Sell or Hold 2nd Property? Need help with analysis

First post...

We have two houses in inner Melbourne (one that was my prior PPOR) and think it may be time to sell one as the tenants just gave notice. However, we are struggling to put together the numbers that would help us make an informed decision.

The house is positively geared, worth around $1.5 mill, equity is at least 80%, it's been rented out for 3 years, my salary is $140K plus rental income. We live in my wife's house nearby (also worth around $1.5 mill, but fully paid off). Wife earns around $50K. We'll probably move within the next 3 years (before our daughter starts primary school) and are leaning towards selling both houses, buying a slightly more expensive one, and investing the balance.

I plan to talk to our Accountants, but would appreciate help in knowing exactly what to ask them: modelling our after tax position with different property market scenarios?

 

IMHO you have a substantial amount of ammunition to work with given those numbers to build wealth. It all comes back to what your goals are. Accountants won't be able to help much imo with that. You need to first sit and think what you're wealth creation goals are, then discuss it with others who have created wealth to come up with a strategy that suits your goals and risk profile.

Now, if your accountant is real estate savvy and has created wealth with real estate then you may be onto something. But I would educate yourself on the basics as much as possible so you are not reliant on any 1 person's viewpoint.

 

As Leo2413 pointed out only you and your wife can decide what you want. Do you want to own just one house, worth more, perhaps renovate and add equity, or do you wish to buy more IPs?
What do you want to achieve from property?
Around 90% of investors own only one or two IP (excludes their PPOR), IMHO because they have not properly established what they wish to achieve?
Answer these two questions:
1. What do you want to achieve from property? Be specific in dollar terms, for example to earn $100K gross in rentals? Then you would devise the plan by question two:
2. What investment strategy will you follow? Will you grow your asset base to $3M in 'X' years time...what properties will you buy and where? Units say in three major cities with renovation potential or be just passive investors in lifestyle suburbs.
You need to devise a very thorough plan which many, many, many investors do not do or understand.
So please realize and decide what you want?
Some a just comfortable with upgrading to better PPOR, better suburbs, adding value, and buying more expensive homes, some I know upgraded to $14M PPOR so is that what you want?
You seem to be in very healthy financial position but it seems clear you lack a plan as you don't know what you want. Only both of you must answer that, no accountant will dictate to you what you want?

 

You could sell both, downsize, invest and not have to work again pending what you consider to be “financially free”.

It all depends on what you want out if life because the position your in their are lots of options.

When you say “moving” are you referring to another nearby suburb or somewhere totally different.
If relatively similar, then me personally I would definitely not be selling a 1.5m property for a slight upgrade. By the time you pay exit and re-entry costs your down 150k of nothing. You would be far better off renovating the place for 150k and creating more equity.

 

Sound advice. We do have a financial plan in place and would like to model our financial/tax position given various scenarios about property prices (and other asset classes).

 

Many thanks for the replies. My question was a bit vaguely worded (first-timer), but we are basically looking for advice on how to find the relevant numbers that will make it easier for us to decide when to sell the IP (or indeed if), particularly given that we have differing views on the way the inner-Melbourne property market is headed.

I imagine asking the Accountants (?) something like: what's our financial position if, a) the property market goes down X%, b) property market goes up Y%, c) interest rates move to Z%, etc....but I don't want to just wander in with a bunch of vague questions and receive a huge bill.

 

A bigger (and probably a little more expensive than either existing property) house in the same or a nearby suburb. Neither of our properties has much potential for expansion via renovation and/or isn't in a preferred school zone.

 

Personally I wouldn't be trying to guess what the market is going to do, the question I'd be asking my accountant (or working out myself) is how much tax am I going to pay from selling house 1?
What are the other selling costs?
How much will that leave us with to buy our new house/invest?

What if we only sell house 2?


I think the first part I'd be trying to work out is what exactly you want to buy, I assume it's going to be a forever home?
That will dictate how many options you really have.