Would YOU Hold or Sell

[AimeandLuke]

Hey all,

I am a newbi to the forum and have had some excellent assistance so far with my own queries. Now I have one for my mum and dad!!!

Here are the Stats:
Both aged 60, retired last year and are currently travelling Australia!
Purchased a property in Ringwood 12 years ago
- 2 bedroom
- 1 bathroom
- Study
- Reasonable front yard
- Located walking distance to two train stations, shopping centre, in between Wantirna Rd, Whitehorse Road and therefore very close to EastLink

Currently generating $340 per week ($17,680 pa)
Current valuation $380k - $420k

The tenants have just announced they are moving out of the property as they have split up. Hence, I have received a phone call from mum to see what they should do!

I am no expert in property and have a phone appointment with the agent tomorrow to discuss the local market in relation to the property. They have already experienced great capital growth and I am nervous that the market is starting to flat line with the potential to fall. As they have retired any tax deductibility has gone out the window and they are actually paying tax on their income as opposed to their tax free income stream they receive from their super fund. The income based on the lower value fo the property is only 4.6% - reduced further by inflation. There is no avoiding the CGT just ways to minimise it - which will be diminished if they wait and sell after June 30 2012.

I say sell, but what does the current market feel like to you all???

 

[Ausprop]

debt deflation is the biggest earner on RIPs at the moment. if you are unleveraged and the asset is in the wrong vehicle then you have a problem. Stuffed if you stay in, taxed if you get out. Presumably buying another is not realistic?

anyway am sure you will get a heap of different suggestions on here.

 

[The Y-man]

What is the impact on their lifestyle without the rental income? (or alternatively what will the impact on the remaining super fund be?)

The Y-man

 

[battler]

The tenants have just announced they are moving out of the property as they have split up. Hence, I have received a phone call from mum to see what they should do!

I'd put another tenant in an keep travelling.

 

[AimeandLuke]

Rental income is seen as "bonus money" to them. They would be putting the entire balance of the sale into super and still drawing their $30k pa to live and travel of.

Its a bit more of a "can't be bothered with this any more" sort of move too - they want to enjoy life, travel, see the world instead of getting their daughter to manage their property while they are away.

There is also the risk that the property value and rental income would go down - which I think would be possible as if they don't get out they will be by the time they are 65 to maximise their aged pension eligibility. Where investing in a TD inside super can provide them with certainty and similar if not better returns. The capital growth wont be there but how much more can it grow in 5 years? (Thats an actual question because like I said I have NO idea with this stuff!!!

Purcahsing another is not realistinc, nor something they would want to do at this stage of their lives - but a positive thought none the less!

 

[The Y-man]

... getting their daughter to manage their property while they are away.

Er... that's what property managers are for?

...
There is also the risk that the property value and rental income would go down...

.... investing in a TD inside super can provide them with certainty and similar if not better returns.

Ok, fair enough - this is where a good financial planner comes in handy to asses the impact on entitlements etc

I just had an evil idea...... how about getting the parents to sell the property to you (no advertising, agent fees, but still CGT) with a 100% interest only loan fixed @ 5% for 5 years (you'll be neutrally geared - and you said this was bonus money right?) issued by your parents (write up a proper private loan agreement)? Ok, let's be fair, what if you took a 100% loan from them at prevailing interest rates they would get for a TD.

The Y-man

 

[Ed Barton]

Hey all,

I am a newbi to the forum and have had some excellent assistance so far with my own queries. Now I have one for my mum and dad!!!

Here are the Stats:
Both aged 60, retired last year and are currently travelling Australia!
Purchased a property in Ringwood 12 years ago
- 2 bedroom
- 1 bathroom
- Study
- Reasonable front yard
- Located walking distance to two train stations, shopping centre, in between Wantirna Rd, Whitehorse Road and therefore very close to EastLink

Currently generating $340 per week ($17,680 pa)
Current valuation $380k - $420k

The tenants have just announced they are moving out of the property as they have split up. Hence, I have received a phone call from mum to see what they should do!

I am no expert in property and have a phone appointment with the agent tomorrow to discuss the local market in relation to the property. They have already experienced great capital growth and I am nervous that the market is starting to flat line with the potential to fall. As they have retired any tax deductibility has gone out the window and they are actually paying tax on their income as opposed to their tax free income stream they receive from their super fund. The income based on the lower value fo the property is only 4.6% - reduced further by inflation. There is no avoiding the CGT just ways to minimise it - which will be diminished if they wait and sell after June 30 2012.

I say sell, but what does the current market feel like to you all???

not enough information.

what is their super like? smsf? other investments? how long do they expect to live? what are their plans? etc.

 

[SeafordSunshine]

Hold or sell?

Congratulations on
your Mum and Dad being very astute in buying an investment!
some things to consider,
How many days are town houses on the market? (is the market flooded?)
How much rent will you miss out on? (If it is left empty and you couldn't sell for the right price)
What competition is there?
I suggest you get a few opinions about all these things.
Does it hurt to hold on?
Are there new developments in the area? Are these more likely to sell before yours?
How much will it cost to sell
(solicitor, taxman, advertising, agent fee, 'sprucing it up')
versus,
How much effort/ expenditure would it be to hold on to it and rent it out to a new tenant?

Also
Good on you for helping out
There is quite a bit to do, (due diligence)but in the long run it is well worth it
Best of luck (and a bit of work)
Seaford Sunshine

 

[AimeandLuke]

Er... that's what property managers are for?

HAHHA! Let me change that to "manage their lives" mail has been redirected to me with cheque book in hand!!! It has mainly been the investment property that has required the attention though - inspections, repairs etc - they have a property manager but like to keep them on their toes and be active in the process

PS: Love the loan idea.....however could never even think of asking them for that! They have already given us tooo much!!!

 

[AimeandLuke]

not enough information.

what is their super like? smsf? other investments? how long do they expect to live? what are their plans? etc.

Without being too involved they currently have $200k in a super/pension in my Dads name and $50k sitting in Super for mum. They own the investment property and a hobby farm workth around $700k. Total investments would be around $1.3 mil.

The plan is to travel, find somewhere they would like to live, sell up and settle into retirement. They live very much between their means and would spend around $350k - $450k on another property (at a guess) reducing their retirement funds to a combined $800k. I have run the stats on this and their generic expected DOD and this will be more then enough to keep them going on their $30k pa plus inflation if we invest everything conservatively in cash/FI. It will also give them access to a part aged pension under the income test and assets test (atleast by todays rules....!)They plan to drain it dry and live how they want to live, leaving us the property they live in OR additional funds in the account if they move into a retirement village and sell their PPOR.

If you are wondering why I am so nosey I am actualy a FP.....and taking care of my parents is priority!!! I am however not knowledgable when it comes to underlying research into selling IP's.

 

[AimeandLuke]

Congratulations on
your Mum and Dad being very astute in buying an investment!
some things to consider,
How many days are town houses on the market? (is the market flooded?)
How much rent will you miss out on? (If it is left empty and you couldn't sell for the right price)
What competition is there?
I suggest you get a few opinions about all these things.
Does it hurt to hold on?
Are there new developments in the area? Are these more likely to sell before yours?
How much will it cost to sell
(solicitor, taxman, advertising, agent fee, 'sprucing it up')
versus,
How much effort/ expenditure would it be to hold on to it and rent it out to a new tenant?

Also
Good on you for helping out
There is quite a bit to do, (due diligence)but in the long run it is well worth it
Best of luck (and a bit of work)
Seaford Sunshine

Thanks Seaford - I am catching up with a agent over the phone tomorrow and will certainly be asking these questions and doing some research of my own. I don't know if it is a good resource but I have looked at refindhouseprices.com and found the oldest listing to be 334 days old - with a discount of 11.91% to boot!!! I think we would discuss placing it on the market for 60 days, if it doesnt sell we will get another tenant in and try for a more suitable time in the near future. The tenants are breaking the current lease however have to pay the rent until a new tenant is found. As we wont be activly looking for new tenants with the house on the market perhaps we could organise a "break fee" instead??? Maybe an additional months rent so we have around 6 our of the 8 weeks covered for rent while we test the market. If it doesnt sell though I am not sure of the vacancy period - another question for tomorrow!!!

Again from looking at the refindhouseprices website the newer, more pricey properties seem to be struggling more but another question for the agent!

I think the best course of action is to go to the agent (and maybe a few others) armed with questions like these, do some research of our own, suss out what needs to be done and the impact of CGT and costs etc.

One thing to remember though is that if we don't sell now then after June 30 2012 the CGT minisation strategy we can used will be halved.....AGHHHH decisions decisions!

 

[Sheryn]

Amie


Bit of a lottery, how about;

1. Try to sell since the tenants are/have moved out.

2. If property does not sell in say 4 weeks relet property out.

If property sells move money into super into term deposits to provide flexibility. I am assuming parents have SMSF.


Regards
Sheryn