Hello
I have not been on this site for awhile but I have to say it has served me very well. I have done extremely well in property investing….mainly because I just like bricks and mortar investing. My question is when is it time to sell a property? I have 5 investment properties (equity $3m) well located with reasonable yields but very valuable as all located in redevelopment areas for multi-storey growth except for 1. I recently renovated this property for sale but close to the line I withdrew it and have since rented it out again around about the same amount it was prior to the renovations. Though getting the same rent notwithstanding the renovations I'm happy as no doubt I have value added it. The property though not redevelopment area is in a prime location near the city of Canberra less that 4klms away from centre. I bought this property 10 years ago for $285k and it is now worth $750k but more likely a sale at $700k as the property market is not doing so well at this time with a slow down in employment under current conditions. The return on income is $40,300 per annum….which based on a $700k sale is about 5.8%. There is no debt on the property so there is equity I could use to borrow upon for other investments but it may be surprising for some for me to say I think 5 properties is all I want! Having said that I also don't want just piles of money to boost my rather humble self managed super fund because basically it takes up too much time buying and selling (and research) and thus intrudes too much on my other life interests. I understand that money in super eventually is virtually tax free on growth but properties I personally prefer as the rent keeps rolling in through rain, hail and snow and not much admin time is required. I know I can have super managed by others but I don't want that either as by the time they take their cuts not much is left and besides you lose control of your own wealth. Anyway, either sticking to this one property or investing on self managed super is a decision I have to make so I'm not asking for answers on this…just discussing it as part of my framework for coming to a decision and advising you of my position to help in your comments on this post.
If I stick to just property investing then:
1. Keep this property as the 5.8% yield seems good to me ….and the growth in value will certainly keep rising over time in this location (as it has in the last 10 years).
2. Borrow against the equity of this (or other properties or both) to buy even better properties with a higher yield and growth potential….perhaps outside Canberra.
3. Keep it simple by selling the property and using it plus borrow more funds to buy a better property.
4. Perhaps buying a property through a self funded super fund is another option but i know little about this at this point.
At the moment my personal feelings are for number 1 and my rational mind is leaning towards number 2 for the longer term. However I would love to have your views.
Thanks Jack (carpe_diem)
You need to decide what the advantages and disadvantages are as per getting you closer to your goals.
We have one of ours on the market at the moment because it has jumped in price a lot in the last 18 months and I don't see a huge increase in the next 5 years.
Also as we move into retirement cashflow is king. The sale gives me that.
Look at what you have now (regarding cashflow and equity) and work out whether you will be better off in say 10 years than putting the money elsewhere.
5.8% is OK. If that is gross though you need to take out rates, insurance etc etc. But of course you have CG on top of that.
As you said though, some options take work. Only you know if you want that. To tell you the truth though I don't know why you are limiting yourself to 5 properties.
Reach for the stars!!!
I recommend you read "The secrets of the Millionaire Mind by T Harv Ecker. You can download it free. It will change your thinking.
Without knowing what you own and how much you owe it is hard to offer comments. However if you sell the property for $700,000 you will have to pay capital gains tax on 50% of your profit. So I would be inclined to borrow against the equity to buy another property.
In terms of selling properties I go by a simple equation, If you got rid of a property would your money grow faster elsewhere. To me you have to look at opportunity costs. If you keep a property and its not performing then it could be holding you back from investing in a more profitable venture.
In terms of your other properties it they have development potential let me know. I often put people into projects and partner with people who are either developers or they own the land.
Its important to get a full assessment of your position and then you will know the best way to go.
Nigel Kibel | Property Know How
http://propertyknowhow.com.au
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Thanks Catalyst……I am now late 50's and my financial goals was always property wealth as a single dad. I have a loan of $1m on the 5 investment properties worth $4m and my home also on a redevelopment site is worth $1.3m unencumbered. As I have implied why I'm in two minds on what action to take is because I think I have achieved my financial goal…and wonder do I need more?. I never expected to be so successful in property but it has happened and I'm grateful. Though I have the wealth I still live a very humble life though I do travel a lot (voluntary conservation). Yes the costs of value adding and rates etc reduce the yield and as you say it is the capital gain growth that is significant for holding on especially as all properties are on largish plots of land in prime spots. In all cases the properties I'm proud of as I have valued added them to a high standard of presentation and quite honestly the thought of them being bulldozed horrifies me….so seemingly I am the wrong sort of person to be doing property investing. There is no point in owning a cake shop if you just eat all the cakes. So I guess you can see why I'm in the mood of limiting myself to 5 investment properties plus my home. The cash flow now is very good but of course as the rents go up and the loan comes down then taxation digs in so super plans can appeal. But as I've said I'd rather be in the properties I have even if taxation is greater.
However on further thinking, you're right and I should not "give up" on further property investing as I seem to be doing and instead reach for the stars that will not only support my family long term but also the charities I support. For sure when I decided not to sell the property that I mentioned, it was like a load off my back so I guess I just have to change my mindset not to "love" the properties I buy and keep my mind in business mode. Thanks for your comments as it helped my thinking and I'll check out the book you suggest.
Jack
Thanks Nigel for your comments. I have replied to an earlier post which provides my property equity status. You make good points and I am sure that it is best I hold on to this property as it still has significant growth potential as like all my properties are sitting on land close to the city. My understanding is though that CGT is realistically not so high as 50% but even if lower I don't think the money invested elsewhere will do as well long term. As already said I'm not comfortable with time required for investing on stock market not just for research and buying/selling but the persistent urge one has to constantly check on the prices of your stocks. Some people I know are never off their computers and that is not for me. The more I think of that the more I'm so glad I'm just in good properties. As per my other reply I was losing interest a bit but putting it down in writing in this forum and thinking more in the context of your replies I have to get out of this "giving up" groove I've been gravitating towards in not going further with property investments. I know that I have to keep going as in a way it is work that I love doing …and the work is so little really. For the relatively small amount I have in a self managed super fund ($100k) it is more like betting on flies going up the wall than real investing (from my point of view). All the properties provide me with a very comfortable net income so I'm happy with that and I'll probably not sell any for a very long time…..of course every man has his price….and as Catalyst suggests best we all keep reaching out for the stars and don't give up. This now I intend to do for the good of my family and charities I support long term. Thanks Jack
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