Holding vs Selling in timing The Cycle

[TMNT]

so I admit I read a lot of media articles and probably over think more then the average joe

the sensible side of me thinks I should soon sell some of my holdings even though they are neutral to cashflow positive, as I believe for some of them, they are at their peaks or close to their peaks. Also with record low rates, these neutral properties wont be so neutral after a rate rise or two

but the emotional and half sensible side of me thinks, they arent costing me anything so I should keep it. That being said, if I sell, there are selling costs and if do decide to buy again, then i have to pay for legals and stamp duty etc. etc. so essentially, its going to cost me more to get back in.

my next line of thought is, what happens if im wrong and there is another 50% cycle growth ie 9 oclock, if I sold, id be pretty annoyed, even if the market flattens at a latter stage


what do fellow SSers think?

 

[keithj]

What would you do with the profits ?

 

[TMNT]

What would you do with the profits ?

either offset, or buy in another area or development

 

[see_change]

Which areas do you think are close to their peaks ?

Personally I don't think sydney is anywhere close to its peak .

Typically prices double in most cycles and I'm not aware of anywhere that's close to that .

Having said that we will sell our current PPOR in around a years time assuming the market has gone up around 10 % . The reason to do that is that it will clear out any bad debt so we are in a position to move on to the next phase of our lives , which involves me working less hours

Cliff

 

[allsuccess]

Good post TMNT. Even though I don't have an answer, I'm thinking on the very same thing with one of my properties. It has gone through one cycle (10 years) and has doubled in value. Has stagnated for the last few years. Slightly CF+. Area has lots of land, loads of new developments hence not pushing the price up for older houses.

 

[TMNT]

im thinking about my muswellbrook one and to sell or not, its actually dropped well off its peak, and it did double in a few years but I got in much later in the cycle, so have had ok growth but nothing to go Wow at

on top of that, the maintenace is a killer, alost every 2nd month there is an electrical problem, and its annoyed the agent bigtime and me

although timing wise long term it might not be the best idea, I naively think that there is no growth or recovery around the corner

but that could be my emotional side talking

 

[wylie]

I ponder this a lot myself. One house we bought for $156K in 1997 and spent about $40K on over the years was last bank valued at $750K before the GFC. It is probably close to that value again now, after dropping by maybe 10% or so and staying flat for at least the past four or five years. We twice borrowed to pay interest to hold it, and sometimes I think this was stupid. However, the interest on the loan to hold was offset by the growth, but not for the past several years.

This is half of the block I've posted about and which we now plan on developing. We could easily sell the back yards to clear debt, but borrowing even more and developing ourselves would turn these blocks from negative overall to positive.

If we have 30 years ahead of us in retirement, this is better than selling the land in the back and just having the two houses on smaller lots bringing in clear rent. Selling the middle lots would close to completely clear our debts. This is very tempting, but doubling our debt to triple our rents seems like a gamble worth taking, especially as it means we no longer have to dip into our own funds each week to prop up the rent shortfall as it is now.

I wish I had a crystal ball.

In your case, if you are likely to want to buy again, why not just hold?

 

[TMNT]

I ponder this a lot myself. One house we bought for $156K in 1997 and spent about $40K on over the years was last bank valued at $750K before the GFC.
In your case, if you are likely to want to buy again, why not just hold?

thats fantastic growth in 17 years

In your case, if you are likely to want to buy again, why not just hold?

are you referring to buy in the same area? or elsewhere? I see a higher opportunity cost for that one, not sure how much, but better value elsewhere

 

[underdev]

Hi TMNT

It sounds like you need to sit down and work out your goals and then work out how to achieve them. Get your concious mind working on the problem as the subconscious will distract you from achieving what you want.

During this time the best thing you can do is bock all news websites and throw the TV through the window. I promise if you do this your mind will work so clearly and make much better decisions.

 

[ok180]

I would say keep everything until you get to a point where you are pretty much done with work. Then cash out or structure in a way to make life easier.

 

[MTR]

either offset, or buy in another area or development

Hi TMNT
Lots to think about
I did this, purchased in a rising market, and also sold off properties to fund further developments. I pay my taxes etc and move on with my profits and inject into other projects which in turn make more money.

I also got rid of old properties that bleed me and now only keep new product unless they are development sites for land bank projects.

I realised from the last boom cycle that when the market turns and it will eventually its no fun holding property which is -ve and no potential growth in the near future. I understand your properties are neutral nonetheless its the opportunities that you miss out during this period. Also, interest rates will not stay at this level forever.

What I have noticed in the last few years is the investors realise that reviewing/tweaking the property portfolio makes sense and better chance of achieving better than average result.

Cheers
MTR

 

[Deltaberry]

In a hot market, I would consider selling tier 2/tier 3 assets at good prices, with the hope of trading back into them when the weaker hands get flushed out.

I'd have difficulty selling tier 1, tightly held assets, because even if you have money, they may not come back up for sale for another 10 years.

 

[perthguy]

my next line of thought is, what happens if im wrong and there is another 50% cycle growth ie 9 oclock, if I sold, id be pretty annoyed, even if the market flattens at a latter stage

I'm struggling with this question too. I have a development site in Melbourne that I was going to develop from Perth. Problem is it's my first development and I don't have a builder. Consequently I am getting cold feet and thinking of just selling it and taking the profit... as it has basically doubled in value since purchase.

However, I am thinking the same as you... what if it goes up another 20% or 30%. Will I kick myself?

 

[Blair007]

I'm struggling with this question too. I have a development site in Melbourne that I was going to develop from Perth. Problem is it's my first development and I don't have a builder. Consequently I am getting cold feet and thinking of just selling it and taking the profit... as it has basically doubled in value since purchase.

However, I am thinking the same as you... what if it goes up another 20% or 30%. Will I kick myself?

What sort of returns do you expect to make if you develop?
Are you looking to manage the process yourself or get some one to run it for you?

 

[impala67]

...Consequently I am getting cold feet and thinking of just selling it and taking the profit... as it has basically doubled in value since purchase.

However, I am thinking the same as you... what if it goes up another 20% or 30%. Will I kick myself?

You can't think of - what if scenarios. You're in a good position too, especially if it's not NG. Assess each deal as a stand alone scenario. As long as you put the profit into another venture to put you further ahead than if you had kept and developed, then it will be an easy decision.

 

[perthguy]

What sort of returns do you expect to make if you develop?

With a 10 to 20 year planned hold of the developed units (2), it's pretty difficult to estimate.

Are you looking to manage the process yourself or get some one to run it for you?

I have been reccomended 2 builders who could run the whole process including plans, applications and construction.

I don't really have so much objection to developing intersate, my biggest issue that it is my first development. With no experience, that makes me nervous.

 

[MTR]

I'm struggling with this question too. I have a development site in Melbourne that I was going to develop from Perth. Problem is it's my first development and I don't have a builder. Consequently I am getting cold feet and thinking of just selling it and taking the profit... as it has basically doubled in value since purchase.

However, I am thinking the same as you... what if it goes up another 20% or 30%. Will I kick myself?

I think this may be difficult for your first development unless you know the builder and have checked out what he builds, quality etc. it could turn out to be high risk.

Have you worked out the numbers on putting together plans and permits and on selling, is there a market for this in your particular area??

This is much lower risk strategy, but will only work if the land has gone up considerably and there is demand for this.

Cheers
MTR

 

[perthguy]

You can't think of - what if scenarios. You're in a good position too, especially if it's not NG. Assess each deal as a stand alone scenario. As long as you put the profit into another venture to put you further ahead than if you had kept and developed, then it will be an easy decision.

Unfortunately it's relatively heavily negatively geared with low rents in the area (due to it being a small old house on a development site) and due to borrowing against that property to fund another IP purchase.

 

[FelixL]

I am pondering the same question earlier in the year and decided to

• sell down 1 property in syd where the rental yield dropped to 4.5% gross
• with the profit buy 2 in other states

This way I get enjoy some real gain and still growing the portfolio. This is a slight variant of the dollar cost averaging methodology

 

[Erica]

I can't remember where the quote came from, but
"you won't go broke by taking a profit"
was a line that has stayed in my mind since I read it somewhere.

I guess I like to keep my risk low, and be a conservative investor, if I had good capital growth on a property I would be inclined to cash in.

I always watch those TV game shows where the contestant has won a garanteed $50,000 prize but can come back and try his or her luck at at the $100,000 the next night. I always yell at the TV "take the money!"