Here is the Argument for Refinancing and never Sell

Discussion in 'Property Experts' started by MTR, 4th Jan, 2017.

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  1. MTR

    MTR Well-Known Member

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    My thoughts have always been to rationalise debt, and sell down when necessary, and hold some and work on cash flow... All to their own


    Extract below and figures.

    Blogger: Paul Glossop, director, Pure Property Investment


    Over 70 per cent of property investors only own one or two properties and stop at that but with the example below you have to ask yourself the question, ‘why wouldn’t I reinvest the profits?’

    In this scenario the investor currently owns one investment property and their PPOR.



    Option one: Sell your investment property (neutrally geared) and pay down your PPOR.

    Investment property loan amount: $300,000

    Investment property sold price: $500,000

    Capital gains tax property purchased for $400,000 (25% of profit approx.): $25,000

    Agents fees (2%) : $10,000

    Closing costs: $2,000

    Net profit from sale: $53,000



    PPOR current value: $500,000

    New mortgagee amount (originally $300,000) using the profits from the sale of your investment property: $247,000

    PPOR projected value in 2030: $1 million

    Monthly repayments to pay off your PPOR by 2030 (based on 6.00% interest rates): $2,084.33

    Total net position by 2030: $1 million



    Option two: Hold your investment property (neutrally geared) and continue to pay down pay down your PPOR.

    Investment property loan amount (interest only): $300,000

    Investment property current value: $500,000

    Investment property projected value in 2030: $1 million

    Net equity position by 2030: $700,000



    PPOR current value: $500,000

    Mortgagee amount: $300,000

    PPOR projected value in 2030: $1 million

    Monthly repayments to pay off your PPOR by 2030 (based on 6.00% interest rates): $2,531.57

    Total net position on both properties by 2030: $1.7 million



    Option three: Hold your investment property (neutrally geared) access the equity to re-invest in a second investment property (neutrally geared) and continue to pay down pay down your PPOR.

    Initial investment property loan amount (interest only): $400,000 ($100,00 line of credit)

    Additional monthly repayments (interest only 6%): $500 per month

    Investment property current value: $500,000

    Investment property projected value in 2030: $1 million

    Net equity position by 2030: $600,000



    New investment property loan amount (interest only): $300,000

    Investment property current price: $400,000

    Investment property projected value in 2030: $800,000

    Net equity position by 2030: $500,000



    PPOR current value : $500,000

    Mortgagee amount : $300,000

    PPOR projected value in 2030: $1 million

    Monthly repayments to pay off your PPOR by 2030 (based on 6.00% interest rates): $2,531.57

    Total net position on three properties by 2030: $2.1 million



    The brass tacks of the three scenarios is that if you can afford an additional $218 per week (remembering that these scenarios don’t take into account depreciation which could potentially negate the $218 all together) the 15 year benefits of scenario three over scenario one is a staggering $1.1 million.
     
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  2. sash

    sash Well-Known Member

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    Yep...the longer you hold the more equity you hold.

    I made this mistake by taking profit early..for example a 1 brm unit in Marrickville (40sqm) bought for 90k....sold for 250k....in 2009....value now would be over 450k
     
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  3. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    This is a bit simple and doesn't account for eventual P&I payments. But if the basic point is to hold as long as possible, yes I agree. :)
     
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  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    About 8 months ago I was considering selling a property. It would have realised a lot of cash for another project coming up. The property has increased in value about 250% over 15 years.

    Then I considered that I'd likely never buy back into that area (due to the price point), and I thought about what if it increases another 250% over the next 15 years.
     
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  5. sash

    sash Well-Known Member

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    Remember that rents rise...to offer some relief here also.

    For example...lets use am example of my Dulwich Hill 1 brm. Bought for 95k rent was 130pw back then.

    Assuming a loan of 80k at 4% P&I today and rent of 375pw....interest would be 4500pa...rent would 19,500...so 15k left. Assuming rates (2000k), mgmt. (1250), insurance (350), and strata (2000k), repairs (500). You are still left with about 10k net.
     
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  6. dabbler

    dabbler Well-Known Member

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    Yeah, but you can do your own loans ;)
     
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  7. sash

    sash Well-Known Member

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    Waatcha...sayin......
     
  8. Perthguy

    Perthguy Well-Known Member

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    Depends on where the property is located. I bought a half share of a development site in Heidelberg Heights in 2007 which we sold in 2015. Rents never really varied much either side of the original rent on 07. When we sold the place was rented out at the 07 price and we were lucky to get that much. Good return for selling though ;)
     
  9. kierank

    kierank Well-Known Member

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    My guiding principle is:

    If you buy the RIGHT investment property, you should NEVER sell it.​

    I am a B&H investor. To me, selling destroys some of your Net Worth (CGT, commission, legal fees, ...) that you may never get back.

    That is why we buy in Trusts. You can keep your IPs for up to 80 years. Your grandkids can lose some of their Net Worth if/when the Trusts expire. If they don't like this, they can remove themselves from the beneficiary list.

    Selling a PPOR is different as it is a lifestyle and financial decision and there is no CGT. Not as harmful to one's Net Worth.

    Just an old bugger's view on the world. Back to sleep.
     
    Last edited: 5th Jan, 2017
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  10. paulF

    paulF Well-Known Member

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    Great thread!
    I'm considering option one with the only difference that selling my IP would mean i can pay off my PPOR completely but that is short term gain. Long term, it makes a lot of sense to hold. Also, the fact that i will be paying a massive CGT amount is not appealing at all(didn't get a chance to live in the IP...)
     
  11. Natedog

    Natedog Well-Known Member

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    When we started investing in property 11 years ago, I strongly believed that buy and never sell was the "only" way to do it....so we just kept slowly accumulating properties right up until last year.
    Ive softened on that stance though.
    I think if you can realise a big tax free capital gain on your PPOR it's definitely worth selling....
    Selling IP's after tax is less appealing but may be useful or necessary if needed...especially if you can get a better return elsewhere by releasing the $$$
     
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  12. josh123

    josh123 Well-Known Member

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    My wife and I we told by her parents to sell 2 of our ips located in sydney in 2011 to pay our down our ppor loan, if had it would of costed us $350k in lost gains. Glad we decided to hold. :)
     
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  13. Simon L

    Simon L Well-Known Member

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    Greatly situation dependent.

    In a cooling market and/or rising interest rates, it may not be wise to refinance and take on more debt, increasing your risk exposure particularly if you are already highly leveraged

    Plenty of people argue that if they hold on to a property they can make another 200% in the next 10 years. That may be true, however, there are plenty of investors who have made millions of $ over a 10 year period or less starting from scratch or with very little deposit - so imagine if you "cashed out" now on a property and took $200k profit for example (after selling costs/tax) - how much more you could make within that same 10 year window if you invested $200k correctly?

    IMO selling costs/tax is a cost of doing business - and sometimes its worth stepping out of what you currently have to realise what you can achieve. All circumstantial of course...
     
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  14. Ald

    Ald Well-Known Member

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    The assumption in all this is of course that property prices will continue rising forever everywhere in Australia. But we know from the European cities that this is not the case, it stops except for a few select suburbs that continue appreciating as the wealth divide between rich and poor increases. Do a scenario where there is less appreciation in property price than interest rates.
     
  15. Ald

    Ald Well-Known Member

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    Also there are so many investors out there now that there are few bargains around.
     
  16. jins13

    jins13 Well-Known Member

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    I still see some great bargains around and are you basing your thoughts on the area you are looking?
     
  17. Gockie

    Gockie Life is good ☺️ Premium Member

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    My mum encouraged my sister to sell her Castle Hill townhouse in 2012/2013. Glad my sister held off for a bit longer.... but if they sold now they would have an extra >250k.... and it is extremely well located (easy stroll to the new station) so it will keep going up....
    Soooo .. don't necessarily listen to parents!
     
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  18. Ald

    Ald Well-Known Member

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    Every Tom Dick and Harry is a property investor these days, glued to real estate.com, networking with real estate agents, getting inside info, it's very much harder to find bargains.
     
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  19. Barny

    Barny Well-Known Member

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    Lots of bargains in Darwin and Perth. Also, don't have to pay the asking price @Ald
     
  20. josh123

    josh123 Well-Known Member

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    Still $250k is a nice gain. Agree about the parents thing. I come from a big family of renters that don't have a cent to their names. If I didn't me my wife and break the cycle I'd be doing the same. Hard to know any different from how you have been bought up. :)