
 
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Reply: 3.1
From: Paula Dee


Thanks to everyone for their comments. The property is in Summer Hill. Moved away from the banks years ago when they decided to charge us a fee per month/year to have a loan with them! Also, they hate LOC loans and rudely want to charge me a monthly fee and a higher interest rate for the privilege. Very tempting to sell at the moment the way property is moving in Sydney but we've decided to resist for the time being. Once again thanks for the help.

Paula Dee
 
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