Have I missed the point ?

[elwyn.d]

HELP.....I bought my first ip nearly 3 yrs ago. 3 units needing tlc but very sound. Since then have now 6 more. Paid 135000 ( live in Geelong) Agent rang yesterday and told me he has a buyer who will give me 280000. Did not buy to sell ,but keep. Bank finance for everything of over100%
Cant go shopping in the near future because of equity requirements. Last bought in July and another settlement comeing up at end of month.
Should we not sell, or , sell and pay one loan off of 200000 and keep the balance 65000+ and go looking for an ip of 400/500000 haveing now a deposit of 10%.
Is my thinking sound or have I completly missed 'The Point'
Thanks Crew and over to you.
Oh yes....I am 56 and cant let the grass grow under my feet!!!!

 

[Kevmeister]

Hi Elwyn.d

In some ways I think you answered your own question: "did not buy to sell, but keep". In some ways you suggest that you have all these IPs but without a firm plan of what your goal is?

That said, you ask a very good question, because investing is not for investing's sake. It's a means to an end, not an end in itself. Does selling the property get you closer to your goal, or does keeping it make more sense?

Are you saying the agent offered $280K for the 3 units for which you originally paid $135K for? My answer is based on that assumption.

My outlook on this is as follows:

$145K (207%) gross profit in 3 years is a pretty tidy sum (I'll ignore the original purchasing costs since they would have been pretty small anyway).

But how about we minus agent's fees and capital gains tax? Deduct say $9K for agent's fees and about $34K in capital gains tax if you are on the highest marginal rate (allowing 50% CGT discount). Down to $102K.

Now you take your $100K profit to buy another property, about $400K to $500K as you suggested. There goes another $20-25K in stamp duty on that transaction, not to mention other buying costs such as conveyancing, potential loan application fees, inspections etc.

I would assume that by this stage those first 3 units are all cashflow positive, or very close to it? If so, they are paying themselves off. And, if my calculation is correct, you have received growth of 27.5% annually, which seems pretty impressive to me.

I see having 3 units as a lower risk than one IP of $400-500K, unless you were actually talking of buying another block of flats/units.

You don't say whether the other 6 units were purchased with equity attained from the original 3 or using other equity (eg. PPOR), but if they are now valued at $280K can't you use that equity to get that $400-$500K IP as well (assuming you can service the debt)?

 

[Macca]

Hi Elwyn,

at 56 I imagine you are hoping to set yourself up to retire in a nice fashion. To actually retire you need a passive income, I believe you will get a higher and more reliable income from 3 flats than one big IP.
I would be inclined to pay down the loan until your borrowing capacity is back under control and then find something.
The agent is ringing you to drum up 2 sales, your units and the next thing you buy with the proceeds. Why pay him commission when the property has been a such a success.
If your tenants are OK I would definitely keep the flats.

Macca

 

[investor]

Originally posted by elwyn.d

Oh yes....I am 56 and cant let the grass grow under my feet!!!!

Hi elwyn

I reckon alot depends on the returns u r getting on the three flats. At 56 u probabaly r thinking more of your retirement so u need income coming in. If you r getting 8% on on these flats at a price of 280000 or abit less taking into acount CGT and agents fees etc then keep them. If u r not then i reckon sell you can get better returns with the money. If I was 56 I would be more concerned about income stream than cap gains, but that's just my opinion.

Regards

 

[Aceyducey]

Hey Elwyn,

If a buyer will pay that much for them, why not take out a Line of Credit on the property instead & use that to buy more property.

You get to keep the IP & it's rental AND get to buy a new IP, avoiding CGT and getting a tax deduction (on the LOC interest) to boot!

If there's an income security issue on purchasing IP go visit www.navra.com.au - Steve's cashbonds look like a good tool to get round this (I haven't used them myself yet but there are some people on the forum who have).

Cheers,

Aceyducey

 

[elwyn.d]

investor....'its only my opinion....'

Your opinions (collectivly) are better than gold bars.
Thank you all. I will not sell but investigate other ways to move forward.
Elwyh