Never sell IP (keep accumulating) vs sell for profit

[datto]

Well, I think I did sell those properties too early. But if I did not sell those IPs at all, my asset wealth would be greater today. I suppose its only in my situation.

If I had better investment skills I suppose I could have made better use of the funds from the sale of the IPs. So, maybe in my situation, if I hold onto all of my IPs and keep accumulating IPs, then I think I will be better off.

 

[alexlee]

Well, I think I did sell those properties too early. But if I did not sell those IPs at all, my asset wealth would be greater today. I suppose its only in my situation.

If I had better investment skills I suppose I could have made better use of the funds from the sale of the IPs. So, maybe in my situation, if I hold onto all of my IPs and keep accumulating IPs, then I think I will be better off.

At some point, increasing net assets is no longer the most important thing, especially if you don't believe in LOE. At some point, it's about increasing cashflow.

 

[datto]

What if the value of your net assets is so high that you can live off the equity?....till the next property boom. Cashflow wouldnt be that important in that case, just got to keep the bank happy in the mean time.

Theres always a property boom from my experience - mid 70s (big), 1982 (medium), 1988 (humungus), 2003 (big), 2009(small), 20??

Increasing cashflow I suppose is a way of avoiding the bank. Just need high yielding investments. Bank equity may be less of a headache, but its not for the feint hearted.

 

[alexlee]

What if the value of your net assets is so high that you can live off the equity?....till the next property boom. Cashflow wouldnt be that important in that case, just got to keep the bank happy in the mean time.

This is just my personal opinion, but I think it's dangerous to assume you can always get bank loans to access equity. Your call, though.

Theres always a property boom from my experience - mid 70s (big), 1982 (medium), 1988 (humungus), 2003 (big), 2009(small), 20??

Increasing cashflow I suppose is a way of avoiding the bank. Just need high yielding investments. Bank equity may be less of a headache, but its not for the feint hearted.

I see increasing cashflow as a way to live off the portfolio without working. I personally do not believe I am always able to access equity on asset-based lending.

What's bank equity? I don't know what that means.

 

[datto]

"What's bank equity?"

I meant "Asset based lending". My mistake.

It shouldnt be difficult to borrow money from the bank if you got collateral and the capacity to repay the loan.

Im not 100% what the situation is now since the GFC but I think its pretty easy to get a loan.

For example, if I went to the bank and said:

I got 1mil in assets, its returning $50k pa, I earn $60K pa S & W

Lend me $500K at say 8% pa fixed for 5 years.

I think the bank would lend me the money. the bank wont lose coz it would take the assets I default and there is a capacity to repay the loan.

I could live off that $500K or reinvest it. After 5 years, who knows, the $1mil asset might be worth $2mil. S & W, return on investment would also have increased.

I could then refinance and start over again or just sell some assets to clear the debt.

 

[alexlee]

It shouldnt be difficult to borrow money from the bank if you got collateral and the capacity to repay the loan.

Im not 100% what the situation is now since the GFC but I think its pretty easy to get a loan.

For example, if I went to the bank and said:

I got 1mil in assets, its returning $50k pa, I earn $60K pa S & W

Lend me $500K at say 8% pa fixed for 5 years.

I think the bank would lend me the money. the bank wont lose coz it would take the assets I default and there is a capacity to repay the loan.

I could live off that $500K or reinvest it. After 5 years, who knows, the $1mil asset might be worth $2mil. S & W, return on investment would also have increased.

I could then refinance and start over again or just sell some assets to clear the debt.

What seems logical to you, and how the banks actually operate are not necessary the same thing. Especially not in a situation like the GFC. With a bigger portfolio, the obstacles increase.

 

[datto]

maybe I should speak to a bank/broker to get a feel of the situation.

 

[random]

I like the 2 or 3 for 1 buy situations myself , hold the best sell the rest and get some cash in hand that way .
But, I am still practicing. Have managed it on one so far which gave me 70 odd k for nothing when I sold off the spare section and I've found many a deal , that's not a problem but it's financing your way into the bloody door in the first place that's been the hold up on most. I've had to watch many an opp' that could have done very well , slip through my fingers, it's so frustrating lately that I almost feel like giving up .

Cheers

 

[datto]

70K is not bad going at all. Dont know what time frame you made the profit over. A friend of mine made about $1m in 12 years on a single house (3 br fibro on small block -from $200K to $1.2m).

Ive never had any probs with finance, but I havent enquired since the GFC. Prior to the GFC, I tell ya, NAB rang me after hours and made all sorts of ridiculous offers eg 95% LVR, no valuation or application fees on 3 properties. Drive by valuation. Legals paid.

I hope they are still as generous these days!

 

[random]

70 seems to be my number. That part I pretty well resold off straight away but on a 6 mth settle to slow down income appearance. I've also scored one free block so far.
I did a reno over 12mths and did 70 on that too. A lot of the houses I look at I expect to get at around 70 , regional stuff and my trading accounts hovering around the 70s . Strange , I like that number in property , unheard of these days I know but that just makes it even more attractive.

Lucky man with banks ringing you, finance makes the world your oyster in property I reckon.
MG your friend did ok . My brother did similar proportions. Bought a place up in Brissy 10 or so yrs back at 80 , now 500. All he did was rent it out and took off traveling and came back to the dump at 500 . But you'd think how could that work now at 500 x 10yr it'd have to be 2.5mil .
But it is none the less the sort of thing that really makes you think about the hold strategy isn't it ?

Cheers

PS . actually more like 3mil , not poss' for a bloody long time yet you'd imagine

 

[datto]

nothing wrong with 70, nothing at all. Thats more than 1 year salary for alot of people.

The thing with real estate is the multiplier effect that occurs over the years. It can take 10 years or if you buy at the right time it can take alot less.

The longer you hold the greater the multiplier effect. then when you look back you think, gee property was so cheap in those days, I should have bought more!

 

[Deltaberry]

maybe I should speak to a bank/broker to get a feel of the situation.

You definitely should. Many brokers just lie through their teeth and the banks have pathetic screening/checking systems.

I have a friend who bought a house in Melbourne's mortgage belt 18 months ago on 90% gearing. Through one of those not too ethical brokers, he's managed to refinance $50k cash to spend. Then somehow, 6 months ago, he was able to refinance another $50k cash to spend through the same broker who basically made up some garbage to other lenders.

This is Australia's subprime in the making. Probably nothing too sheer yet, but certainly happening especially in the mortgage belt. His house is not even worth his original debt (which he hasn't paid down at all) plus the $100k cash he's refinanced.

 

[Melbournian]

it really depends on lifestyle and personal goals. Some with families might have other obligations. Others who are single might think differently. Personally for me - i reckon if you can sell it for a good price. it's time to cash in where i sold 3 places - 2IP and 1PPOR. As my income cannot keep supplementing the repayments if i kept growing my portfolio.

You pay interest on equity so either way buying now is kind of difficult without a large deposit.

Don't talk about buying 5-10 years ago. All those purchases would have be positively geared.

 

[boods99]

You definitely should. Many brokers just lie through their teeth and the banks have pathetic screening/checking systems.

I have a friend who bought a house in Melbourne's mortgage belt 18 months ago on 90% gearing. Through one of those not too ethical brokers, he's managed to refinance $50k cash to spend. Then somehow, 6 months ago, he was able to refinance another $50k cash to spend through the same broker who basically made up some garbage to other lenders.

This is Australia's subprime in the making. Probably nothing too sheer yet, but certainly happening especially in the mortgage belt. His house is not even worth his original debt (which he hasn't paid down at all) plus the $100k cash he's refinanced.

Interested to know how this was possible without a new valuation...

Boods

 

[jaycee]

And here's us worried about using conservative debt with conservative LVR's to maybe help serivvce invetment debt....

 

[BayView]

What are these "better" investments...?

These are the ones which have amazing returns of cashflow, and are completely safe.

 

[BayView]

This is just my personal opinion, but I think it's dangerous to assume you can always get bank loans to access equity. Your call, though.

Quite correct.

I can tell you from personal experience that a lower LVR means zip if the servicability is not there.

 

[alexlee]

Quite correct.

I can tell you from personal experience that a lower LVR means zip if the servicability is not there.

Lending is cyclical too. At certain points in the cycle, lenders are more lax with serviceability if there is equity. At other points in the cycle (that may last for years), they're more strict on serviceability. Now is one of those strict times.

 

[VYBerlinaV8]

I figure on doing the 'never sell' thing, but with a twist: all my IPs have reasonable or good yields. I like the idea of borrowing against the IPs up to the value that could be supported by the rental income alone, and using this money to increase my other assets, such as shares. My plan has always been to grow the overall portfolio to a size sufficient for me to live off yield alone. I'm about 10 years away from this point.

 

[Deltaberry]

Interested to know how this was possible without a new valuation...

Boods

No idea... didn't ask the details.

I have another friend who seems to keep getting loans too despite having no income? Honestly the system here is pretty slack... funny how people keep saying there's no subprime