Help me with this decision

[flowkingrich]

I have a decision to make. Consider my circumstance. As part of divorce settlement my partner and I have decided to transfer the title of our PPOR into my name in exchange for a cash settlement to her. From here I have two options:
1 Keep the PPOR and rent it out
2 Sell it and take what profit is left

After settlement an initial cashflow analysis of the PPOR (converted to an IP)would cost me about $170/ week after taxes and depreciation. The house is in Perth and valued at about $540K. I can afford to hold this shortfall but my problem is this. If I rent out I have an opportunity loss because if I sell I can buy interstate and experience a greater potential for growth. I believe this mid-tier market has stalled and my money would work better elsewhere. But to sell this kind of house in Perth could have me waiting a while and that could cost me 2800/month in interest waiting (wouldnt rent out whilst up for sale). I can also afford this but cant stand losing that much each month whilst the property goes stale.

Has anyone had to make this decision. This is purely a business decision that I am having trouble with. I can appreciate that all markets will one day slow or stall and at those times I will certainly not sell my other property because of this. Please help shed some direction. I am really not sure how to look at the numbers for this.

 

[Ausprop]

how about renting a room or 2 to international students? or a boarder of some sort anyway.

I am concerned about people running off chasing a quick buck in melbourne and being out of your home market. Do it as a sideline if you must, but bear in mind that Perth still has the highest rate of population growth and by far the fastest growing economy along with huge cost pressures growing on construction. Don't be too swayed by the ;atest TT story, they are always bulls or bears but never even keeled.

 

[redsquash]

you wrote
if I sell I can buy interstate and experience a greater potential for growth.

Whats the problem.....just sell. its a no brainer.

However ,are you so certain of the other market.
if so then maybe its a comittment to sell issue thats holding you back or some underlying connection withbthe property.

If your not certain then I can understand your hesitation
You will　have buying selling costs with maybe thegrass being greener on the other side of the hill or scuttlebutt is driving your desire to sell.
Sorry if this wasnt so helpful.?

 

[flowkingrich]

Thanks Ausprop.

I really am breaking my own rules if i sell. I will add that I am not going to be living there at all. I am moving on for now, the thought of living there without those for whom it was intended is eerie.
Yes you are right there are bulls and bears and there are intrinsic growth factors on the macro and local levels so that is reason to push on with it (hold)

The other rule I am breaking if I hold is that my portfolio gearing will rise above 80% to about 85%. Thats fixable with cash input but it means I may be on hold for a while.
Thanks that helps. Would love to here from others as a balance for the argument

 

[MTR]

I would also look at selling and purchasing in a rising market, it can be very easy money.

The only problem is whether you will actually be able to sell your Perth property in current climate.

Stress involved in this process may not be worth it, worse still you may end up having to continually reduce asking price which seems to be what is happening in many areas at the moment.

It would be ideal if you were able to hold your Perth property and have enough equity to invest over East.

All the best, MTR

 

[flowkingrich]

redsquash you raise a very important issue and one that can hurt. Emotion has no place for the decision I must make so thanks you have been helpful. If It is a no brainer but only if i had an even choice between two markets. I already own this property and I am considering selling it which doesnt fall in with my strategy. What you have got me thinking is that if my other property stalled in growth would i sell them too? I doubt it.

Cheers

 

[flowkingrich]

It would be ideal if you were able to hold your Perth property and have enough equity to invest over East.


That would be ideal and a situation that could happen in time. I guess I am too apprehensive and anxious to get into another market where the prices wont last. Hmmmm exercise Patience and remove emotion. Sounds like something I read somewhere before I began my IP quest.

So if anyone is still watching what do others think rising interest rates will do to the more affordable suburbs. Do the people panic and buy before its impossible or is it that things progress slower.

 

[Aimjoy]

Has anyone had to make this decision. This is purely a business decision that I am having trouble with. I can appreciate that all markets will one day slow or stall and at those times I will certainly not sell my other property because of this. Please help shed some direction. I am really not sure how to look at the numbers for this.

Yes, I had to make that decision (not the divorce part - but the "do I hold and wait for CG part")

RE is a long term investment. Selling / taking profits and re-investing elsewhere is not investing - its is trading at best and speculating at worst.

The transactions costs to get in & out are high and eat into profits. GC is not guaranteed anywhere let alone your new "choice". The property you have now has proved its worth as an investment - it went up. Will the next one you choose go up?

My advice is to hold long term - you can afford it - and increase your top line so you can afford more IP's.

Sorry to hear about the break-up but that is another issue.

Aimy

 

[Francesca C]

I agree with AuspropS comments...

Its time in the market, not necessarily timing the market. Real estate is not about chasing a quick buck, it is long term. I believe you buy and hold and NEVER EVER EVER EVER sell. However, I do like to manufacture some capital growth when I buy by renovating, subdividing or buying from a motivated vendor.

Perth middle market may run sideways for a while however, I believe (I hold no crystal ball) that it is still a great place to hold property.

Remember the costs of getting in and out of a real estate purchase.

Maybe you are in the position to hold in Perth and buy another on the east side

 

[shuggy]

redsquash you raise a very important issue and one that can hurt. Emotion has no place for the decision I must make so thanks you have been helpful. If It is a no brainer but only if i had an even choice between two markets. I already own this property and I am considering selling it which doesnt fall in with my strategy. What you have got me thinking is that if my other property stalled in growth would i sell them too? I doubt it.

Cheers

I'm in a similar situation where i am thinking of selling a house to pay down some debt and gear into managed funds. But i'm more after income. The only reason you sell an asset is because you believe you can get a better return elsewhere.

I don't believe in the NEVER sell strategy. If you can exit the market when it's up and invest in another asset class with better prospects, then go for it. It's good to take profits and not be too stressed about CGT. By the way, i've decided to sell the house after making considerations even though its a bit emotional because it was my first PPOR.

 

[casper007]

Where is your property? If it is on a new estate ... selling at present (especially if your home is over 5 years old) could see you taking a hit on price. The Perth speculation market came to an end around 6-9 months ago (new estates that is), as in ... few speculators have been entering the market on the new estates ... the homes however which were under construction have been pouring into the market for the past 4 - 6 months and will continue for another 3 - 4 months whilst the builder back log clears.

As many of these speculators have made their profit on the land increases ... they are (at times) dropping their sell price below what a current replacement value would be. Purchasers are buying these brand new homes which makes older homes more difficult to compete.

Once this glut of homes moves through the system ... and with over 500 people arriving in Perth every week, you should see the new estate prices start to rise again by mid year.

So if you want to sell ... I'd wait till later this year. Rentals however have increased by over $20 per week (See article on West page online this morning) so I'd rent it for 12 months and then re-evaluate.

I know it might be like a bit of crystal balling on my part... but I have been in the building game here in perth for the past 10 years and it is a well educated guess.

Good Luck.

 

[Francesca C]

If I wanted to put money into another asset class I would draw equity, that way, its also a tax deduction.

I dont think he will have to pay CGT even if he does sell because it's PPOR.

 

[redsquash]

redsquash you raise a very important issue and one that can hurt. Emotion has no place for the decision I must make so thanks you have been helpful. If It is a no brainier but only if i had an even choice between two markets. I already own this property and I am considering selling it which doesnt fall in with my strategy. What you have got me thinking is that if my other property stalled in growth would i sell them too? I doubt it.

Cheers

Even if the property stalls it wont stall forever.When it move , how vigourous will the market be.
How much momentum does the other market have you are looking at.Is it a temporary phenomena and will you be able to manage it comfortably from a distance?
my rule is to not sell but ............rules need to be flexible

 

[flowkingrich]

Thankyou for all comments. This forum is the best. You have all helped very much.