How to choose the property to sell?

For my education only.....how do I choose which property in my portfolio to sell to free up cash.? Say to pay down debt. Assume portfolio is neutral. Just taking the capital gain.
Reason to sell doesn't matter but which property is best to sell. Assume they have been held more than 5 years. Which are most important factors to consider. These are the ones I've considered..there must be more.........

1. Apartment vs House
2. location. Sydney vs Wollongong vs Regional NSW.
3. Age. Near new vs fully renovated by us vs needs renovation.
4. Yield at purchase vs Current Yield.
5. State of the current market
6. State of the future market...crystal ball.

 

You need to carefully evaluate each property, and sell the one that you feel has the least profitability ahead, taking into account both costs to hold and considered future capital gain.

Just about every property is unique, so hard to make generalisations.
Marg

 

1,Many people will have the opinion that houses are worth holding over an apartment due to land area (remember, the building depreciates, but its the land that appreciates).
2, any property closer to the cbd will have better long term growth than a regional (and likely less vacancy)
3, age, new and renovated have claimable depreciation, though done right a reno on a property can turn a nice profit or become cash flow +.
4, with the market (syd) nearing peak, any property that is CF+ is better than a negative one. Ask @euro73 "cash cows are soon to be king"
5, current market, markets within markets
6, if you had a crystal ball = lotto numbers . But being near the peak (point 4) syd is likely to be flat for a few years, little CG or rental growth.
7, you really need to take into account too many factors and IP's in specific area's, along with specific taxation advice (like after costs will any sale showing a profit increase your personal tax, how much tax is payable, will paying the remainder off existing debt be any more benificial than fixing your current loans.......

 

look at the properties which have not performed, growth number 1 and then look at current market conditions.

Also look at properties that have been stellar performers weigh up debt versus income, and market conditions...anything you should sell? Look at the big picture

 

Like most generalisations, this is not necessarily always true.

Some of our greatest percentage capital gains came from units. Criteria being a well located complex, and our unit being very well located within the complex. In two cases price tripled in less than 10 years.
Marg

 

Also consider the net cash after anticipated CGT... no point selling a low CG high cashflow property if you end up with a small amount of cash in hand at the end which is insufficient to do much with.

 

Good question.

Depends on the reasons for wanting to sell and what you need the proceeds for.

If you need a certain amount of money u will need to sell one which will leave the required funds after selling costs and tax is taken into account.

You may choose to sell an under preformer.
One with problems.

Consider land tax too. Selling one may result in more land tax savings than another.

One may have potential loan problems such as mixed loan and you may decide to get rid of this to remove the problem.

Lvr is also important. Lower lvr may help leverage you into more property or be good with debt recycling.

But also factor in reborrowiNG for the next one. Selling a property in a non working spouses name may result in that spouse being unable to borrow to buy another.

 

Great advice from Marg.

If you expect that a place has done well for you, and there is no other upside, then liquidating is an option so you can redeploy the funds.

 

Another consideration....ease of sale.
For an unusual property...eg well above median....selling in a hot market rather than trying to sell later. If market cools?

 

I read this with interest as also in the selling vs holding mode.

I would also calculate what your take home would be. Are the properties costing you anything to hold them?
I calculated what I would take home after repaying the loan, CGT, selling costs etc etc for an IP I am wanting to sell. Since I reval'ed this property during the hot Syd market (that has now cooled), and found my take home would be surprisingly smaller than I guessed ....

Need to also look at bigger picture. As many wise people have said, the funds need to be transferred to where they will work the hardest (within sensible boundaries for the economic climate).

 

I'd run some models on excel and work out the implications of selling on your cash flow and long term goals. Create various scenarios and work out which order to sell them in to give you the best outcome. Take into account CGT, rental income, ongoing property expenses etc. Trying to predict future growth is difficult. I have run a heap of scenarios with my own portfolio to best determine how to reach my short term and long term goals.

I always remember an Anz add from a few years ago which stated "the one with the most property wins." I think there is some truth in this.....

 

Calculate cgt and measure how much net equity vs cashflows are affected. Sometimes little is released. If you can pay off ppor it is quite clear but if it barely makes a dent then ask...why

 

Oh yes, calculating how much is returned after paying loans, CGT, fees etc etc can show that not a lot is returned. The why might be that the market is at it's top, and you can't wring anymore out of it.