I recently bought an IP which I believe has already increased in value. This is the second IP. The first was years ago where I realize a very decent profit of about 70% after selling 3 yrs later only to 'move up' in PPOR. That move improved my equity to a comparitable level to having had kept the property had I not sold. So back to where I'm trying to go. Most of my experience is in shares which is where I feel most comfortable and competent with investment wise (trading blue chips after realizing profits only to rebuy into another with good fundamentals). So basically I'm in that mindset of buying realizing profit and selling almost always to reinvest. This time I'm trying to convince myself to hold long term but keep thinking perhaps I can 'move up' by buying again in an area that has room for more CG and doing this again if it's possible or is this a waste of time and energy? I keep hearing buy and hold. What experiences have others have and why is this not a popular strategy. I do realise that you must hold for a period of time however otherwise there are tax implications but not to sure how this works either. My IP is a newly built home.
to hold or not to hold
- Thread starter weg
- Start date
ok, my thinking is that when you sell and buy another you incur:
- selling costs of say 2% + advertising
- time out of the market
- CG tax on the money you have made
my idea is to buy and hold indefinitely. in this way you can always refinance to access excess equity, maximise negitive gearing and get more exposure.
Are you able to refinance to access this excess?
- selling costs of say 2% + advertising
- time out of the market
- CG tax on the money you have made
my idea is to buy and hold indefinitely. in this way you can always refinance to access excess equity, maximise negitive gearing and get more exposure.
Are you able to refinance to access this excess?
Thanks very much for taking the time to reply. I actually have alot of equity in my PPOR an above average combined income with my husband but big expences for at least 3 years ie. small morgage on PPOR, payment on equity loan for shares, children in private school (the first child finishes school then) and now servicing the IP loan after rent paid (rent should have gone up in 3 years). I HATE cutting it fine financially so would not purchase a second IP for at least a couple of years unless I found something close to CF+ve (difficult/unlikely). So hence the idea of trading up IP and continuing to increase CG without compromising my financial stuation too much. Tax depreciation on brand new IP will assist me to knock off most of my morgage over next three years does save me paying interest so I suppose holding is the best thing. Still interested however to see how others have fared doing it the other way.
I've always taken the buy and hold position.
From a mathematical standpoint, if you have a property and you consider trading it for another property (which is what you will be doing) you will incur three major costs in converting the property over.
Capital gains on disposal
Real Estate Agent's fees on disposal
Stamp duty on purchasing the new property.
It is at this point after considering the costs that you ask yourself the following questions -
1 - What are my investment goals? Will they be met sooner or later if I sell this house?
2 - Will I get better capital growth or cash flow if I "trade" the property?
If there are private reasons for selling (ie buying a new home or private school fees), that may be a reason to sell but you lose the capital growth that you could have otherwise received. You have to decide which is an acceptable trade off.
From a mathematical standpoint, if you have a property and you consider trading it for another property (which is what you will be doing) you will incur three major costs in converting the property over.
Capital gains on disposal
Real Estate Agent's fees on disposal
Stamp duty on purchasing the new property.
It is at this point after considering the costs that you ask yourself the following questions -
1 - What are my investment goals? Will they be met sooner or later if I sell this house?
2 - Will I get better capital growth or cash flow if I "trade" the property?
If there are private reasons for selling (ie buying a new home or private school fees), that may be a reason to sell but you lose the capital growth that you could have otherwise received. You have to decide which is an acceptable trade off.
My goal is to simply to maximize my CG further. It's simply an idea that keeps coming up. And yes I definately want to remain in the property market increasing my holdings over time. I do realize there are costs involved and I would never sell unless perhaps I found a great block of land to build on with a long settlement like those in a development. The stamp duty would be minimal (land only) when looking at the overall value of the land and house plus there would be ample time to sell the original IP avoiding being out of the market. Yes there would be CG and agents fees but if the end profit is good on the original IP and there is (and only if) some instant equity on completion of the second I figure you have to be ahead. I wouldn't have problems with the bank and don't need cash so don't have to sell. I realize the cost of selling and buying IS the major difference between property and shares but was curious if many did 'trade' properties so to speak.
What he said.
If you are more solid about shares, then use your equity to buy more shares.
That way you will have the cap growth from the property and the shares working for you.
Also, as the property is brand new, so there is considerable depreciation available to you for your tax returns. Nice.
Mcknight is referring to people who want to make a living in the property industry.
But for the likes of me who has a professional job, and uses property as way to accumulate an income and wealth in addition to my job I disagree with the above comment.
My strategy is as follows;
1. Buy in middle ring growth areas with amenities. (In my case Melbourne beachside (Mentone to Frankston), walking distance to station)
2. Build a portfolio and purchase every couple of years as rents, values and job salary increase
3. My aim is to have a $2m portfolio. If property increases at 5%. Then in addition to my job, I earned (on paper) an additional $100k. Not bad for not doing a great deal.
4. Sure each new purchase is negative geared. But as you increase your portfolio, the older properties subsidise the additional ones.
5. I get a decent tax refund each year which I use for personal purposes or pay the credit card off with. One year we spent 6 weeks in Canada.
6. I prefer not to sell.
7. I have redraws set aside if I want to purchase the next property or for use if I loose my job.
8. I am conservative by nature. Probably why I ended up an accountant in the IT industry. Not a get rich quick strategy.
9. All properties are managed by rental managers.
Thanks, I will hold and probably purchase again in a couple years. I do want growth long term (an short) not fast cash. I will see how it all pans out tax wise with this new property and who knows I may possibly buy earlier if a good viable property comes up. I like taking very calculated risks and to know what to expect rather than be presented with any nasty financial surprises. My last rental was years ago older home and +vely geared so in practise this feels new and I'm still learning.
$2M gross? that wouldn't take you very long at all if you are buying every couple of years.
I am not agreeing or disagreeing with him but I found that book quite interesting. I am not sure he is referring to being someone in the property industry. he opens the book by sayign he once gave a friend advice to buying a neg geared property and how it haunts him to this day as in hindsight he can't think of a worse investment
someone in the property industry - what i mean is someone who wants to make a living out of property or wants property to be their main source of income.
haunts him to this day as in hindsight he can't think of a worse investment. He probably said this to strengthen his stance on positive cashflow properties. Growth properties have more demand and therefore higher prices. I would be curious what his advise would be now in 2007 for this investment.
My first property was a 2 bed unit in Mentone bought in 1997 for $95k. Now worth about $360k. This is the foundation upon which my portfolio was built. It was negative geared for a long time.
What are you going to do with the net proceeds of the potential sale? If you think you can take those funds and get better return (with leverage) elsewhere, then sell.
Would love to chuck all these cash sucking resi IPs in for a nice CIP or IIP or even an office block. Not greedy, just $10M market val generating 9% net yield will do me nicely for the rest of my life.
