Who's Harvesting

Buy and hold has, no doubt worked very well for many property investors, particularly if one can ride a cycle or two, or even more :D

There are proponents that suggest never sell, then there are others that use a model of leap-frogging into six or so IP's over a 10-12 year period (certainly very achievable) by allowing cap growth to duplicate deposits into each IP. A sell off of one or two (allowing for CGT) may see debt elimination or at the very least nominal debt with rental cashflow providing funds for retirement over and above super. Certainly nothing wrong with that, you'd still be well ahead of the masses financially ;)

I do believe there comes a time where sometimes one needs to sell.

1. Perhaps to eliminate debt.

2. Selling off loser properties that are underperforming and thwarting portfolio returns.

3. Provide ready cash to take advantage of other investments. Equity can obviously be used however folding stuff has an appeal that gives one power to negotiate when banks frown upon over-extended LVR's in some circumstances.

4. One has seen such strong compounded growth in capital terms yet the asset is poorly yielding.

There are more reasons that could be listed and would certainly be dependant upon each investors situation with regards to stage of life and portfolio size.

I retrieved a title from one of my lenders recently and this property has yielded a twelve-fold increase in value over the past 24 years. It is also a pre-CGT asset.

It is a property whose yield is more akin to point # 4 above. I am toying with either setting up LOC or similar to give me (funding approved) purchase power over my next purchase that will be yield driven, perhaps in a trust where I loan to the trust from those funds and then I can finance the asset later and take my money back still having the facility to buy cash unconditional again with the approved funds.

Or...........whenever I find a decent yielding asset(s) buy using borrowed funds and sell the clear title at my lesuire and pay off that loan so that my returns are net of loans. I could just sell of this asset now and bank the money, however without another home for those funds by way of decent yielding investment property, I would rather hold off selling until those funds have a destination.

Now, I know there will be some of you that thinking, well just refinance against that asset and buy again and never sell. Save transaction costs and tax. Keep them all and live of equity. Ceratinly all valid points, howeverI have two pre-CGT assets that I believe I will sell at staggered times to achive a higher return on my money and if I choose retire all debt ;)

The growth has been nice, however the current yield on property valuation is woeful. I may also get planning permits for it and sell to a developer having mitigated some risk for them. Sites like the property I own are highly sought after.

I could develop my self and thoght about that however that would poison the CGT exemption. Sometimes it is best to sacrifice the cow and start afresh with new cattle :)

I would be keen to hear from any others here who are debating whether to sell any asset(s) to improve their cashflow position.

Sometimes it becomes more prudent to sell than hold and harvest the growth properties ( as in my case) to replace with yield and for me it will need to be multi-streamed........ four pack or six pack or similar.

Is it time to harvest? :confused:
 
Player,

I have harvested and I am a traditional...dyed in the wool buy and hold buyer. I agree with with you are saying.

I harvested two properties for two different reasons:

1. A small 1 brm unit in Marrickville in Sydney ...bought it for 90k and sold it for 215k. Did this in Feb. 2008. The reason I did this is because I was the holding costs was about 5k as opposed to 4k for most of my units. It was paid off...I did pay CGT thought.

2. The second property I sold was in Punchbowl and it was a underperformer.

I have utilised this money to increase my CF+ to 60K per annum which more than pays for any CGT or the loss (not real just in terms of opportunity costs).



Buy and hold has, no doubt worked very well for many property investors, particularly if one can ride a cycle or two, or even more :D

I do believe there comes a time where sometimes one needs to sell.

1. Perhaps to eliminate debt.

2. Selling off loser properties that are underperforming and thwarting portfolio returns.

I could develop my self and thoght about that however that would poison the CGT exemption. Sometimes it is best to sacrifice the cow and start afresh with new cattle :)

I would be keen to hear from any others here who are debating whether to sell any asset(s) to improve their cashflow position.

Sometimes it becomes more prudent to sell than hold and harvest the growth properties ( as in my case) to replace with yield and for me it will need to be multi-streamed........ four pack or six pack or similar.

Is it time to harvest? :confused:
 
Got a bit of time on your hands, Michael :)
I've been going through much the same process recently. Not with a view to selling, but working out if I want to continue to grow the portfolio or start some type of harvest process so I can enjoy the fruits of my investment strategy and not become a slave to it.
I've always believed that anything you do should be "fun" or at least enjoyable. If it's not, then maybe you're not following your true path.
I'm still enjoying property investment, but I think I might be more passionate about other pursuits such as travel, learning new things such as the mystery of golf, improving my 8 ball and tennis games and maybe doing some more freelance writing.
I've been syphoning equity from the portfolio for most of this year and either investing in other asset or stockpiling it in an offset account.
Like a squirrel, I've gathered (harvested?) lots of nuts. No, I'm not talking about some of the women I've dated. I mean nuts as in $$$. Enough nuts to maintain myself and the porfolio for the foreseeable future without the need to sell anything.
I don't plan to sell any of my existing properties, but may look at buying something soon with the intention of renovating and selling at some point in the future, using the profit to retire some debt, perhaps.
As part of this review process, I've been trying to work out why I still continue to punch the clock at work. I make up excuses like: I need the payslip to borrow more money (if I stopped borrowing more money, I would need the payslips!) or I'm waiting for my redundancy package and I'll feel ripped if I bail out and miss out on it (that's partially true) etc. But, I think the truth is that I'm afraid. Afraid of what life will be like away form the comfort zone I've know my entire adult life.
I keep telling others to get out of their comfort zone, yet I hide in one myself. Go figure.
It's interesting that you started this thread now, Michael. I wonder how many others in our age bracket are thinking along these lines.
Is it a function of age, or perhaps the lenght of time we've been doing the property investment "thing".
This coming April marks my 3 year anniversary, so in my case, I think it's a function of age.
Thanks for sharing your thoughts with us. As always, very thought provoking and insightful. They certainly have given me much to think about.
 
I bought a block of land that we initially intended to build on and live in as PPOR. However over time we decided we wanted to live somewhere else, so the block just sat there, we weren't sure what to do with it.

As it increased in value it became more of a "problem". You see it was worth $450K (only paid $115K; Perth is a great city), but with no rental income and no loan it was not tax effective. Furthermore at 7% interest we could improve our cashflow by $30K pa and with a sizeable PPOR loan it became obvious what we had to do.

In the end to sell it we had to strata it first and change it into two $230K blocks. Then with the FHOG boost it sold easily at that price range. Then the funds were used to heavily reduce PPOR debt, and improve that cashflow.

And now I will replace it with probably 3 other investment properties over the next 24 months.
 
I'm with you PI - looking to accumulate heavily between now and 2012.

rode out the GFC with crystallised profit, so am happy to wait as long as is necessary.
 
I'm harvesting at the moment.

First to go is an IP I bought 5 years ago and vowed I would never EVER sell. Prime location, good growth, a terrific long term tenant, cf+, I could go on........BUT.....


Circumstances change. I need money to start a development and the bank says I'm at my servicability limit.

Selling an IP certainly feels like a backward step but I guess it's what you do with the money that determines this.

I must admit to being a "cake and eat it" type person so I've agonised over selling for months. But when I remove the emotion and focus solely on the figures, the gain on the new development in 6 months will be roughly equal to about 10 years capital gain on the current IP.

If I can't have my cake and eat it, then I'd rather a big cake than a small one!;)
 
Who's Harvesting?

No harvest yet Player.

Still sowing, planting and growing...(accumulating and building).

May well be a time down the road though, (sell something). However everything is ticking over just nice at the moment.
 
I get confused with all this and it causes me grief. i find it reasonably easy to chuck buildings on land and get free equity. i just cant figure out when to stop. i have some units that i built a while ago and i keep thinkign i should never ever sell but then i think i could sell and release the equity and build more or do other things.

a plan is important. aimlessly growing a portfolio is appealling but then again I am not sure what the point of it is. at the end of the journey there will be a huge chunk of equity earning a piddlign return and i have to wonder if it would be better parked elsewhere anyway.
 
Very good post Player.

There is no right and wrong answer it depends on both a person's financial situation and their risk profile.

Personally i am quite happy to harvest (and pay tax:mad:).
I have noticed several posters over my time at Somersoft stating that they dont want to dispose of a property because of the CGT incurred. To my way of thinking this is naiviety in the extreme. Investment decisions should never be tailored around TAX in itself but rather with a view to NET AFTER TAX RETURNS in accordance with the OVERALL RISK STRATEGIC PLAN. This envolves a change in mindset where thought is given to tax minimisation strategies to increase the after tax return, however the financial decision is made according to the overall investment parameters.

I always prefer to dispose of assets at prices set on my terms rather than being forced into a transaction because of financial difficulties. In most circumstances when one person encounters financial difficulties you can be pretty sure that numerous others will be in the same boat, and hence you can be pretty sure that asset disposals will not be at optimal prices.

Just look at the 08/09 share market rought and subsequent 09 recovery.
Did the INTRINSIC VALUE of the shares change that much during this period.
In many cases: NO However share prices are determined by numerous factors which often see them trade above and below intrinsic value.

Now i hear many posters saying yes but property is more stable than shares.
And inherently that is correct. However one can look at the termoil in the REIT (real estate investment trusts, with GPT a good example) to see the devistating effect leverage can play when the asset cycle turns against you.

Hence i look at asset harvesting not just from the point of view of financial returns, but also from a strategic risk management view. There are periods of time when it pays to take on large quantities of debt, but to just hold that debt and continuously grow it as a buy and hold strategy is financial naivety (im talking in very broad generalisations here, for example by permanently gearing a portfolio to say 80% through the cycles).

Whats the compound return of $100x15%x15%x15%x15%x15%x15%x-90%

The other issue i always raise on this forum is to be careful using near term data bias to justify a decision. In property i would include the last 40 years as near term data bias.

The reason for this is that bond ylds have actually being declining for the last 30 years. We have now reached the 'zero' US government rate. This is as low as it gets. The next 30 years will NOT be so benign.
 
HI Micheal
andy and I are thinking of harvesting too. We have a couple that aren't performing too well and I feel the money could be better deployed elsewhere. We have occasionally sold in the past for strategic reasons and have not regretted it.

I always try to look at the bigger picture of what am I trying to achieve and will what I'm doing get me there? If selling will get me there faster- then off to market with it!
 
HI Micheal
andy and I are thinking of harvesting too. We have a couple that aren't performing too well and I feel the money could be better deployed elsewhere. We have occasionally sold in the past for strategic reasons and have not regretted it.

I always try to look at the bigger picture of what am I trying to achieve and will what I'm doing get me there? If selling will get me there faster- then off to market with it!

That then brings up another point. What to sell?

In a counter cyclical way of thinking, a property with underperforming capital gain may be closer to an upswing than something that has outperformed and may be due for a breather.

My usual theory is to sell that which is selling best and give the others time.

Lucky for me I don't have a real long list of properties to agonise over!:confused:


RC
 
Great post - sounds like a few people on this forum are reviewing what to do next. I guess it's a new year thing!

I think it is better to sell if you can see the money making a higher return elsewhere but I am still trying to get my head around selling.

A property I would like to sell is in Hervey Bay and although I only purchased it 2 yrs ago it has only grown by $5000 and I have not been able to increase the rent either. It is also fixed at 8.25% for 3 more years and break costs are $15,000 :(:eek:! I could see this loan doing much better against another property in a 'better' area. You can hold IPs like this and hope for the best or just sell and hope you don't regret it later!

I guess deciding to harvest comes down to what stage in life you're at and what you want to do next :)
 
A time to sow, a time to reap.

The problem is that most people here think that the MO to resi real estate investing is to buy with 100%+ loan, pay for LMI and wait for the cows to come home and a fat lady to sing who has'nt been born yet.
Their IP's make losses year after year and sooner or later they will double in price when the next wave eventually brings all boats to shore.
 
I do believe there comes a time where sometimes one needs to sell.

2. Selling off loser properties that are underperforming and thwarting portfolio returns.

This is a definate in my books:)

They just 'hold you down'.

I will be doing a stocktake soon at getting rid of underperforming or 'used by' stock.

Might actually help with either of your points 1 and 2 as well.

Cheers,

F
 
I guess deciding to harvest comes down to what stage in life you're at and what you want to do next :)

This is a really good point, tarah. This makes a lot of sense. I think an investor's strategy has to be flexible enough to allow for regular reviews along the way. If selling an IP or two leads to a better outcome, (eg generates a higher income or better cashflow from reducing debt) and moves an investor closer to their goals then it is sensible to sell.

The only caution I would add is to be mindful that you may not be in a position in the future to borrow the money if you decided to replace the asset. Eg, your income may not be the same level and applying for loans may be difficult. I think this is one aspect that is sometimes overlooked when people decide to sell. (Not saying this is the case with Player, but just a general comment).

Sure, eliminating debt is good, but obtaining loans in the future to replace an asset that may have been sold can sometimes be more of a challenge with a change in a person's circumstances. (eg house hold moves down to one income, which reduces servicability etc).

Regards Jason.
 
A property I would like to sell is in Hervey Bay and although I only purchased it 2 yrs ago it has only grown by $5000 and I have not been able to increase the rent either. It is also fixed at 8.25% for 3 more years and break costs are $15,000 :(:eek:! I could see this loan doing much better against another property in a 'better' area. You can hold IPs like this and hope for the best or just sell and hope you don't regret it later!

I guess there's two sayings we can subscribe to-

"your first loss is your best loss"
or
"if you never sell at a loss you'll never lose".


I like the sound of the second one better.

Only pick the fruit that's ripe!:D


RC
 
Sold my best CG property two years ago. CG is great but not at the expense of Cashflow in a Credit crisis. I'm glad I did it. Made a nice little profit so all is good.:)
 
How long do you let them 'hold you down' before doing something to improve the situation? :)

It may be influenced by other thing such as servicabilty (As in points 1 or 2).

So if it is not working out too well, I am more included to cut any losses (have to see whith capital gain, etc) and use on a better portential property.

Will be doing a spring clean to see position of portfolio.

Cheers,

F
 
I guess there's two sayings we can subscribe to-

"your first loss is your best loss"
or
"if you never sell at a loss you'll never lose".


I like the sound of the second one better.

Only pick the fruit that's ripe!:D


RC

RC, it sounds like you are stuck with the mental battle that makes selling so hard. It's easy to say sell the one that had had the most gain, surely the rest will follow but that's not always the case. You can look at it one way of only picking the ripe fruit but you can always look at it like you should cut out the dead wood. Depends on where you are in the game I guess. If servicability is tight then it might be best to get rid of the poor performing ones to please the bank.

Luckily it's not something I have faced yet. I have just kept holding mine and they have all done well. Guess I will face the decisions later when the portfolio is a bit bigger.

Gools
 
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