Hi all,
I’m a man in a deleamour. I own a Pub in N.Z. which is rented for $65k pa plus expenses. I paid $625k for it about 2 years ago and borrowed $635k at 7.05% “interest only” to buy it. After closing costs I had about $5-6k left.After interest repayments I have a cash surplus of about $20k pa. The depreciation on this property is $17k, so my taxable income is only $3k (20-17)
I’ve just been offered $850k for it. After Real Estate Agents commision, loan and legal etc I should net about $225k in capital gains.
C’mon guys, what’s the verdict – do I take the money and run, or do I hang on for the longterm low tax yield?
Your inspirations would be greatly appreciated.
Regards
JeffThat much CG in 2 years.. I wish I was in your shoes
The yield on your investment is pretty average. Depending on growth in the area and how well the business is going (and if it’s growing).. I’d probably sell, especially if you had other properties you could pay off with the surplus.Congratulations on your problem Jeff, I was thinking if someone is prepared to buy your pub for $850k, then someone else might be prepared to pay $900k or even more!
On the other hand your $20k per year positive cashflow is half the average annual wage. Could you use your equity in the pub to buy another property(s) to make up the other $20 000.Cheers G7 [suave2]
Go and buy two +cf residential properties with the equity. I don’t advise anyone to sell. Hang on for the long term low tax yield. That’s my professional opinion anyway.
225k to me is 8 x $100 -$120k properties(as deposits) with enought left over for renos and legals. Sell and lock in the profit. Then use the cash wisely.
8 x ip’s gets you approximately 1200/week rent so thats 7.5% covering mortgage easily and management costs. Probably get more depreciation and definitely by spreading risk over several locations too you limit your downside risk and vacancy chances at the same time.
Its what I have done and strongly recommend.
DD
Pub’s don’t seem to go down in value very often. If you can pull 20k a year out of it on top of other income/investments you’re laughing.
Selling to buy 8 props puts you in the same situation financially if you ask me, but you probably lose your 20k surplus. Use the equity to buy elsewhere – but why kill the goose that is laying your golden egg?
Another option is to use the 20k to pay down some debt on the pub.
Hi IBC,
Are you working the pub too?
If so you need to consider this side of the equation in conjunction with the ‘financials’.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Jeff, seeing your nick is “Ibuycashflow”, then I thik you already know what you want to do. Obviously though, you’re going to want to buy more properties soon- even if you don’t sell, unless you’re happy to live on 20k per year. [thumbsdownanim
kay henry
Thanks Derek for your thoughtful input but alas no, I’m not working the Pub – I’d be drinking the profits.
Anubis, I’m tending your way. Might just hang on and go through the rent reviews. G7 made a good point, I could always countersign at $900k + and see what happens. Will probably be asking the same question again though.
I’ll have to drink on this, I mean think on this.
Cheers
JeffOriginally posted by Ibuycashflow:Thanks Derek for your thoughtful input but alas no, I’m not working the Pub – I’d be drinking the profits.
Not a problem – I know that many people love working behind a bar – but for me all I can imagine is drunken version of myself (who makes little sense on a good day) on the other side of the bar.
Bar work is not for me.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
You could always get a reval done on the property and see if you can squeeze an extra dime or two of equity…. then open a 24hour Pizza shop over the road from the pub…. ya gotta eat when you roll out the door right??…. naa seriously… a suggestion would be to get out as much equity and go for broke on the +CF props… but as they say ….. commercial property can really have some good returns although the capitial needed to put transactions together can sometimes be something short of a nightmare.
-or stick with what you know and go for broke….. as the kiwi saying goes!!!
” Come on Cuz – stick with wot you know bro!”
Cheers,
Kiwi[biggrin]Kay Henry, thanks for your post. I’ve been buying cashflow for years as the nickname suggests. However, there are rare occasions when I have sold properties and occasionally I have regretted the decision.
Kiwi-Fulla suggested getting the property revalued but I’ve already been down that road. The $850k offer is a premium above what a valuation would come out at. Unfortunately the valuers look at historical sales in the area to draw there conclusions.
The offer net of commission would be about $825k. At a rental of $65k pa means a yield of 7.88%. If I was to sell I’d have to find a deal with a yield better than this. An 8.88% yield would mean a rental of about $73k pa and at 9.88% a rental of $81.5k pa.
It looks as though I should only sell at this price if I have another property to buy at 10% or better – alternatively, I countersign and look for a better price.
Decisions, decisions. They’re even harder when be pressured by an agent.
Thanks for all your posts
JeffHow many times do you hear people say “gee if i had known that i would never have sold”.Like a lot of others are saying i see your equity as deposits for numerous other properties.I always say nevern never never sell.Refinance and have a holiday or whatever you want to do but never sell.
Gee i wish i had your problem good luck
regards glenn
never never never sell
Okay guys,
Just turned down the offer of $850k because I decided I needed to find a better property or investment in order to move my money.
The agent is now desparately firing properties at me to look at so as to make the deal work – absolutely amazing what this commission selling does to people.
Anyway, you never know, he might just come up with something.
Happy investing
Jeff
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