To sell or not to sell…

Hi Veronica,

Ditto Terry’s comments. If cashflow is an issue have you considered some/all of the following?

1) Convert your loan to I/O. This will save some of the outgoings.

2) Check you current rent to ensure it is at market rate. Some PMs and/or owners lose touch with what the rest of the market is doing and this could be costing you money.

3) Is it possible to add value to the property while at the same time increasing the rent even further. For example some tenants are happy to pay rent + for items such as airconditioning and security. new carpets maybe, the list is endless and your individual circumstance will determine what can and can’t be done.

4) You haven’t indicated the age of the property but it may be possible to depreciate all/or parts of the property.

5) Have you considered the advantages of a ITWV that can assist with your pay period cashflow?

Equity is equally as important to your investment journey – while this property may be sucking some cash from you it may be an active contributor if it provides you with additional equity enabling other investments.

Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958

Some Tough decisions to be made here.

Perhaps the following story from my similar situation will help.

We were in the same boat as this mid last year. We had three investments that were neg geared.

We were out of cash. Had about $1000 left of holding costs, about 2 months worth, and after that? could see danger up ahead.

1 unit not renting well, daggy, underperforming, would be hard to sell.
1 house renting great, but neg geared, but growing in rent, and cap growth nicely.
1 margin loan share portfolio doing well but costing us too much per month.

Add to that new baby, 1 income, Hecs debt, car loan.

After some tough soul searching, lots of talk with advisors, paper scenarios, loss of sleep:

We sold the shares and made some gains there.
This stopped the bleeding a bit.

Finished paying off the car – and finished paying off Hecs, this stopped bleeding even more.

Then to stop the bleeding even MORE – we decided to sell the underperforming unit. (Going backwards!)

We used some money from shares to do up the unit and have now sold it.
(still in that process of sale – nearly finished)

Will take most (70%) of the money and put it to our homeloan and give us more equity and accelerated repayments – but we are spending a bit too!
Got to have some reward for being skint and stressed for ages!

I guess the moral of the story is:
Shoot the dogs!
Adjust your life style if necessary.

If it is Underperforming – and hurting you too much – then you could consider selling.

If it is going well, and you see potential for gain, you could consider adjusting other areas of your life to make up for it.

It’s a risk I guess. We decided to keep one and sell the others.
Once that’s finalised, we’ll go again to the market – older, wiser, and more savvy!

I hope the story of what WE did helps you?

Cheers,
ac

Hi Newstart,

Buying and selling a PPOR is a little different to buuying and selling IPs – primarily because the tax issues and purposes of the purchase are different.

I would counsel someone against taking on ‘large’ (relative to your circumstanes) PPOR debt as it is all paid for with after tax dollars.

In your circumstances sell your current PPOR (no CGT), buy a new PPOR without overstretching yourself (buy what you need rather than trying to keep up with the neighbours) and if the situation provides itself leverage off the equity to buy investment properties that are consistent with your goals.

Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958

Any capital improvements made to the property (as opposed to repairs) will be added on to the purchase price, as will any stamp duty, legal fees etc incurred when purchasing the property. This will make your cost base.

Similarily, any agents commission, legal costs etc will be taken away from the selling price. So if you purchased your property for 170000 + say 5000 for purchasing costs + the capital improvements, youll have a cost base of $195000.

If you sell the property for $205000 less say $5000 again for selling costs, youll have a capital gain of $5000. ($200000-$195000) Assuming that you have owned the property for more than 12 months, you will get a 50% concession. That makes it $2500. This is then added to your taxable income. So if you are on the top marginal rate you will pay $1200 in capital gains. ($2500 x .48) Hope that helps!