When is it time to sell.

[mort the frog]

I've seen many posts on capital gains etc and many on an impending bust, Which I beleive is on the cards as the RBA is keen to raise rates and when that happens all hell will break lose with the people that are mortgaged to the hilt and the positive geared crowd that quickly becomes negative.


So people when is it a good time to sell, I've made almost 200k on a ppor in 12 months. I think I might cash in my chips and take a profit.

Better a bird in the hand than 2 in the bush as they say.

PS I would much rather put 200k in my kick now than try and sell in a market which is overpriced and with rates on the rise which is not too far away, Say 6 months. That will push prices down.

My tip is for a tax cut at the next election followed quickly by an interst rate rise after all we never get anything for nothing.

What do you reckon trendsetters??????

 

[Sunstone]

Dear Mort,

Why sell?

What is your long-term strategy? If it was a good property why wouldn't it continue to be so?

Time in market not timing of market.

Why don't you "take" the profit by refinancing the additional equity and buying an additional one?

Cheers,

Sunstone.

 

[TheBacon]

mort,
you will find the consensus on here is generally 'Dont Sell'.

In my opinion one sells an asset when;
1. You re-assess it and it is no longer performing as you want.
2. You find an opportunity with better returns than the current asset and which can only be entered into through selling the first asset, i.e. refinancing (eg LOC to 80%) wont get you enough and you need to sell the property.
3. Your overall financial situation changes and you need / want to cash in the profit.

If you were to take your profits now (note, someone said 'You never go broke taking a profit'), what would you do with them? Do you have another vehicle that will perform better? Shares? Cash? Business? Other?

And as Sunstone asked, how does this fit into your long term plan?

Good luck,

TheBacon

 

[Bill.L]

Hi Mort,

What if your wrong?? Where will you be left??? You will have $200K "in your kick" minus expenses, then you have to live somewhere.

Let's say you pay rent at $300PW, and 2 years down the track you are $30K out of pocket, homes have risen 30% and to purchase the same house again you pay stamp duty, legals, etc again!!.

DISCLAIMER:
All disclaimers from Nominee's disclaimer thread apply. (hmmm... that may be the best one yet)

bye

 

[Aceyducey]

Mort,

Sounds like you're confusing property with stocks.

In stocks, your aim is to buy low, sell high.

With property the aim is to buy (preferably low) and NEVER sell - just refinance.

Don't sell - take out a LOC for 80% of the available equity, then sit on it.

If property prices go down, use the LOC to buy more property (the bank can't take it away from you).

If property prices don't go down (which I expect) - you'll be wasting potential cap growth by not buying now, but at least will feel secure that you aren't losing money - and your property will be worth even more.

Essentially there's no way for you to lose

Remember you pay no interest on a LOC until you use it.

Cheers,

Aceyducey

 

[Bear924]

From my understanding there are an increasingly large number of people who are selling their PPOR and are going out renting. As I understand it is now considerably cheaper to rent a house in some areas then it is to own. If you can rent a property at 2.5% of its market price you could actually be saving yourself money. Presuming you can actively employ your $200K. Your decision is one that I know quite a few people are tossing around.

 

[Aceyducey]

Bear,

It may be cheaper to rent than to own if you look purely at the payment side.....how about when you take cap growth into account (even in a slowdown)?

I'm not against renting rather than living in a PPOR - but there's no long-term profit in selling good property!

Simply convert your PPOR into an IP, borrow against the extra equity (via an LOC so you don't make extra payments against the property) & go rent somewhere nice.

Of course, you will be paying both rent & mortgage - but your rental on your PPOR should cover the bulk if not all and to spare the mortgage payments, plus may be some neg gearing advantages (if this is useful to you).

Just don't sacrifice that capital growth

Cheers,

Aceyducey

 

[mort the frog]

Ok peoples I ain't selling, did some investigation hmm thats a neat word.

I have decided to access my equity and buy 1 maybe 2 properties on the coast for a modest amount that being about 180k. As I am in the highest tax bracket I am going to setup the props as neg geared and try to get them pos asap might take a few years but once that happens I'll have 2 props taking care of them selves. I am not greedy and don't want 7 or 8 places just 2 or 3 that provide me with in tofdays terms about 600pw when they are payed off that will do me nicely.

 

[geoffw]

Mort,

Have a look at setting up properties in a hybrid trust.

A property might be negatively geared now- but in later years, as rents rise, it should become positive- and you will be paying tax on it.

A trust will enable you to distribute income to you, Mrs Frog, or the tadpoles, in the most effective way. Even if you don't have a partner now- that can change too.

Dale's "Trust Magic" manual is an excellent investment- see http://www.gatherumgoss.com/shopping.htm

 

[XBenX]

i think this is what bear was suggesting ?

if your PPOR doesnt fulfil your requirements as an IP then why buy it ?

why not rent your PPOR (as it is not a good investment) and buy elsewhere (that is a good investment) as you have suggested

the property we are in atm is yielding ~2%

Originally posted by Aceyducey
Bear,

It may be cheaper to rent than to own if you look purely at the payment side.....how about when you take cap growth into account (even in a slowdown)?

I'm not against renting rather than living in a PPOR - but there's no long-term profit in selling good property!

Simply convert your PPOR into an IP, borrow against the extra equity (via an LOC so you don't make extra payments against the property) & go rent somewhere nice.

Of course, you will be paying both rent & mortgage - but your rental on your PPOR should cover the bulk if not all and to spare the mortgage payments, plus may be some neg gearing advantages (if this is useful to you).

Just don't sacrifice that capital growth

Cheers,

Aceyducey

 

[XBenX]

I agree w/ thebacon

sell your dogs (if it is one)

the opportunity cost could be huge (I cannot stress this point enough - oc oc oc oc oc oc oc oc oc oc oc ....i think its probably the most valuable thing to consider in economics)

yet if it is a good investment, there is no need to sell.... just ask yourself would you buy it as an IP today...

Originally posted by TheBacon
mort,
you will find the consensus on here is generally 'Dont Sell'.

In my opinion one sells an asset when;
1. You re-assess it and it is no longer performing as you want.
2. You find an opportunity with better returns than the current asset and which can only be entered into through selling the first asset, i.e. refinancing (eg LOC to 80%) wont get you enough and you need to sell the property.
3. Your overall financial situation changes and you need / want to cash in the profit.

If you were to take your profits now (note, someone said 'You never go broke taking a profit'), what would you do with them? Do you have another vehicle that will perform better? Shares? Cash? Business? Other?

And as Sunstone asked, how does this fit into your long term plan?

Good luck,

TheBacon

 

[Bear924]

Hi all,

I reckon there are lots of people around the world thinking about this exact question at the moment... eg sell or hold.

What I was trying to say was:

To me a property returning a rental income of under 5% is not a good investment regardless of the 'possible' capital growth. The only two ways I know to access any capital growth is to sell or to refinance with a LOC.

If your PPOR is not returning an equivalent return of 5% (eg the rent you'd pay if you didn't own it) then it may be plausible to deem your PPOR overpriced, sell it and use the money for another investment. Wait until the rental yields start getting close to 5% again and then purchase another PPOR. Obviously there are purchasing and selling costs and it may not be worthwhile to sell however I believe that it may be worth looking into.

 

[plainsong]

Mort.

Im having the same dillemma as you are..my 2 cents worth
is this-- as with all investing it depends on your time frame,
and your age. so now i have hit my sixties and i cant count on
living to the age of the average giant tortoise, i have decided to cash in my ppor, and either rent or look for a place where i can have a low cost lifestyle, i no longer have to house a family. I can then invest the the proceeds in a shorter term investment--
But if I were younger (under 50) i would then be looking at keeping the house as a rental , as i would be thinking of that as a more appropiate investment for the future-you need a longer time frame to ride out the lumps and bumps of the housing market
cycles,
really I think its about your time frame, the longer the better for
RE investing generally seems best,
just my opinion, i might have it wrong, too....
cheers,

 

[Mikhaila]

Originally posted by Bear924
Hi all,
To me a property returning a rental income of under 5% is not a good investment regardless of the 'possible' capital growth. The only two ways I know to access any capital growth is to sell or to refinance with a LOC.

If your PPOR is not returning an equivalent return of 5% (eg the rent you'd pay if you didn't own it) then it may be plausible to deem your PPOR overpriced, sell it and use the money for another investment. Wait until the rental yields start getting close to 5% again and then purchase another PPOR. Obviously there are purchasing and selling costs and it may not be worthwhile to sell however I believe that it may be worth looking into.

I completely disagree ! If property doesn’t return 5% rental yield it is NOT a reason to sell. The capital growth must be included into the decision making. Upmarket properties return often under 5% rent, especially now. Capital growth however was phenomenal and potentially still will be, maybe and only maybe not in the next 2-3 years. It is always a balance/trade off between CG and rental returns, so to say if rental return is lower than 5% it is bad investment is very short-sighted. It can be true if applied strictly to low CG areas.

 

[MichaelV]

It is very easy to get bogged down in the detail and loose sight of the whole picture. Regardless of where the market is the question people should be asking is how does it fit into their long term goal. In my instance it is positive cashflow. I do not like to idea of buying properties in the "country" so I buy in Melbourne bayside areas. Buy two renovate one and sell the other. Not everybodies cup of tea but it works for me. Last year I purchased two properties, one of which doubled in value(some TLC was involved $2500). I have since sold this property and used the funds to build a dua occ. on the other. A little outside the square but it works!

 

[Bear924]

I will attempt to back up my thinking with some examples and different scenarios. As we all know every property market is different so my example will only suit some people, to save confusion I will ignore property changeover costs however I note that this is a reasonable cost in any property transaction. On the other side of the argument I havn't looked at property holding costs.

The house.
PPOR is 200K, rental yield is 2.5% producing a imaginary rental income of $5000 per year or $100 per week. Presume the house is sold for $200K. Therefore to rent a house the same as the one you currently own will cost $100 p/wk. A $200K loan (IO) will cost about $11000 per year or $200 p/wk ish. Therefore from a cash flow perspective you are saving $100 p/wk.

Scenario 1.
Capital growth at 10% pa. - Property worth 220 000 in year 1, capital gain of $20K less 5K in extra living expenses gives a profit of $15k - holding PPOR is best situation.

Scenario 2.
Captial growth at 5%pa. - Property worth 210000 in year 1, captial gain of $10k less 5K in extra living expenses gives profit of $5k.

Scenario 3.
Capital growth at 0% pa. - Property worth 200000 in year 1, no capital gain therefore a loss of $5K.

Scenario 4.
Capital growth at -5% pa. - Property worht 190 000 in year 1, capital loss of $10K plus loss due to extra living expenses gives loss of $15K

Personally I wouldn't sell my PPOR as I don't like renting and the property market may stay strong for the next 10 years. However if I was of the belief that my PPOR had been overpriced by the market place and that in 5 years time I could purchase it for similar or lower money then I sold it for it could be worth selling now.

In Jan's 'More Wealth from Res. Prop' on page 92 it gives gross returns for capital cities over the last 100 yrs. The 6 city average gross yield was 7.8% and cap growth 7.8%. From my understanding some rental yields are now down towards the 2.5% mark because people expect high capital gains. This is a little to speculative for my liking. My figures are very rough as I'm doing this quite quickly, if anyone would like to run the above scenarios with better numbers that would be great.