Frankston (Karingal) - had some growth & thinking of selling

[ManyManeuvers]

Hi All,
Seeking advice on should I should sell my first investment property in Frankston (Karingal)...

Property details:
- 3bed +1 bath +1.5 garage AV Jennings style in Gretana St, Karingal
- Rent: 285/wk rent on 12 month contract (good tenant after some nasties)
- Finance: 250k IO loan.
- Purchased for 260k in May 2008. Lived in for first 1yr and I do not own another property.
- Est. Value at this stage: 320-340k

Why sell
- reduce overall LVR:
> I have a ~500k margin loan at ~60% LVR against bank and spec resource stocks (I believe they have material growth to come in 3-12 months)
> in a few months I am starting a new business overseas. It does not require a huge cash injection, however I will quit my current job to focus on this and therefore want to bring my CF from investments to break even.
- increase 'quality' of my real estate. focus on better located with more options to improve/ develop (ie: more flexible land size/ configuration relative to zoning/ location, closer to infrastructure of trains, beach, education)

Please fire away with your thoughts/ comments... anything welcome of course, however I'm most interested in answering the questions of:
- is Frankston growth relative to the general market in Victoria/ Australia expected to be higher than 'average' (and on what basis)?
- do my reasons for making the decision to sell make sense, or should I look at this in a different way?

Thank you in advance!
David

 

[marg4000]

David, firstly check for any break costs in paying out the IO loan.

The reason to sell would be if you consider you have a better use of the funds. Allow for selling fees, legals, bank break costs.
Marg

 

[toony]

Why sell.

Did you not see that Frankston hosted the today show this morning. Certainly gave a better picture than when the secret millionaire came to town.

They say property is at least a 5 year investment. Leverage and Compounding is the key. I bought a unit in Sth Frankston for $95k in 1999. Now worth about $320k-$350k.

In my view not much beats property investment and Frankston has alot going for it.

 

[meconium]

- Est. Value at this stage: 320-340k

The median price for a home in Frankston is $370,000, almost $200k below the greater Melbourne median. The likelihood of risk-free upside is a lot greater than you may think. Hang in there. Your house may be worth a lot more than you think. Your rental return suggests the house is one of the nicer ones; you will regret selling so cheaply in a few years time. You may be letting the local agents talk you down. Don't let them reduce your expectations. They are chasing fast sales and do not have your best interests in mind.

 

[long88]

you are killing your golden goose.

Hi All,
Seeking advice on should I should sell my first investment property in Frankston (Karingal)...

Property details:
- 3bed +1 bath +1.5 garage AV Jennings style in Gretana St, Karingal
- Rent: 285/wk rent on 12 month contract (good tenant after some nasties)
- Finance: 250k IO loan.
- Purchased for 260k in May 2008. Lived in for first 1yr and I do not own another property.
- Est. Value at this stage: 320-340k

Why sell
- reduce overall LVR:
> I have a ~500k margin loan at ~60% LVR against bank and spec resource stocks (I believe they have material growth to come in 3-12 months)
> in a few months I am starting a new business overseas. It does not require a huge cash injection, however I will quit my current job to focus on this and therefore want to bring my CF from investments to break even.
- increase 'quality' of my real estate. focus on better located with more options to improve/ develop (ie: more flexible land size/ configuration relative to zoning/ location, closer to infrastructure of trains, beach, education)

Please fire away with your thoughts/ comments... anything welcome of course, however I'm most interested in answering the questions of:
- is Frankston growth relative to the general market in Victoria/ Australia expected to be higher than 'average' (and on what basis)?
- do my reasons for making the decision to sell make sense, or should I look at this in a different way?

Thank you in advance!
David

 

[Peter Parker]

Hi All,
Seeking advice on should I should sell my first investment property in Frankston (Karingal)...

Property details:
- 3bed +1 bath +1.5 garage AV Jennings style in Gretana St, Karingal
- Rent: 285/wk rent on 12 month contract (good tenant after some nasties)
- Finance: 250k IO loan.
- Purchased for 260k in May 2008. Lived in for first 1yr and I do not own another property.
- Est. Value at this stage: 320-340k

Buy a property for $260k, sell for $330k, take out agents fees and capital gains tax and there's not much left. Especially when you factor in the stamp duty you'd pay on buying the next property and deduct the holding costs (as the property will have been negatively geared).

These costs would have consumed all capital growth for a year or more. So if you've held the asset for 2 years, half your gain would have been lost. So hardly worth the risk in having bought the property.

Whereas if you held it for 10 years you'd keep maybe 70-80% of the gain (it would be higher if it wasn't for capital gains tax).

So unless the property is a bad performer, you can get a fantastic price for it (or think property prices will crash), or there's an outstanding deal elsewhere, selling after such a short time can be a wealth destroyer rather than a wealth builder.

But if there's a strong 'higher aim' argument in favour of selling then do it, even if you just recoup costs.

 

[Ridin-High]

Hi All,
Seeking advice on should I should sell my first investment property in Frankston (Karingal)...

Property details:
- 3bed +1 bath +1.5 garage AV Jennings style in Gretana St, Karingal
- Rent: 285/wk rent on 12 month contract (good tenant after some nasties)
- Finance: 250k IO loan.
- Purchased for 260k in May 2008. Lived in for first 1yr and I do not own another property.
- Est. Value at this stage: 320-340k

Why sell
- reduce overall LVR:
> I have a ~500k margin loan at ~60% LVR against bank and spec resource stocks (I believe they have material growth to come in 3-12 months)
> in a few months I am starting a new business overseas. It does not require a huge cash injection, however I will quit my current job to focus on this and therefore want to bring my CF from investments to break even.
- increase 'quality' of my real estate. focus on better located with more options to improve/ develop (ie: more flexible land size/ configuration relative to zoning/ location, closer to infrastructure of trains, beach, education)

Please fire away with your thoughts/ comments... anything welcome of course, however I'm most interested in answering the questions of:
- is Frankston growth relative to the general market in Victoria/ Australia expected to be higher than 'average' (and on what basis)?
- do my reasons for making the decision to sell make sense, or should I look at this in a different way?

Thank you in advance!
David

Love your style, very big kahunas.

Some suggestions/ideas.

- Loan top up/Line of credit on Frankston property, Draw upto 90%. If you can get revaluation of 320k, that gives you $38,000.

- You will cop a small LMI premium because you have drawn over 80% val.

- Use the funds to reduce margin loan LVR, As bank and spec mining are very volatile stocks (not discounting your stock selection, as you can understand their is large pricing movements in those stocks)

- I would suggest you got a decent CF+ portfolio if quitting PAYG (well atleast enough to allow some sleep @ night) I haven't purchased any or researched into spec mining stocks but i presume they don't pay a dividend, I also wouldn't rely 100% on bank stocks paying 100% of their 2011 forcast dividends (this is just for safety factor, i'd apply a discount of atleast 10-15% on the 2011 forcasts).

- Note the drawing equity from resi property to reduce LVR on margin loan will not just have that effect but will free a small amount of cash flow as well, as the Interest rate is cheaper on the property finance.


But yeah best of luck with you plans, do you mind telling us abit about the business you are wanting to get involved with?

Regards,

RH

 

[ManyManeuvers]

You've answered all my questions within 11hrs. Thank you all for the advice without making me feel like an amateur.

@ Marg, Toony, Meconium, Spiderman - good points.
@ Long88 - yes my only property laying 'eggs' .

@RH - yes big decision to move away from PAYG, hence my overall leverage concerns. Portfolio is not CF+ yet. I assume the detailed numbers will tell me to draw down on equity and pay margin loan.
Mining specs don't pay dividends (yet), and have some US based stocks with low yield so doesn't help the CF!
The business is in the area of outsourcing/ offshoring. A lot of hard work ahead, but I'm excited about creating my own thing. More inclined to share once I"ve proven the model and nailed my first contract PM me if you want to pry further.