Newbie question: strategy and preparing for Sydney's top

I am really in love with the SS forums and lurk around as much as possible. I was hoping I could get some feedback regarding a situation which may be generalised to be relevant to others. Please let me know if this doesn?t belong here.

I bought a PPOR unit for $390k in Westmead in September 2011. The capital price growth has been good, an identical unit sold for $520k in March this year and comparables are selling for c.$550k (so let's say 8-10% p.a. capital growth over the last 4 years)

I already have a lot of equity in this apartment. I started with $160k from my parents and so began with a smallish loan of $230k that is down to $217k, with c.$120k savings in my offset.

I realise NOW that putting $160k into equity in this apartment was a too conservative move and meant that I did not benefit as much as I could have in the last wave of Sydney price increases had I put less equity in and bought, for example, additional IPs. Lesson learnt.

The downside to the PPOR unit in Westmead is the exorbitant strata fees eating into my real returns (c.$1400 per quarter ? lift, massive car park and split commercial / residential). I know now that this is ridiculous and it was silly for me to overlook this in the original purchase decision. Another lesson learnt.

The PPOR unit is in my name alone. My partner / longtime GF has c.$100k in savings. Whether out of fearing of missing out or just the desire to have a house for when we start a family, we would like to buy something detached in Sydney (flexibile on areas). We both earn about $110-120k p.a. and have no dependents, so borrowing capacity is there. We are both 27, so time is there too.

We realise that the market for Sydney is hot and maybe topping out in the next 1-2 years.

I was mostly happy to absorb the extravagant strata in the last few years, perhaps out of naivety, inertia and also out of the knowledge that the market was hot. However, I wouldn?t mind getting it off my hands to be honest and particularly before a correction. I have a suspicion that some buyers overlook strata fees in a boom market but it could be a determining factor in a downturn.

The tricky thing is, and this is where I think this situation could be instructive to others, finding a replacement PPOR, especially in 1.5-2 years at a hypothetical top of the market would be ?buying behind?, if you believe that the market is headed for a correction

1) Firstly, am I being irrational / holding a grudge against myself about the high strata fees and wanting to exit if we move into a market correction period with low capital growth?

2) What are people?s general thoughts about selling PPOR at / near the top (assuming you know when that is) and concurrently buying an upgrade PPOR? Do you just suck it up and be thankful for the convenience of a PPOR? Or does it make more sense to rent a PPOR and ?withdraw? from the market until it ?bottoms out??

3) If you do withdraw from the market, would alternative investments forms not be similarly depressed? And so, although it may be the economically rational thing to reduce exposure at the top, with switching costs it?s worth sticking it out.

I realise these questions lend themselves to both ?depends on your risk appetite / strategy? and ?see a financial planner?, but just wondering if anyone had insight on these types of quandaries.

Also appreciate that these are incredibly na?ve / newbie questions, so thankful for any contribution.

I am also prepared for the response ?you demonstrably don?t have a strategy, maybe you should figure out one?. That is mostly true. Is a financial planner the best way to go about it?
 
welcome to SS!


you will find wealth of info here!


FP may not be so much of help, if you haven't set goal of what you actually want to do, how much time and money you have.

there are lot of successful property investors on ss. read their posts. see what suits you most and keep following and adjusting your investment journey as you go along.!


most property investors

Buy n Hold
Reno
Develop
NRAS

etc.


Whatever suits your needs and risk profile.
 
I am really in love with the SS forums and lurk around as much as possible. I was hoping I could get some feedback regarding a situation which may be generalised to be relevant to others. Please let me know if this doesn?t belong here.

Hi Girl87 and welcome to SS!

I bought a PPOR unit for $390k in Westmead in September 2011. The capital price growth has been good, an identical unit sold for $520k in March this year and comparables are selling for c.$550k (so let's say 8-10% p.a. capital growth over the last 4 years) Great equity gain! well done. :D


I realise NOW that putting $160k into equity in this apartment was a too conservative move and meant that I did not benefit as much as I could have in the last wave of Sydney price increases had I put less equity in and bought, for example, additional IPs. Lesson learnt. I say this without any condescending tone at all, well done for realising this and learning from it !! Its huge trust me. A lot of 'investors' find it too painful to acknowledge and learn from past mistakes and often repeat them, so really well done to you on this front!


The downside to the PPOR unit in Westmead is the exorbitant strata fees eating into my real returns (c.$1400 per quarter ? lift, massive car park and split commercial / residential). I know now that this is ridiculous and it was silly for me to overlook this in the original purchase decision. Another lesson learnt. Again well done on learning from this and not trying to justify it. Those strata fees are insane and IMO you should rarely (if ever) buy an IP with fees like those. Great you take responsibly for it and learnt your lesson. Luckily though, you had good equity growth! :D

The PPOR unit is in my name alone. My partner / longtime GF has c.$100k in savings. Whether out of fearing of missing out or just the desire to have a house for when we start a family, we would like to buy something detached in Sydney (flexibile on areas). We both earn about $110-120k p.a. and have no dependents, so borrowing capacity is there. We are both 27, so time is there too. The cash and equity you have to create wealth, most people would kill to have when starting out! Also your ability to borrow (based on your incomes and i'm assuming no other major debt), should be massive. And best of all, your both young!!


We realise that the market for Sydney is hot and maybe topping out in the next 1-2 years.

I was mostly happy to absorb the extravagant strata in the last few years, perhaps out of naivety, inertia and also out of the knowledge that the market was hot. However, I wouldn?t mind getting it off my hands to be honest and particularly before a correction. I have a suspicion that some buyers overlook strata fees in a boom market but it could be a determining factor in a downturn. Cant give ay or nay here, but personally I would consider it. The strata fees are just insane.


1) Firstly, am I being irrational / holding a grudge against myself about the high strata fees and wanting to exit if we move into a market correction period with low capital growth? I don't think your being irrational at all. I think it makes perfect sense, IMO.

2) What are people?s general thoughts about selling PPOR at / near the top (assuming you know when that is) and concurrently buying an upgrade PPOR? Do you just suck it up and be thankful for the convenience of a PPOR? Or does it make more sense to rent a PPOR and ?withdraw? from the market until it ?bottoms out?? This is hard to answer because it depends on your goals, how fast and large you want to build your portfolio to achieve those goals, and a host of other things. I do know many investors who want to build large portfolios asap, the just refinance their ppor equity to further leverage into making their portfolio larger and not worrying about the super ppor till later. Again, it depends on your goals and timeframes etc.

3) If you do withdraw from the market, would alternative investments forms not be similarly depressed? And so, although it may be the economically rational thing to reduce exposure at the top, with switching costs it?s worth sticking it out. You need to keep in mind that there is not only 1 market, but thousands of markets all around Australia at different parts of the cycle, all offering different opportunities to investors with different skill sets, goals, equity available etc. So there are always opportunities in many markets.

I realise these questions lend themselves to both ?depends on your risk appetite / strategy? and ?see a financial planner?, but just wondering if anyone had insight on these types of quandaries. My best advice to you would be to start buying some books on property investment and start reading. Learn the basic concepts which to be honest is easy and never change. Then take the time to write out your goals and time frames. Choose a strategy you feel comfortable with starting out. Build your team of accountant, finance broker, conveyancer etc and then take action!



Is a financial planner the best way to go about it?

If you meet a financial planner like Rolf on here then perhaps yes. Otherwise, the ones I have seen over the years have no clue about building wealth and their advice was counterproductive to building wealth!. The best, best thing you can do is educate yourself. Its not hard. And if you want to build a large portfolio for lofty goals you may have, then your gonna need to learn this stuff.

Lastly, More important than anything else I typed above is also work on developing your mindset. youtube jim rohn, les brown.

Good luck and sorry for the long post!
 
LeoT,

Thank you for advice, home truths and kind words.

Also thank you for trawling through such a long post and giving me a considered response to each of my concerns!

I obviously have a lot of reading and deciding to do and I'm sure that SS will be of great help in the future.
 
LeoT,

Thank you for advice, home truths and kind words.

Also thank you for trawling through such a long post and giving me a considered response to each of my concerns!

I obviously have a lot of reading and deciding to do and I'm sure that SS will be of great help in the future.

No probs. I love seeing young ppl with passion and a plan to achieve their dreams in such an intelligent manner! Its rare.
 
You could consider using the equity to buy somewhere else and then rent out your current place. Research converting the loan to interest only, and claiming those strata costs.
It's good you have all the additional funds in the offset so you can pull it out to use elsewhere.
 
GRI87,

Here is my advise.

1. Check over your body corp and see why its so high, how much is in the sinking fund, and it there are any other big looming expenses coming up.

2. Check with your accountant and see how much capital gain you will have to pay if you sell. Also check on way you can reduce the capital gain for tax purposes. Can you scrap some depreciating assets (like a car), dump any bad investments. If you bought in a company any you reinvest quickly and get a GC reduction.

Find out the GC and tax you will have to pay.

3. Check with the bank and see if you can borrow more cash against the property...consider if you can use this for another deposit on a property....consider Brisbane rather than top of market sydney

4. Ask yourself ...is it worth paying this capital gains tax? Will you get more cash just by drawing down from the bank? Can I keep the Sydney property cash flow neutral even with the body corps? Or do I have a cash flow problem there.

5. consider these rules...never blame a person for taking a profit....there are 2 certainties in life... death and taxes.


The question of your taxable income and the properties cash flow needs to be explored. Is it negatively geared? If you sell, will you pay capital gains tax and increase your taxable income?

The correct answered will become a cost benefit analysis between selling and keeping the property combined with the opportunity created with another purchase.

and if there is a real problem with you body corp.

Give this job cost benefit to your accountant so you have all the information first. make sure the accountant is up to the task....A financial planner could help, but the big issue here is tax.

Then start looking at the Bris/ Gold Coast market for that next capital gain. Or even he outskirts of Sydney like Penrith where prices are lower.

Stay in your comfort zone!
 
To make you feel better, a family member bought a unit last year with $2,000 per quarter strata. Small complex in Killara with lift and commercial at lower level.
 
You could consider using the equity to buy somewhere else and then rent out your current place. Research converting the loan to interest only, and claiming those strata costs.
It's good you have all the additional funds in the offset so you can pull it out to use elsewhere.

Thank you for your advice. I will consider switching to IO. Since i have not paid down the principal on the PPOR loan that much (rather, I have it sitting in my offset), I haven't lost too much potential deduction benefit on a new IP, correct?

GRI87,

Here is my advise.

1. Check over your body corp and see why its so high, how much is in the sinking fund, and it there are any other big looming expenses coming up.

2. Check with your accountant and see how much capital gain you will have to pay if you sell. Also check on way you can reduce the capital gain for tax purposes. Can you scrap some depreciating assets (like a car), dump any bad investments. If you bought in a company any you reinvest quickly and get a GC reduction.

Find out the GC and tax you will have to pay.

3. Check with the bank and see if you can borrow more cash against the property...consider if you can use this for another deposit on a property....consider Brisbane rather than top of market sydney

4. Ask yourself ...is it worth paying this capital gains tax? Will you get more cash just by drawing down from the bank? Can I keep the Sydney property cash flow neutral even with the body corps? Or do I have a cash flow problem there.

5. consider these rules...never blame a person for taking a profit....there are 2 certainties in life... death and taxes.


The question of your taxable income and the properties cash flow needs to be explored. Is it negatively geared? If you sell, will you pay capital gains tax and increase your taxable income?

The correct answered will become a cost benefit analysis between selling and keeping the property combined with the opportunity created with another purchase.

and if there is a real problem with you body corp.

Give this job cost benefit to your accountant so you have all the information first. make sure the accountant is up to the task....A financial planner could help, but the big issue here is tax.

Then start looking at the Bris/ Gold Coast market for that next capital gain. Or even he outskirts of Sydney like Penrith where prices are lower.

Stay in your comfort zone!

Thank you, Jerry. I will definitely look more closely into the body corp fees and the annual report.

For clarity, the unit in question is my PPOR and has been since its purchase in September 2011. Shouldn't it be free of CGT, if I do decide to sell it?

Similarly thanks for the advice re: Brisbane / Gold Coast. I guess the tricky balance is between the desire to get a foothold in something detached in Sydney and not wanting to buy something that is already hotter than hot.

To make you feel better, a family member bought a unit last year with $2,000 per quarter strata. Small complex in Killara with lift and commercial at lower level.

Yikes. That makes feel a little bit better in a schadenfreude kind of way...
 
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