I have $600k cash tied up in 2 properties that I plan to sell early next year. About $370k is profit. The rental yield at purchase was quite good, but they're old properties that will need expensive maintenance at some stage, and changes to tenancy legislation could create some undesired lack of control over investment. I also have a new build property with $450k cash in it. Also considering selling this next year but haven't realised that much profit before in one year and not sure if it would be better to divide the sales over 2 tax years or if it would make no difference due to our history of buying and selling. Either way Im considering using some funds for trades, maybe 7 or 8 to keep me busy and add more cash. I'd need to pay cash for these so thinking buy 2 trades with cash, fast turnaround then buy another 3 and repeat for example. Also considering other types of investment i.e. direct commercial (probably US) , syndicate commercial. We have shares in GESB super and will keep adding to that over the years, seems to do well and hassle free. I know everyone's strategy is different, just interested in what others have done.
Enjoying the Unlisted Property Trusts thread and getting my head around these quickly before I miss out
Have a read of this article from 2010 describing the unlisted property trust crash of the 1990s. The unlisted property funds crisis | Money Management Friends of my parents were caught up in it and could not access their money for years.
Interesting article Before the financial crises there was a tolerant attitude to gearing, now the world has been reminded that gearing really does involve risk.
In the same situation.....trying sell fast as I can without paying a lot in tax. Have 1 under contract (just land 70k profit) and another with about 160k profit. Stagger it...I am up for about 200k plus in profts after the 50% CGT discount. Have another 2-3 planned for next year....probably about 200k in profits after CGT discounts...saving the ones with the larger profits till later. 100% agree about higher maintenance properties. Selling those and building news ones..a triple bonus more depreciation to reduce tax and less maintenance ....and about 150k profit on building them. Rent for 5 years ..farm depreciation...and sell on.
The issue highlighted in the 1990s crash is that unlisted property trusts often consist of one large commercial/office building. Once the market dives, everyone wants out. Quite quickly it reaches the point where units can’t be redeemed without selling the building, difficult in a downturn. And unfair to those who want to hold on. Only solution (to be fair to everyone) is to freeze redemptions. Dividends are suspended, any income is, from time to time, shared equally between those with redemption requests, usually a small amount per dollar invested. My grandmother got caught in the Pyramid Building Society crash (google it) around the same time. It took years to get part of her money back, luckily not a huge amount invested.
In the same situation.....trying sell fast as I can without paying a lot in tax Is not the best way of paying less tax is not to sell at all ? Reduce maintenance by keeping the land and building a new maintenance free property or leasing the land ?
No....not on the quality of the asset....in some instances I will do this..but on a lot I will simply take the profits.
As someone who holds a significant chunk of my portfolio in unlisted property, I would say not being liquid is a positive in my view. I only invest in property trusts that don’t allow redemptions let alone during a crisis. Last thing you want is a forced asset sale during a market crisis and that’s with property or any asset. Anyone who wants instant liquidity should not be investing in unlisted property to begin with. But for buy and hold investors unlisted property with a quality manager is a great investment for income.
On top of liquidity, the key thing that played out in the GFC was not so much the issue with single building funds as such, but the actual loans and gearing. When tenancies crashed out (or were expected to crash out), banks recalled their loans. Even with payouts stopped, the trusts had to firesale their properties and try to pay back the loan (much more vicious than in resi) ~ of course if the loans could not be repaid (30 days usually) .... disaster. This can be mitigated to some extent by making sure the riet has a range of good quality props (where the risk can be spread out) and looking at the gearing levels. The Y-man
Totally agree. But life has a way of throwing chaos into well-ordered plans, and circumstances may force the necessity to withdraw from planned long-term investments.
To date I have not borrowed to invest, but i do have access to cheap debt via PPOR which I would consider using if a good buying opportunity presented itself.
yeah good point. I guess each persons situation differs. I have set up my portfolio in a way that I should really never need liquidity from the property trusts. I have the equities and other parts of the portfolio that are available for liquidity should it be necessary.
Do you think you could get an investment return greater than about 3.5%? This is all that you would need to generate from both income and capital growth to meet the interest payments on a loan.
Yeah I think I should be able to achieve that. I have a rate of 3.29% available to me. If you can’t achieve a return of at least that then stay away from that investment I guess. Of course there’s always unexpected results. Even with that I have still been reluctant to use debt. But I am warming up to the idea as a way to boost returns. Would like to use a small amount of debt this next year to accelerate returns. In equities I would only use it in a significant market downturn. With property trusts I would use it if a new fund with good quality assets and long wale became available. 6.5% plus yield that would more than cover the interest costs. I would even use it for a few new contributory mortgage funds that I invest in. 8% p.a returns paid monthly on short term loans of 18 months. Again this would be on very conservative ratios. 20-30% of the total of that portfolios value.
I see where your going with this. I mean in theory yes. Why wouldn’t you. Buy an asset with borrowed funds that pay all your interest costs and some. I mean I couldn’t borrow with that ratio anyway. My total investment portfolio is significantly larger than my available loan against my PPOR. So even if I draw the whole loan down it would still be a very conservative ratio against total investment portfolio. As much as the greedy side of me likes the idea of borrowing max at 3.29% and investing it all, the cautious side of my brain is saying NO. I am moving towards a strategy of holding no cash at all and having the PPOR loan as an emergency fund if cash is needed or a great buying opportunity presents. Even my PPOR loan at the moment can be increased and I have thought of doing just that to have more spare ammo if needed. It’s fully offset at the moment but am keen to use some of it in the next year. Problem is re applying to extend the loan is painful at the moment. I’m not looking forward to the process of dealing with the banks. There customer service is woeful. I have a supposed dedicated relationship manager who doesn’t answer calls or reply to emails half the time.
