Buying multiple properties in one complex

Discussion in 'Investment Strategy' started by spider, 19th Feb, 2020.

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  1. spider

    spider Well-Known Member

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    Hi there,

    I have four unencumbered properties inside a townhouse complex at the Gold Coast. As I recently retired at 69, I am thinking of selling the oldest property and then purchase yet another property inside the complex so that I would always have 4 properties.
    My plan would be to sell a property every 3/4 years which would contribute to my retirement income.
    The purchase funds for the new property would come from a line of credit I have against a property in Brisbane so I would borrow 100percent of the loan......I have enough line of credit to purchase another 3 properties without going through a borrowing process.
    I am a bit hesitant in having 4 properties in the one complex on an ongoing basis, however, it is what it is at the moment.
    The complex at the GC is managed by a property manager who lives on site and has a real estate licence.

    I would appreciate people's thoughts on the strategy and the concept of property cycling in the one complex

    Thanks in advance
     
  2. thatbum

    thatbum Well-Known Member

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    What's the point of buying in the same complex? I don't see any.
     
  3. Archaon

    Archaon Well-Known Member

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    why not diversify to another state/city?
     
  4. Trainee

    Trainee Well-Known Member

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    Get that the interest is deductible but you trigger cgt, agent costs and stamp duty when you buy?
     
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  5. spider

    spider Well-Known Member

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    I know the complex and the property manager. The property will be cash positive
     
  6. spider

    spider Well-Known Member

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    I trigger CGT but I am retired so it will be minimalised to some degree. I will borrow the lot for the new property and it will run cash positive
     
  7. Trainee

    Trainee Well-Known Member

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    So really, its debt recycling in terms of freeing up equity for living expenses?

    would have thought using the credit lines to buy shares would be more profitable long term. Depends on your risk appetite.
     
  8. spider

    spider Well-Known Member

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    Yes, debt recycling for retirement income. No appetite for shares........especially at this stage of the market
     
  9. Beano

    Beano Well-Known Member

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    Great idea in having multi units in one complex
    There are so many advantages of doing that
    In one complex I have 12 units
    Another 12 units
    Another 8 units
    Not quite the same but another property has 45 tenants
    As they say you become a expert in that location , one valuation will cover 12 units and you can deal with 12 tenants at one time
     
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  10. spider

    spider Well-Known Member

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    Well, that is impressive, well done. Thanks Beano

    May I ask what your long term plan is? Live off rents? Or sell periodically?
    Also, what is your LVR and your Land Tax liability?

    I have 7 properties all up, all unencumbered. I could sell every 3 years and that would take me to 90 (if I make it). The reason I am property cycling is mainly for inheritance reasons and emotional reasons....I just don't like selling.....

    Thank you
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    I can't see any point in doing this strategy. You will be going backwards by triggering stamp duty each time plus cgt.

    Think of an example.
    If you buy for 400k and sell for 600k you might make $150k profit but you now buy back for 600k getting the same tent as before but you have lost $50k.

    Eventually your loc will run out if prices increase.

    But if you were buying for 400k and selling for 600k and buying back somewhere else for 400k it may work
     
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  12. croseks

    croseks Well-Known Member

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    It kind of sounds like you will be selling one property and buying a lessor one in the same complex, otherwise if they are like for like what is the purpose?

    If they are all unencumbered right now, shouldn't you already be positively geared and making an income? Whats the rest of the story?
     
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  13. spider

    spider Well-Known Member

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    I will be selling one in the property complex and will keep all of the money for retirement and then the purchase funds for the new property would come from a line of credit I have against a property in Brisbane so I would borrow 100percent of the loan for the new property......I have enough line of credit to purchase another 3 properties without going through a borrowing process.
    Yes, I will have to pay CGT but I am retired so that will be minimalised. Stamp duty will be borrowed. The new property will also run cash positive......
     
  14. Beano

    Beano Well-Known Member

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    I will PM you
     
  15. spider

    spider Well-Known Member

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    Thank you. Much appreciated
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Why not just live on the rent and borrow from the loc for all property expenses. Would save you a lot of money
     
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  17. spider

    spider Well-Known Member

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    Thanks Terry,
    I looked at that option but it only increases the rental return. If I sold one property for $500K, that could last me 3 years......while borrowing 100percent for the new property seems like a good option to me....would you rather have $500K minus CGT for 3 years or 3 years rent?????

    Do you remember this article Terry? This is where I got the idea.....thank you

    Retiring on Property


    Retiring on Property ……..One way they to do this quickly is by buy selling properties every few years. The sale would generate a lump sum upon which the person could live on for the next 2 to 3 years. Buying another would replace the sale of the one sold.
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Is that one I wrote? I did write something similar. But I cannot seen any benefit in buying and selling the same property only to buy it back again. You are not gaining any tax advantage. Just a disadvantage.

    Give us an example in numbers perhaps
     
  19. spider

    spider Well-Known Member

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    Will PM you
     
  20. spider

    spider Well-Known Member

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    Example
    Someone (Bart) buys a $400,000 property which he anticipates will double in value every 10 years. He borrows $400,000 to buy it.


    He needs about $80,000 pa to live on (before tax), but at the moment the rent equals the expenses so it would be a long time before Bart could retire on property alone. By this time Bart may have owned the first property for 5 years.


    He buys another 3 properties over the following years and now has 4 properties.

    By this time 10 years has passed since the first property was purchased and the $400,000 property (No. 1) is now worth $800,000.


    Bart plans on quitting his job and selling Property 1 on July 1. He will have a $400,000 capital gain for which he would pay $80,000 in capital gains tax at most – Actually if he has no other income it would be around $67,232 in tax. Lets round this up to $80,000.


    So after paying $40,000 in tax Bart would have $320,000. $320,000/$80,000 = about 4 years of living expenses. It would actually be more because tax has already been paid on this, but let’s just assume it is 4 years. So Bart could lay on the beach for the next 4 years doing absolutely no work and still have enough to get by.


    But now Bart has now only got 3 properties left. If he sold the next one, and then the 3rd and then the 4th he may run out of money to live on in about 16 years.


    To overcome this problem Bart needs to buy another replacement property when he sells Property 1. So what he would do is to apply for another loan before he quits his job. If he can service he could purchase Property 5 before he sells Property 1. If servicing is tight he may have to sell Property 1 first.


    At this point property 1 is now worth $800,000 so Bart should probably be borrowing $800,000 to buy Property 5. This may be the sticking point with declining serviceability. Also the $800,000 property is fully borrowed for so the cash flow may be negative by a few thousands – especially if Bart will have income during this period.


    So let’s assume Bart could purchase Property 5, he has sold Property 1 so he still has 4 properties all growing in value by about 5% per year on average. Rents will be increasing along the way but hopefully Bart will be able to hold out the full 4 years. If he can’t this strategy would still work if he had 4 properties because by the time he gets around to selling number 5 it may be 20 years instead of 10.


    After 4 years Bart needs some more money again and he must sell Property 2.


    Bart would need to get a loan to buy Property 6 as a replacement property for Property 2.


    To do this he may have to go back to work again for say 6 months. This would give him the income to qualify for the loan with. Once he has gotten the loan he can quit and go back to retirement.


    After 4 more years he would sell the next property.


    And so on.