To sell or not to sell ?

[Gemini]

What a site ! I've been lurking for a few days but just have to jump in and mingle with such an amazing bunch of people! I've got RSI in my mouse hand and double vision from reading all the old threads, right back to the old site, (non stop for 9 hrs yesterday) I'm so pleased to meet a group of people that share my partner's & my vision & passion in RE! Never join groups but saw the site in back of one of Jan Somers most recent books and thought I'd have a look. A whole new world has opened up! What fabulous stories Jakk with his 50, 007's early thoughts on having to recruit friends to share the experience, RPI sharing the "how" details,.... At last, people who understand why we do what we do!
I hope its ok to just jump right in & ask a detailed question, there seems to be so many good minds here, I feel sure there'll be some good advice.
Partner & I focus our RE dealing in the Inner East Bne suburbs (5k City). Aim is to make about $50k from RE transactions p/a, at present mostly buy, improving & selling. We want to accumulate enough capital to ultimately buy a specific portfolio of keepers for down the track. Like everyone will want + gearing & capital growth.(+ Gearing not possible in this area at present). Presently we are doing better, over the last 5 yrs of very high capital growth in this particular patch, working with our strategy of buying well, small improvements & selling.

At present we are in a dilema, should we sell current PPOR and get roughly benefit of $200k CGT free, to use the money for next project, move into one of the new properties being built as PPOR for a year or so, thus saving about $35k CGT on it? Basic facts :

PPOR (owned outright)
June 01 Bought land $247k
Oct 01 built house $300 (incl l/scaping, timber shutters etc)
__________
$550 aprrox

Could sell quite easily now for $750k

Next senario :
June 02 Bought land $472k (old brick house on dbl block)
split block & currently building 2 houses
Build cost incl. S/D, fees, approvals, fit out incl l/scaping - around $305k ea.
Sale price (should achieve) around $650 ea - still only netts (after interest, com., & tax) abt $35k ea house.


Our present PPOR will continue to appreciate more quickly than possible new PPOR (new house as above) - possibly, based on past couple of year's performance, about $20 - 30k p/a better.

What are people's thoughts ? Also seems not much conclusive info about how often one can move on to new PPOR without incurring the wrath of govt.

Sincerley appreciate your responses. Thanks.

 

[agent007]

Hi Gemini,

This is not expert advise:

You seem to have very good quality properties in your portfolio. As you know, in the area where you are investing there is not much land left if any. Thus, I only can see it improving over time regardless of the stages of the cycle. I would not sell the PPOR though I would milk it to the max and put those lazy $ to work for you.

Regards, James.

 

[Kevin Hockey]

I'm with James. especially in your areas. Hold onto as much as you can and use the lazy bucks. I still believe the Brisbane market hasn't finished, we are still seeing an increase in sale prices.

The closer to the city the hotter it gets. Hang on to them if you possibly can, but I have seen those who do sell and do it successfully. Have a strategy and stick to it.

Kev

www.nundahrealestate.com.au

 

[steve]

Hi Gemini,
Page two there is a post about PPOR to make $$$$$$$, this may answer your question.

steve.

 

[geoffw]

Gemini,

I'm with the "hold" people on this one.

IPs- $1.08M spend, $70K profit. (I'm not sure if that includes CGT. If it does, and you must sell, at least rent it out for 12 months and then sell, to cut the CGT).

But, if they appreciate 5% pa, that's $50K. Every year you own them. And that compounds. 5% on that amount will be over $70K pa in ten years. And the government is not geeting a percentage of your profits. $50K pa beats $70K one-off.

Obviously, you have to be able to afford the hold costs, if negatively geared.

Cash bonds may be of use here- do a search.

 

[Gemini]

Thanks guys, 007, Kev, Steve (re read PPOR to make $$$'s again - but still hard to apply to your own specific case) & Geoff, yes final profit quoted does have CGT taken out already.

Concerns are that not sure if best strategy is to have 3 such high (relative for Brisvegas) value properties (& also 1 cheapie) or more at the lesser $ end of the scale - for purpose of being more easily liquid if necessary. Also of course, the issue of affording funding both new properties to the tune of approx $12k ea p/a (after taking into account rent less all exp (rates, interest, deprec'n bldg, deprec'n fitout,) less tax refund.

All thoughts welcome & appreciated.

regards.

 

[RPI]

I beleive in hold wherever possible. I doubt you'd regret holding on to the the property in even a couple of years time. Though, especially if you stay in the area, in a few years you would be saying imagine what they place would be worth now if we'd kept it.

Property inside the 5K zone in Brisbane has averaged capital growth of 11% of last 70 years and 9% over 30 years. On 9% growth your PPOR would be worth 1.77 million in 10 years.

You could access some of your capital to top up your income so to speak. You can either find a +ve property or for a very simple and safe, though not neccessarily the most effective, you can use the cash. For example if you borrowed $30K and placed it into a separate bank account (one with no chq book or key card). Organise an automatic transfer every week for $115 to go to one of your income accounts (either personal or investment). The $35/ week repayments to come out and the extra $80/week helps cover costs. This would last you 5 years if you gained no interest on the account and longer if you did. In 5 years your property will have gone up by more than this and your rents should increase to coverthe repayments.

There are heaps of otherways you can use your capital to help you through.

Just a few thoughts, hope it helped

Darryl

 

[agent007]

________________________________________________
For example if you borrowed $30K and placed it into a separate bank account (one with no chq book or key card). Organise an automatic transfer every week for $115 to go to one of your income accounts (either personal or investment)
________________________________________________

Hi Gemini,

Quoting above Darryl's proposed structure, you could implement it even better if instead of putting those $30K into a bank account you buy yourself a cash bond as per Steve Navra's recommendations. It is more TAX effective and easier to admin.

As in the program Who wants to be a millionaire, the audience is more incline to hold than sell so, what are you gonna do?: A, B, C or D.

Good luck,
James

 

[Gemini]

geoffW
you've really got us thinking now - like your figure work! Considering benefit of renting out our PPOR and moving into one of the new properties ourselves for 12 months to even further lower CGT on new one. (realise we'd need a high valuation on present PPOR to not show too much capital growth on it for the period it would be rented out, or it would offset any gains)

Trying to calculate these alternatives, did ask our accountant to run some figures for us but accountant isn't well versed in IP's as doesn't have any. I'm now thinking maybe I should buy PIA Personal Professsional ($245) version and see if I can input some alternate senarios. Would this help ? Do most people on the Forum have these already ??

At present in current PPOR we also have 3 Internatnl students with us pretty much full time, and the most we could have at new PPOR would be 1 or 2, so need to take that into consideration as further cash shortfall p/w.

Have read all the site info on Cash Bonds, still not quite clear, although they are a whole new world too!

Thanks again

 

[geoffw]

Gemini,

A problem with moving out of PPOR would be that you would then have two properties which you could not negative gear- interest would not be deductible against income (I think). Get professional advice on that- from an accountant who knows property! (There's a couple of resident accountants on the forum based interstate- DaleGG and NickM)

On chashbonds- check on Steve Navra's site- http://www.navra.com.au/articles/cashbondfirst.html

And a course from Steve is recommended- $286 pp for a full weekend. Cashbonds are just a small part of what is covered- well worth it. There's one coming in BNE 31 May & 1 June- http://www.navra.com.au/courses.html

 

[Gemini]

Thanks 007 & GeofW,

Have just now booked into Navra course Bne end May, thanks. Hopefully then I'll fully get my head around cash bonds (have also re read the site about them).

Yes, true about the not being able to - gear, however maybe the saving in CGT would override this ?

I think I need the advice of a property knowledgeable accountant to be able to conclusively compare the benefits of all possible senarios!!

Is it possible to have someone recommend a good acct in Bne or is that contrary to forum rules ? I have had the name Richard Clarke mentioned in the past ? Happy to pay for the right good advice.

Any other thoughts welcome!

Thanks & regards to all.

 

[Sunstone]

Dear Gemini,

Is it possible to have someone recommend a good acct in Bne or is that contrary to forum rules ? I have had the name Richard Clarke mentioned in the past ? Happy to pay for the right good advice.

Recommend you have a look at a previous post of mine.

http://www.somersoft.com/forums/showthread.php?postid=40153#post40153

My personal recommendation is to avoid Richard Clarke. As a long time user of trusts I was totally amazed with his backwardness in recommending that property should be held in your own name.

Cheers,

Sunstone.

 

[Gemini]

Dear Sunstone,

Many thanks for the word on Dale - I've looked at his site & stored details for Tuesday phone/email.

I've read a lot (probably nearly all) your threads and you've certainly shared an incredible amount of info & guidance in the forum, wonder if I could ask u to read the beginning of my thread and possibly provide me with your thoughts ?

Glad to fill in any info that would make your guidance easier.

Appreciate your help.

 

[Kevin Hockey]

Hi Gemini

My accountant is Paul Balbuziente at Lutwyche. I find him excellent but each to their own. His No. is 3357 5500.

Kev

www.nundahrealestate.com.au

 

[Sunstone]

Dear Gemini,

I've read a lot (probably nearly all) your threads and you've certainly shared an incredible amount of info & guidance in the forum, wonder if I could ask u to read the beginning of my thread and possibly provide me with your thoughts ?

If you're read all of my threads then you’ve certainly been busy.

Guidance in your situation...............

1) Goals

Work out some goals. If you don't know where you are going then it's hard to work out the strategy for how to get there.

You have said in your post that your strategy is buying well, small improvements and selling. But like other investors I ask the question –“Why sell?” If you purchased well in the first place why wouldn’t it continue to be a good investment?

Sales experience and passion is always good. But in realestate sales expertise should be used in a different way (If you are not an agent.). What is selling? Is selling trying to sell a property to someone not in the know who will pay an inflated price for the property? Is it getting several couples who fall in love with a property slugging it out at an auction having to buy it at any cost?

I believe that marketing/sales skills in a property sense should be honed towards 1) The tenants that are going to rent your property and to a lesser extent the property manager (Property managers who are at least a little bit excited about your property I feel will do a better job in presenting it to tenants.). (You want the tenant to really want to live there thereby getting top quality tenants paying the maximum levels of rent that are viable for them.) and 2) The valuer of the property. (Improved valuations make money.)

This is where this expertise can be used. Marketing the property to the valuer in highlighting it’s key “selling points”, exciting developments in the area, why tenants are prepared to pay an above market rent for the property, and also the important high priced/record breaking sales that have taken place recently in the area. You should meet with the valuer on site, provide the information that makes their life easier and extract the high valuation that you want. By doing this you will get the improved valuation you want getting the equity to fund your next project.

You get the benefits that you want to without losing a large proportion to all the normal transaction costs.

2) Improving Cashflow

I am an advocate for increasing yields and getting positive cashflows. What you need to do on your current properties is to put on a different set of glasses. How can you increase the yield on the current properties? Look at the possibilities to make then neutrally or positively geared. Dual occupancies are a great way to increase yields or doing conversions on older properties to 4plxes or 6plxes.

3) Utilise additional equity created

After you have done this you can look at lower priced properties which are or can be made cashflow positive using the additional equity you have created. But it must fit in with your strategy. Strategies can be fine tuned or reviewed on a 3-6 monthly basis. However the fundamentals should not change. Seriously learning about a new area does not come about overnight. I research my area all the time looking for the right next property/project. In how many areas can you really keep a close finger on the pulse?

At the end of the day no-one can tell you what is the “Holy grail”. They can only be suggestions or tips from methods that we have used ourselves. You have to feel happy with what you are doing, fit it with your own strategy and your SANF (Sleep at night factor) (Including how interest rate rises can impact on your situation).

Some thoughts…………. Enjoy your IP journey.

Cheers,

Sunstone.