Sell...keep?

We bought our PPOR in Dec 16. Decision- to sell our two IPS to pay down the PPOR? Or keep them?

Why to sell:
1. To reduce non t.d. Debt
2. To reduce servicing payments on PPOR loan - we expect interest rates to rise over time and tougher environmental factors for investors
3. Get in before market slows

Why to keep:
1. Selling our IPs doesn't net that much - IPs are geared to 80% lvr, 70% lvr. Ideally we'd hold til we got greater returns ....

one IP would only bring 50k if we sold even if sale price was 600k. The other would net $115,500.

but... they'd reduce the PPOR by a bit.

2. Bad word alert:"emotional" reasons. Feel proud to own IPs. In my world it's pretty rare. We spent a lot of effort to acquire, renovate and our plan was buy n hold. Feelings are "we are back to square one" if we sold. Plus both props are cash flow neutral, so the only reason to sell is reduce PPOR debt from a lump sum.

3. owning them is intended as our backup financial plan- like super, a non negotiable CG investment for future. Buying and selling is expensive. So - why sell?

4. In ten years - assuming some very broad assumptions- ("properties double in value every ten years; assume same interest rate just to compare costs of diff in interest paid on IO PPOR loan vs keep or sell IP/s."), my back-of-envelope scribble showed holding them would be more value.

What calculations can we do to model options??? What investment software do ppl use please?

 

If you think they'll go up in value in the next 3-5 years, I'd hold.

 

Unless your PPOR mortgage payments are causing you stress, I would hold.

Acquiring properties is usually the toughest part. As both are cash flow neutral, they are not costing you much to hold. Hopefully salary increases will take care of interest rate rises. And, usually, each year it becomes easier.

Meanwhile, put an extra effort into building up an offset account on your PPOR as a buffer.

The market may slow.....then again, it may not. And if it does, unless you HAVE to sell you simply ride it out.

So long as your IPs are in decent locations with average capital gain prospects, you will be fine. Yourself doing really well, so just hold your nerve and everything will be ok.
Marg

 

Hi @Valentino

Do you think the properties will go up in value over the longer term? Or is there a real risk of them dipping significantly in value?

If the former - and they're currently CF neutral then holding on makes sense IMO.

Cheers

Jamie

 

Where and what(house/unit) are your IP's? Will help with opinions.

Many investors come to this thought over the years. We too have thought about selling and having a mortgage free PPOR. We came to the decision of flicking one of them due to a few factors, high costs of body corp/no growth in 8 years/regional/very low mortgage on IP so tying up lots of cash.

For us it was the opportunity cost that made the decision. While we won't have the mortgage free home(as we are upgrading) it has allowed us to jump in earlier and ride some growth of a more educated investment.

We will hold all our other IP's as they are positive and well located.

 

Great points made by the guys above to keep. Also, you would still be able to negative gear when IR rates rise so that should help you hold on to your properties too and you can still fix at very low rates with many banks. Also, on 70% LVR , seems like you have been paying down the loan on one of your IPs. I wouldn't sell that easily if i already payed down 30% of a property unless it's really underperforming.

Add a bit more details about your loans and probably you'll get a few more detailed replies that can help you gain a bit more insight.

 

Switch your IP loans to IO (perhaps fixed?) asap and pay as much as you can while you can off the PPOR loan for the same end result you're after. Which is reducing non deductible PPOR debt. But you get to keep all 3 properties of course.

 

Hi

I know if it were me I would not want to sell because I would also suffer from the mentality that I am back to square one. BUT a major decision making factor would be are the 2 x ip's in fantastic locations and if they are I would want to keep them, and if I now had some doubts of the locations I would perhaps consider selling them off.

I would also take into consideration how everything else is going around me such as my work/employment and if things are looking all hunky dory I probably would not consider selling.

Best of luck in your final decision.

Regards,

alicudi

 

Thanks Wylie, it's so encouraging to hear a long term view

 

Thanks all for your comments. Reading the responses I realised the real issue is not the IPs, it's the fact that we've always had a fat buffer and since buying the PPOR we don't. We feel better with a buffer against unexpected expenses (R&M etc).

So: the real question is: how do we get a buffer asap (~20k).

Options:
- sell an ip to reduce debt as discussed ; and if we don't, what other options (beyond our steady regular but small saving ), to get 20k
- get an equity loan of 20k against an ip and it would sit in the ip offset for a few years until we'd built up our savings - (in 2yrs we'd use it to pay council permits to develop one of our IPs to become a duplex but in meantime it'd provide an immediate buffer.)

Has anyone done that-- take equity loan that can also function as a buffer?

PS. IPs are doing better than I thought: LVRs are 62% and 73% - thanks to Sydney boom ripple (these IPs are well-located Wollongong houses in gentrifying increasingly desirable suburbs, one with dual occ oppty).

Yesterday at 10:16 PMReport
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To me this sounds good... go for the biggest loan you can. Bring the borrowing up to 80%. If you use the funds for non investment purposes you could end up with a mixed loan so I believe the answer is to get a spilt.

Ps. I don't know how long the boom on Wollongong will last, it may get to a peak sometime, within 12 months/2 years? I really don't know though. Anyway, you say gentifying suburbs.... therefore hold.

 

Yes but even prior to the boom the prices trended slowly up - we've owned there for a decade now. It's not spectacular but it's increasingly becoming absorbed into Sydney, with the advantage of rail infrastructure already in place.

 

Agree.

 

What to do now, as the market softens in wollongong/Sydney...just hold and increase cash buffers? To all those who answered back in April - Thankyou, and we are holding. had a nice tax return too . Our focus is to increase our PPOR payments. We are with Liberty finance and would like to move but prob can't just yet.

Now, a few random Qs I'm interested in if anyone cares to share.
1. How do people use the "shoulda woulda coulda bought XYZ property" (ie.regret at not taking action) to fuel their determination to succeed, instead of being discouraged?
2. And as we head into the new year and an old year finishes, I'd be so interested to know WHY you choose to invest... what drives you ? And what did/are you sacrificing to pursue property goals?
3. And, what specific goals do you have for 2018, and what successes are you celebrating from this year past?

 

I’m in the keep camp too, however please appreciate this is a property investment forum, and you may be best seeking independent advice.