Who's Harvesting

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

Agree, every situation and every property is different. It also depends on what is considered dead wood. I would consider selling a property that had a lower yeild or higher vacancy, higher holding costs, etc. But I would think twice about selling just because a property hasn't yet experienced the gain that I was expecting. Particularly if I had other properties that have had good growth but may be nearing the top of their cycle.

By selling dead wood to buy in a growth area you're selling low and potentially buying high (higher).

I'd rather command a high price for the flower thats in bloom and buy some cheap seeds elsewhere.

That's enough, I'm starting to sound like Don Burke.


RC
 
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I agree with Gools about cutting out the dead wood and I guess if you are selling low and buying higher as Reality Cheque said you hope that the 'better' IP CG will make up for the low sell cost on the previous IP.

Westpac said you can actually do a portability of the loan to avoid the break costs. Apparantly you can sell, allow the bank to put the loan into a term deposit until you buy another one (as long as you can service the new 'better' IP because the fixed int rate continues as usual).

I hate to feel 'stuck' and admit it but I think I am!! The last IP I HAD to buy because I was soooo adamant that I would buy 1-2 IPs/yr Westpac now have security over IPs which are at 80% due to the latest borrowings! Hervey Bay is a separate loan but is fixed so unless I can pull a fair bit of equity from the other banks not sure if I can get that 'better' IP as it will be worth about $190,000 more than Hervey Bay! Looks like I should try to increase income and just be happy with what I already have! Or maybe there is a way........:D

At the end of the day property is always going to eventually give you CG but reviewing and tidying up your portfolio regularly can often give you 'better' results.
 
Hmm...this is an interesting discussion and relevant one considering i am re-assessing my situation as well.

In short i currently have 3M worth of IPs with approx 2M worth of loans accumulated over last 6-7 years. Out of these i have two blocks of vacant land worth around 225K each. The dilemma i have now is whether to build these or sell them. They are completely paid off so no loans on these blocks.

My strategy till now for accumulating properties have been of finding properties with a twist such that they give me 15-20% equity in a short time(<2years) after settlement not including the broad markets movements.

One option is to build on these blocks. E.g: for 450K and rental achieved will be $720pw + depreciation. This will be for single storey 30 sq standard house with a volume builder. If include the land value the gross yield will be 4.3%.

2nd option will be to sell these blocks. Pay approx 70K in CG Tax. Pay off my PPOR loan worth 300K and buy new IPs with yield around 6% in next two years. If i continue to buy well then i should be able to achieve equity worth 15% on my new purchases.

Hope all this makes sense. Comments, opinions, suggesstions, questions welcome...
 
Traveller, what's the depreciation difference between your two options?
You'll need to consider the interest expense for construction period as well.

Just a few things to think about.

Gools
 
Hi Player,

Good topic! We're looking at harvesting this year. Here's what we're planning...

1. Sell our North Narrabeen former PPOR CGT free towards the end of the year. Its well let at the moment, but should sell for around $1M towards the end of the year and that is all CGT free and will reduce our debt load significantly and improve our cash flow.

2. Potentially sell one of our units around the same time. We're building three right now and they'll be worth about $1M each.

If I don't sell anything then I'll be pretty much neutral cash flow at completion which isn't too bad, but might sell North Narrabeen and take the proceeds North for a new PPOR in Brisbane. I might be neutral on my investments but I'm renting at present...

Cheers,
Michael
 
Traveller, what's the depreciation difference between your two options?
You'll need to consider the interest expense for construction period as well.

Just a few things to think about.

Gools

Depreciation in the first option will be approx 15Kp.a whereas in the 2nd Option should be next to nothing as it will probably be an older property.

Interest during construction should add approx 5-10k on the total, so not too much difference on the overall.
 
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