Sell vs 'never' selling

[Deltaberry]

I read a post from Todd Hunter on the online YIP about selling to release equity and cash and releasing equity through refinancing (and hence never selling, or not selling for a long time) - www.yourinvestmentpropertymag.com.a...er/the-old-myth--property-forever-199347.aspx

This got me thinking about thoughts and comments on SS about selling vs 'never' selling (never is in inverted commas here because I assume that all investors will sell at some stage but some turn properties over much faster than others).

I'm interested in your comments about Todd's article and whether you're someone who keeps your properties for an extended period (say over 10 years) and withdraws equity to go again or whether you turn properties over at market highs to buy again.

A point made in the article is about prices falling after you have withdrawn equity, hence holding an asset that is valued at less than you have a loan for.


Cheers,

As I mentioned in other post, whether you sell is a function of:

- what is the purpose of the property
- what grade is it, S, A, B or C
- your circumstances
- what's the price offered

In short, never say never. Sean Connery (how do you spell his name?) once said he'd never do another James Bond

 

[citystar]

I'm in the 'never sell' mindet at the moment. Never received any crazy offers from anyone to purchase my IP's. When I want to release equity it's a reval and new loan doc with the bank to avoid stamp duty, legal fees, REA commission, tax implications, etc. Still early in my acqusition phase of my journey so I'm sure my mindset will change as time goes on.

 

[Liverpool St]

I advocate selling to clients where appropriate. e.g.

1. to restructure for asset purposes
2. to pay down non deductible debt and regear
3. before death where will likely to be challenged
4. where loans have been set up incorrectly with severe results
5. retirement strategy
6. spousal sale
7. sale to a trust

In all cases you just have to work out what the costs of selling are and consider carefully.

Hi Terry,

Is there any benefit in selling to a trust. Wouldn't the sale trigger CGT and costs?

Thanks

 

[Terry_w]

Hi Terry,

Is there any benefit in selling to a trust. Wouldn't the sale trigger CGT and costs?

Thanks

Yes there are many benefits. Butsale would trigger CGT< stamp duty, discharge of mortgage, new loan and conveyancing costs.

 

[Tim86]

My current plan is to never sell the properties. When I die they can go to my wife, when she dies they can go to kids if we have kids.

The rents are too good from my properties to sell them.

 

[Shahin_Afarin]

Hi Shahin - curious - how do you get 90% no LMI? Is that a perk of being a mortgage broker?

No we don't get preferential treatment - my wife works at the bank hence the 90% no LMI waiver.

 

[Shahin_Afarin]

What lender are you going through and what criteria are you fulfilling to get 90% no LMI?

I got the same deal with BOQ specialist as a chartered accountant 90% no LMI.
Would be good to know if there are other options avaliable.
Cheers

Heaps of professions fall under the 90% no LMI:

1. Solicitors
2. Athletes
3. Celebrities
4. Politicians
5. Engineers

However these professions have certain criteria such as minimum income requirements, cannot be working overseas, qualifications, etc.

 

[lazibones]

I used to think never sell, but when one area I invested in had good gains and comprised of over 50% of my assets, and the yeilds on current value werent as high as I would like, and I had an eager buyer I sold 2, to lessen risk through more diversity, to buy undervalued potentially higher yielding property, to lesson debt and increase debt servicing ability to increase LOCs for eventual LOE and to put funds into a SMSF to take advantage of bargain share prices which have had a 20% gain in the last year.

 

[skater]

There's nothing wrong with selling & taking some profit.

 

[skater]

I voted 'sell to release equity', but that's not really true, because a refinance can do that. I've sold a few lately, but it's 'sell to release profit to reinvest elsewhere & pay down other debt', but you didn't have a category for that.

 

[ChrisA1]

Thanks Terry for your comment about the income from capital gains generally not being counted as income for serviceability purposes. I agree that financiers wouldn't treat this as a regular income unless this was your main business. It interested me that at this month's market update in Sydney, Steve McK again said that the profits would flow as income for CGT purposes in the yearly tax return. All I can think is that the financiers will see the profits come through as funds available for the next deposit (this is how I'll treat it) with a reduced debt burden.

I agree that selling is more expensive than revaluing. On the flip side, reval'ing increases the risk of the portfolio, say if the market is on the downside from the peak and the property is not worth as much as you reval'ed it for. I agree that if selling triggers a tax liability enough to eat the profits, then reval'ing would be the option.

I voted to sell to release gains as I would sell if I felt that I had too much risk in an area due to reval'ing properties to a level that I felt I couldn't handle long term and through a property price dip. E.g. Sydney is booming now and if I felt that I couldn't sell the properties for the reval'ed price after the boom, then I will consider selling. I would much prefer to have funds sitting available in my back pocket for the next place to come into its cycle, rather than holding a property by the skin of my teeth until the price cycle turned around again (and none of us have a crystal ball).

I am now looking more closely at pricing trends (I don't think I'll time it right, but I'm quizzing REAs for anticipated sales prices). I'm going to hold 2 of my Sydney properties, but I won't be reval'ing those to their max so I lower my risk exposure and any rental and sales price movements over the coming years won't hurt as much.

I agree that at a point a property becomes unloved and tired and if after a reno, it may be more worthwhile to sell rather than rent out. In this case, I would take the funds to the next place SS was talking about!

All in all, I'm certainly not adverse to selling and in many ways it keeps me assessing my properties so I'm not over exposing myself riskwise and also so I can move money to invest elsewhere.

As I was doing some Googling on the topic, I came across this interview between Kevin Turner and Simon Buckingham about investing for short term or long term - http://www.realestatetalk.com.au/is-it-a-good-thing-to-invest-for-the-long-term/

Cheers,

 

[MTR]

Not sure whether this has been mentioned, however another reason to consider selling and taking some profits is that when interest rates rise and they will you may be highly negatively geared and this will hurt today. When the markets change from boom to bust it will be very difficult to sell property if you have to, worse having to sell at a lose.

The way I see it - right or wrong.... is that many investors get so caught up in the number of properties they need to accumulate and see this as the main measure of success. They ignore cycles and implementing strategies so they can continue to finance deals, manage risk, enjoy today.

No point killing yourself to accumulate property when you are struggling today when there are easier options.

I know there are some investors with a huge portfolio of properties but can not retire today, still in their day jobs because there is not enough cash flow, they wont sell down because it goes against the grain. Go figure??

MTR

 

[ChrisA1]

MTR, your comment clarified it for me in deciding whether to refinance or sell to release equity - will holding a property with the revised interest rates and costs hurt me if/when the prices drop??

Better to take a smaller profit now and be able to keep going rather than try to wring the last $ out and be hurting when prices fall.

 

[MTR]

MTR, your comment clarified it for me in deciding whether to refinance or sell to release equity - will holding a property with the revised interest rates and costs hurt me if/when the prices drop??

Better to take a smaller profit now and be able to keep going rather than try to wring the last $ out and be hurting when prices fall.

Makes sense to me.

If you consider boom/bust cycles for example Syd market, I think it was flat for 7 years, with some areas even blue chip going pear shaped. Perth blue chip market $1.5M+ has still not recovered from last crash of 2006/7.

Imagine if you were holding a property for 7 years, no growth and you were out of pocket (bank interest, insurance, pm charges, rates) of perhaps $10-15K pa. How many of these could the average person manage?? What if you have 3-4 of these

However, if you were fortunate enough to capture the growth at the early stages of a boom cycle, buy whatever you can afford ie 2, 3, 4 properties, sell 2, reduce debt prior to the bust and sitting on cash flow or neutral with cash in the bank ready to find another market that is either rising or develop etc. you are making your money work harder and at the same time you are reducing your risk.

Also, if you can not service debt its difficult to source finance, this will slow you down in the long run.

MTR

 

[Deltaberry]

There's also selling B-grade/crappy properties to swap S-grades.

Eg if you can sell 3 of your houses to consolidate into a massive corner block with 3 shops and 5 apartments at the top and take on more debt, would you?