Pull the pin now or wait?

Lol thanks Terry_w. Sage advice but hope you're a lousy clairvoyant!

 

Lacrim there are plenty of more options you haven't considered. I have written a strategy post outlining some.

What you should consider is getting out of your job asap so you can enjoy life. You might also want to consider holding on to properties as long as possible because this will get you some more growth (unless you think they may drop in value).

So delaying the sale as long as possible can get you some retirement income.

This may involve using cash in offset accounts to live on as long as possible before selling.

Or

Live on a LOC if you have one available. Or better yet live on the rent and borrow to pay the interest on the loans and claim the interest as this is more tax effective.

When you do have to sell consider the tax implications and the amount of cash that will be released. These may not be optimal in the one property. It might be best to sell the one with the biggest capital gain or it might be better to sell another one which will release the most cash.

Alternatively before you retire you could do things such as sell one, and then borrow to buy another. Your servicing may improve by you discharging one loan and you may be able to get a replacement loan to buy a new one. This way youo will have the same number of properties going forward but will have a lump sum of cash to live on for a few years.

you might also be able to organise the prepaying of interest on a few loans before you quit you job and the sell one and all the extra deductions will help reduce CGT. The next year you will have less deductions but little other income so that may help you save tax.

heaps of other things too

 

Work when you are old and have fun when young.

Also consider mini retirements. Could you pull the pin at work in Dec and have a year off and go back the next Jan. This way you have half a year's worth of income which is more tax effective than stopping work on 30 June.

And don't forget if it doesn't work out you can always go back to work again.

 

I'm confident that if I execute this well and in a timely fashion, I won't be put in a situation where I have to reenter the workforce. $100K passive with no mortgage (and a few mill in remaining assets) should be enough to do the things we want to do. Not much left over but we'd have to be pretty careless with our spending to exceed that amount.

You've presented a barrage of things to consider...I'm not sure where to start. My whole model was geared towards LOE via a simultaneous and massive cash withdrawal but I'd have to wait a while for the banks to play ball and given the changes afoot, I'm reluctant to roll the dice financially and see if I can hold out till then.

 

Hi

I suppose for me if I had residential type properties in Sydney at this point in time I would strongly consider selling them but unfortunately for me I don't have any residential properties in Sydney.

However if you defer retirement for a decade or so are you happy with your current LVR levels and would you still be happy if residential properties stagnated in price for the next 3 to 6 years and interest rates went up to say around 7.5%? If it were me and I didn't care what happens to the sale price of the properties and I could handle 7.5% interest rates I wouldn't sell anything.

Best of luck in your decision and isn't it great to have these sort of choices and options to deal with!

Regards,

alicudi

 

The stagnation doesn't bother me Alicudi and I've ridden out years of prices going up, down and sideways - I've always had faith in the assets and that hasn't changed...but you're right in saying I'd be forced to care if rates hit 7.5%. If rates hit 7.5% and stayed there or kept going and rents didn't keep up, no less at P&I, I'd be forced to sell systematically...hence the preemptive strike now.

 

How long could you live for on your cash reserves?
And what is your short fall now in living expenses v passive income

Example if you have $200,000 in offsets and need $100,000 in living expenses and have $50,000 in rents that would mean you could live for the next 4 years before running out of cash. By that time the properties may have grown another 50% in value. Rents may also have grown and you may have found other income sources so yo might be able to get away without having to sell at all.

 

Hi

I don't have a crystal ball but I believe we are at an astronomical peak in regards to Sydney residential prices and also at an all time low in regards to loan interest rates and the only future I can see is a future where residential will become more affordable in Sydney and interest rates will rise.

I was in a similar situation to you in around 2011 plus I liked to spend a lot and party hard, but I wised up overnight and decided to take the safe option, cleared all my loans, paid off all my debts and started with a blank canvas of a fully paid off portfolio and now earn a good six figure income via the rentals and not interested in selling anything for capital gains, it was less satisfying for me but is a huge relief knowing for the rest of my life I am ok and never have to work. It was also what led me to join the old somersoft and now property chat forums and stop wasting all of my time at the Ferrari and Bentley forums!

What is right for me may not be right for you. I hope you make the right choice whatever that may be.

Regards,

alicudi

 

Agree with you 100% re: Sydney and interest rates atm (and the interrelationship between the two).

 

Terry-w, the portfolio is neutrally geared. It pays me nothing by way of cashflow so the 'wealth' is all equity. And if I can't get my hands on (the majority of) it, I don't have too many options. My LOC is pretty healthy relatively speaking but I'm not satisfied that it's big enough for a portfolio my size.

And as Alicudi alluded, my concerns are the record low interest rates, the stellar performance of Syd on the back of, and bank changes that may f me up, and perhaps even erode some of my gains.

There's no question I need to do 'something'.

 

sell 1 Syd property, use the profit to build 3 granny flats in your existing Syd properties. This should retire small debt but increased $50k net income.

 

Hi

I agree yes you do need to do something but that "something" is not a choice to take overnight.

I bet my left ass cheek if you take the safe option and sell some property, the property prices will continue to go up and interest rates will continue go down as that is what happened to me between 2011 to today and had I not sold some stuff off and had I kept my loans open I would in fact be in an absolute fantastic place with a very good income, but if I had continue to do what I had always done in the past I probably would have purchased more property with larger debt and today would be sitting in a position where I wouldn't be able to sleep to well knowing full well that property prices might drop or interest rates may rise and I could lose the lot.

I think you need to open up excel and work out a couple of scenarios for each of your options that you presented in the opening post and then redo these options again and work out the sums if interest rates rise and rentals don't keep up etc.

Maybe you should take an approach that is not 100% one way or the other, similar to keeping part of a loan as variable and the other part of the loan at a fixed rate, maybe you should just get rid of the best performing property that has enjoyed the highest capital gain or perhaps sell the property that has been the hardest to attract good tenants.

Regards,

alicudi

 

I guess some people fall in love with properties while others use property to achieve financial freedom, I know which one I would pick

 

Discard the raft when you reach the other shore

 

Why don't you pay Terry and one or two others, get them to give you options and ideas that will put you in a good position.

Otherwise I would keep working, but I would def look at lowering holding in Sydney, as to which ones, well you have to nut that out and decide what is best.

I would do it mainly due to the very high probability that Syd will deflate, but if you need to do it because of P&I, then that gives a real good reason, I would look hard at what to sell & the time frame, you sorta just missed out too as you should have sold one last fin year, then could have done one this year, or 2 last, 2 this, but I think 1 a year should be quick enough & you can gauge if you need to still sell as you go.

My thinking is you are nowhere near Robinson Crusoe, more there are in this boat and as rates rise, it has too cool down, rates at least cannot and will not be a stimulus for now.

 

I'd go 1 or maybe 2. Life's short so if you can retire comfortably, hell yes do it, follow your passions, travel, live your dream life. Yes you might make more if you kept all your properties (though the market seems to have peaked so could also lose out) but you can't take that money with you when you go. Enjoy it.

 

An enviable position to be in.

Personally I'd be going down the austing n truong path.

I'd use 80% of the LOC to invest in 3-4 LICs, live off the dividend income now and allow interest to capitalise on the LOC and then sell down 1 to 2 properties per financial to reduce overall debt down to 0-20% lvr, however many years that takes. Also look at ways to minimise the CGT before selling, such as pre-paying interest/concessional super contributions, etc.

Once the job income stops, personally I'd feel better with no or very low debt and no ongoing maintenance on property.

But horses for courses.

 

OK how do I go about doing this eg if I sold a property in July 2017 and made $300K in capital gains, how would I minimise the amount of CGT I'd pay at the end of the financial year?

 

Assuming property held greater than 12 mths, only half gain is taxable. So that would be $150k added to taxable income.

So you need to come up with $150k of deductions so $0 extra tax payable.

A max of $25k (including employer contributions) can be contributed to super and be tax deductable. Assuming you retired from employment now, that could be a full $25k deduction. And if property is jointly owned with spouse, an extra 25k for partner. This is taxed at 15% inside the superfund, but that would be a lot less than marginal tax rate.

Can you prepay $125k of interest on loans for the following financial year? That will depend on how much debt you have. This can normally only be done in June, but start start enquiring in April/May so that process could be done.

The following year you might skip selling a property as you would have less interest to be deductable against rents.

A lot of planning is required to smooth out the tax payable over financial years and really difficult to do without knowing all your financial details which you wouldn't share on a public forum anyway.

 

And if your properties are cash flow neutral they might be negative from a tax point of view. If you are not working at all during the year your taxable income, before the capital gain may be negative or very low.

If properties are held in a trust there is much you can do with bucket companies too - potentially eliminating tax altogether.

And if you have jointly owned properties with your spouse then only your share of the gain is taxed.

You might also buy a replacement property in canberra and claim large up front stamp duty costs.