To sell or not to sell, that is the question.

[Glucose]

I've just had an offer on one of our properties that is $150k more than what we paid for it at the beginning of this year.
That's around 30% capital gain.
I've always used the strategy of buy & hold and usually draw down on equity to purchase more etc. and have never before sold an IP.
Would like to be able to have a bit to spend, plow some into the business etc. BUT but but.....
What would you do?

 

[WillG]

The CGT may hurt.

Depends on what your holding costs are and what you could do with the money

 

[Dunsborough]

Hi glucose
Have you looked at Capital gains implications?
Personal implications like rate of tax that will be applicable? Do you have any tax losses sitting in the kitty to offset against?can you look at making a tax deductible contribution to super rather than the ato etc?
just thoughts

 

[BayView]

Normally I would agree with the others;

but haven't you worked hard, gone without, built up a decent asset base?

Time to walk in the sun for a while. Enjoy.

 

[kaf]

Do you think the 150k increase would hold up at a bank valuation to draw down as equity for your business so you don't have to sell?

If you want the money for lifestyle, however, then you are the only one who can make the call. Investing is all well and good but life does get in the way and if the investing seriously interferes with you havin fun / doing other things important to you then that's a completely different issue.

When ask most people here say the thing that they've regretted most was selling a property... So it seems you will kick yourself in 10 years time if you sell no matter what but how does that weigh up against the extra cash in hand now?

Good luck with the decision!

Kaf

 

[Brenda Irwin]

I've just had an offer on one of our properties that is $150k more than what we paid for it at the beginning of this year.
That's around 30% capital gain.
I've always used the strategy of buy & hold and usually draw down on equity to purchase more etc. and have never before sold an IP.
Would like to be able to have a bit to spend, plow some into the business etc. BUT but but.....
What would you do?

I would see if they would agree to a gentlemans agreement whereby the IP is sold, however the contract is dated one day after the anniversary of the purchase contract was made. That way, you get 50% CGT exemption on the deal.

 

[Aimjoy]

I've always used the strategy of buy & hold and usually draw down on equity to purchase more etc. and have never before sold an IP.
Would like to be able to have a bit to spend, plow some into the business etc. BUT but but.....
What would you do?

Glucose,

You're insane to be even thinking about it....its a no-brainer.

So don't start selling now because:
1. You'll incur CGT
2. You have lost any future CG on this asset which has already proved itself as a good CG prospect with 30% growth already. It's too much work to do all the DD again to get another which may not turn out to be as good.
3. You can get 80% of the $150K out of the house with a refinance and spend it on whatever you like - spend on self or business and only pay 7 - 8% interest not up to 50% CGT. If its for business it will be tax ded. to the business anyway. Rents are increasing and will help defray increase in monthly payments
4. You'll kick yourself in 10 years when its worth more.
5. The transaction costs are too high on purchase (already a sunk cost) and sale of RE

Just my 2c - all the usual disclaimers about seeking professional advice and not having taken your personal circumstances into account.

Aimy

 

[chrispy]

Glucose

If you think its the right thing to do then do it. You are a smart businesswoman, you know what you are doing.

As you know I have just sold my block of flats, I know its the right time for me to sell them. I will be investing the funds elsewhere for the time being.

Good luck with whatever you decide.

Chris

 

[Nathan]

move into it ASAP and then sell in 3 months. it was your PPOR!

 

[redsquash]

move into it ASAP and then sell in 3 months. it was your PPOR!

Move into it 9 moths ago.
Is this a one time oppurtunity , ie is this a developer asking.
Are other blocks being bought up.
does the perosn want to live next door to their mother?

The block is only worth what somone is willing to pay.
What are most other people willing to pay?
30% is insane for less than a year................whats the reason?

 

[BV]

Glucose,

Since you had this IP for less than a year you will pay CGT
on the full CG and you could also be liable for early loan repayment fees.

BUT
We are about to have a change of Government,
the US stock market is due for a correction and it will drag our ASX down as well, the credit squeeze is likely to get worse and interest rates are likely to go up and as a result prices could come down again.

In view of the above uncertainties if I was in the same situation and had IP's
in areas with high investor participation I would sell too.

IMHO take the cash.
If you made $150K you could end up paying over $60K in tax but you still end up with $90K which is not bad...

Have you looked at ways to reduce tax?.
For example, why don't you sell one of your other IP's you've held for over a year or wait a while longer?

If you had made lets say $150K but you had held the IP for over a year
the tax instead of $60K would be $30K.

$30K could mean buying a car or going on a trip around the world....

Cheers

 

[kingchevy]

Don't sell...

 

[Glucose]

30% is insane for less than a year................whats the reason?

I did get it at a really good price and we have done a few small improvements.

If I increased the loan and accessed some equity the repayments would be just that much more, making serviceability a bit of an issue. However I do still prevaricate, and worry about seeing it sell for over $1m in a few years time, and how I would feel about that.
On the other hand, it may have hit a plateau, and I couldn't expect it to sustain 30% increase. I mean, next year it may not increase at all or maybe just a little bit. Who knows?
Thanks for your input everyone.

 

[BV]

I worry about seeing it sell for over $1m in a few years time, and how I would feel about that.
On the other hand, it may have hit a plateau, and I couldn't expect it to sustain 30% increase. I mean, next year it may not increase at all or maybe just a little bit. Who knows?
Thanks for your input everyone.

Hi Glucose,

It's a bit of a gamble isn't it?
I am guessing that this IP is well located so it is possible that if the worst doesn't come in a few years it could sell for over a mil but as you said it is likely that the market will hit a plateau (if not fall).

People can't keep borrowing forever, reality will hit us all soon
Take care.

 

[Glucose]

I've found out that the exit fees on the loan are going to be quite hefty, too, as it's been less than one year, so added to the CGT this leads me towards not selling.
However, as this is a beach property that is holiday let I also have to weigh up these few questions. The rent is not always there although when it is let the income is very good. Thus it is dependent on tourists, and generally from overseas, so whilst the AUSdollar remains so high there are not so many tourists coming to Aust. With talk of the aussie dollar reaching parity with the greenback this situation does not look like changing in the short term.
Also, it tends to be vacant during things like cyclones, tsunami alerts and the like!!
Oh dear! Maybe whilst I prevaricate, the offer will be withdrawn and I'll have the decision taken out of my hands.

 

[Nathan]

i am in similar position to you at moment.

i am thinking if i sell, take the $$$ and throw it back into another bargain like the one im selling i am in fact leapfrogging. i have held a property for 6 months and can now make 25% gain (60k from it. i am thinking of doing such and having delayed settlement.

totally up to you, but you do have to comsider your holding costs... if you hold for 10 years, and it gosts 200pw, you need to have prperty go up by $100k for you to break eveen to where you are today.

goodluck.

 

[jrc]

Nathan, a delayed settlement will not help with CGT if that's what you are thinking. As Brenda pinted out earlier it is the dtae of contract that is important.

 

[Aimjoy]

Maybe whilst I prevaricate, the offer will be withdrawn and I'll have the decision taken out of my hands.

Hopefully

On a serious note, it may be difficult to fund times of vacancy on holiday IP's. If you find you can't you might have to review your strategy of buying this type of property.

Aimy

 

[BV]

Hopefully

On a serious note, it may be difficult to fund times of vacancy on holiday IP's. If you find you can't you might have to review your strategy of buying this type of property.

Aimy

Good point