To sell or to hold - need advice

Hi,

Bit about myself first. I have been living in the UK since 2007 and am planning to come back to aus and settle in sydney towards the end of 2011. I own two properties in canberra:

Property A - principal and interest, owe the bank around 290k and would now sell for 400k. Also i wouldnt have to pay stamp duty as this property used to be my PPOR. Current mortgage around $1800 p/m and rent is $420 p.w.

Property B - Interest only, owe the bank around 360k and could sell for around 390k. Mortgage around $2100 p/m (it will go down a bit in october once my fixed term @7.55 finishes!) and rent is around 400 p.w.

When i come back to Aus my wife and i are planning to start a family so i will be the sole earner. I would probably earn anything between $100k - 160k. We are planning to settle in Sydney and i want to buy a house around the $550k mark. I have read into some reports that house prices will stagnate in Canberra. Based on this i am considering selling property A. The way i see it i have a few options:

-Sell property A, use half the money to buy an IP in the UK (fairly good rental yields and i believe good potential for capital growth within next 4-5 years), I could easily find a +ve geared IP in london. I could then use the rest to the money from sale of propertyA to contribute to down payment of house in Sydney.

- Sell property A and use all the money to put down a sizeable deposit on Sydney residential property

- Hold both properties as Property A is pretty much paying for itself and property B wont deliver a good return. Settle for a cheaper house in Sydney and sell Property A in 2013 as after this i would be liable for capital gains tax.

What do you think is the best option and why? would love to hear some opinions from the gurus. Apologies for the length of the post, couldn't really get my point across without explaining everything in detail
 
Sell them really really cheap to me and I will hold them ;)


Seriously though, I would hold. But thats just me.

Also the Canberra market is a bit crazy and I think it is still very much on it's way up at the moment.

What kind of properties are they (ie, 3bed? DLUG? land size?) ? And where abouts are they located?
 
Hi,

I realise sydney prices are on their way up in a big way due to the rate of homes built vs the population growth. But im not really sure if thats the case in cbr. I have tried to research it but keep finding contradicting conclusions.

Property A is a two bed townhouse, DLUG in Bruce and Property B is an ex govie 3 bedroom house, DLUG (870m2 land) in Holt. Both nice locations.

I just dont know what to do, so many opinions and so many factors to consider. I have a serious case of information overload. One "fear" which has resulted in me considering selling in Canberra is that i might not be able to afford a house in Sydney by the time i get back in 2012 and that the rate of growth in canberra will be less than sydney.
 
I'd hold both properties and buy the best cheapie I could afford in Sydney.

You're in the Sydney market too this way, and over time you can decide what your family's requirements are, as well as which way you want to procede with your investments.
 
- Hold both properties as Property A is pretty much paying for itself and property B wont deliver a good return. Settle for a cheaper house in Sydney and sell Property A in 2013 as after this i would be liable for capital gains tax.

Once you buy a PPOR in Sydney you lose the exemption on the Canberra house as you cannot have 2 PPORs. If you were going to sell, offload the old PPOR in Canberra before buying into Sydney.
 
Property A is a two bed townhouse, DLUG in Bruce and Property B is an ex govie 3 bedroom house, DLUG (870m2 land) in Holt. Both nice locations..

If you have to sell either one, sell Holt, Bruce will do well forever as its closer to Civic and right near UC and the AIS. If Holt is not in the core area (approx 250m from shops) it cant be developed for multi-units then sell this one. if it IS in the core area, hold and develop or sell with a DA.
 
I'd hold both properties and buy the best cheapie I could afford in Sydney.

You're in the Sydney market too this way, and over time you can decide what your family's requirements are, as well as which way you want to procede with your investments.

I should add, that you shouldn't forget to take into consideration the fact that you could change your PPOR property in Canberra over from P&I to IO if you buy a place in Sydney, and that you need to value the home from when it switches over to an IP (for CG calculations in the future).
 
Thanks for all the replies, really value your suggestions :). What about the investment in the UK option? Anyone have knowledge/experience of the london market. It looks esp attractive atm because of the strong aussie dollar. I could pick up a 2 bedroom in zone 2 for around 250k. Finding a +ve geared property is easy over here. Also i think a lot of the properties near the city over here seem to be undervalued. Any opinions
 
I can't really comment on the situation in Canberra, but Property A strikes me as something that would be good to hold. You'd clear the mortgage eventually, and it could provide a decent income stream in years to come.

OK, London...

The UK's property market is currently trading on numbers that are broadly consistent with a double digit percentage fall in prices, and yet they're going up. The economy is shafted (outside of banking, which has had a massive bail out), taxes will rise and public services will be cut after the election, and mortgages are hard to come by.

I think that there is a real risk that property prices will fall again later this year and potentially remain low for some years. That said, the pound is at a historically low level, and you might be looking at a 20% to 30% appreciation due to currency movements.

How much of the positive gearing is down to the historically low interest rates? At 0.5% there's really only one direction they can go in.

The last point to consider is how would you manage the property? Sydney is a long way from London, and you can't exactly pop over to deal with an emergency.
 
Thanks for the replies and advice everyone. I am definitely leaning more towards the option of holding the canberra properties. It will just mean i might have to downgrade my residential home in sydney (my wife wont enjoy hearing that ;) ). Also the more research i do into the UK property market the more put off i am about investing here. Yes interest rates and the strong AUD$ are positives but most institutions/experts are predicting a bear market for anything from at least 2014 to the next 10 years. Also the olympics in 2012 will not change that trend too much apparently.
 
tk,

for what is is worth if i was you i would sell property A. ( no capital gains)

Then buy as good a house as possible in Sydney and have as low a mortgage as possible, then borrow the equity back on a side loan as a deposit and buy another investment either in UK or somewhere else in Aus like Brissy.

Would be well set up for tax and lifestyle and have a good diversification of property over three different markets.

good luck with the decision, let us know what u decide!
 
Wow i have to say you are in an incredible position, being in the UK at the moment with first hand knowledge of the local market.
I wish i was in your shoes.

I think (with due diligence of course) your suggestion about buying a UK property is fantastic, especially using the AU$ as the source currency for the deposit.

Cash flow positive + AU$ sourced funds with current exchange rates.
On a 10 year view point this will stack up as a very nice investment.

Depending on how things go for me here, and whether the AU$ can hold for the next year or so, maybe i can tap some of your local knowledge (I have a UK passport as well as aussie passport if that helps).
 
Two other thoughts:
  1. Property prices in Germany remain low, and according to the Economist are underpriced relative to rental income. If you're looking to buy into a European market and hold then it might be worth investigating. The downside is that the Euro is still relatively strong versus the pound, so less benefit from currency movements.
  2. Given the Pound is so weak, why not look to see if you can finance the purchase with a Euro or Australian Dollar mortgage? That'll make your purchase price 20 - 30% cheaper.
 
Hi, love BigTone's drift.

I'd buy UK investment property sooner rather than later. Reasons: tie in low rates now, good exchange rates, & have time to settle tenancy/mgt issues before coming back to Oz.

Wonderful cashflow & plenty of time to decide whether to sell Canberra property.

Wrt AUD loan, you'd have to pay AUD rates too.

KY
 
The opinion amongst financial journalists at present is that interest rates will remain at their current lows in the UK until 2015. The spread of mortgage versus Bank of England rates is narrowing, so locking in might get better later.

The UK housing market is currently weird, which is why I'm not convinced that it's currently a good time to buy.

My guess is that a combination of foreign buyers (taking advantage of the weak pound) and low interest rates are (some owners have mortgages at 1%) preventing forced sales, and that's artificially propping up the market.

In terms of what to buy, I'd avoid apartments. There's been a massive oversupply of them in city centres, which led to their prices crashing far faster than other properties.

I'd be tempted to look a bit further out. I like Brighton a lot, and there's just been a new, high speed rail link opened between Canterbury and London, putting it within easy commuting distance. Somewhere like Rye might be interesting.

For a longer shot, find somewhere around the forthcoming high speed link's terminal near Birmingham. A pretty rural property in Warwickshire might become a commutable option for London in a few years, and have an uplift in values.

I'd avoid Ashford though - a pair of PIs own something like 700 houses around there, and are looking to sell. That'll distort the market...
 
Hi Graemsay thanks for your opinions. As a general rule i only tend to buy in areas that i am familiar with. At the moment i could afford a 2 bed semi detached victorian in a central area. The area that i like is Clapham common/Claphman junction. I read somewhere that clapham has the highest ratio of white collar under 30's than anywhere in europe. It's somewhere that renting wouldnt be a problem. Another area that seems attractive is Stratford, they are undertaking massive building projects for the olympics. New railways station, improved tube and overground and also Europe's biggest shopping centre. What do you think of these two areas? Also what do you think of the other train of thought that says that house prices will not start rising again until at least 5 years?
 
Hi, if you have +cf, the waiting time is icing on the cake. Think of the increased equity in 5 years when prices do go up.

KY

And I'm not merely talking the talk. I bought a house at peak & waited 11 years. I had my epiphany when I sold & sat down to work out what I gained.

The answer will surprise many. What I gained was a loan facility. Based on that one moment of insight, I signed immediately when a lender said I could borrow half a million. The rest is history.
 
Hi tk79.

I don't know London that well, but when I passed through Stratford about a decade ago (visiting some friends of a friend) it was really, really grim. I don't know how much it's improved since then.

Clapham's probably a better bet.

I took a quick look on Rightmove, and some of the older, cheaper flats in Hammersmith and Fulham fall into your price bracket too.

If you're in London then it would be worth taking a look at the boroughs and seeing what you think.

I'd go with a Victorian terrace or semi over a new build apartment too, simply due to the oversupply issues with the latter.

As for UK house prices, I've given up trying to predict how they'll move. :confused:

There's one opinion that they're still 30% overvalued, and will dip again this year. If so, then I'd guess you're looking at flat prices for the next decade. The other is that there's significant pent-up demand, and that will support the market as the economy returns to normal.

Whether it's worth buying is a different question. I'd be asking:
  • Can I get a CF+ property, even factoring in void periods (say one or two months empty a year), management fees, maintenance and rising interest rates? (At 0.5% base rates, there really is only one direction.)
  • What is the supply of rental properties like? (A lot of home owners were unable to sell at their desired asking price, and ended up renting out their home "until the market recovers".)
  • Will you need the deposit money anytime soon?
If you can get an IP that turns a profit then it doesn't matter too much if the price is up or down in the short to medium term, because you can hold it over ten or twenty years and achieve CG no matter what the market does.

The concern that I'd have is that it would be a very hands off approach due to the distance involved. What happens if you need to renovate the property? Do you want property agents taking their cut? How do you assess the condition of the building over time?

That said, what are the alternatives?

Savings accounts pay very little interest (close to zero), so inflation will erode it. The stock market is probably a bit on the high side, though might be worth a punt. (I like the very cheap Fidelity FTSE tracker - wrap it up in an ISA and reinvest dividends - that's what I'd be tempted to do right now.) And the Pound is weak against the Dollar, making repatriating cash a bad move right now.
 
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