Sell or Hold Investment property

Hi Should you sell or hold multiple investment property to take advantage of high prices.

If Rates normalise to 6% it not possible to hold multiple investment property for Me.
I have redrawn but its still feels dangerous to hold multiple properties if interest rate move upwards or normalise.

My Calculations
Total Loan = 2.5 Million

Principle Home Loan 740K
Investment Property 1 loan 520K
Investment Property 2 loan 520K
Investment Property 3 loan 680K
Redraw = 560K

Monthly Cash flow minus all expenses @ 3% Interest only = $8993
Monthly Cash flow minus all expenses @ 3% Interest Principle = $4,663
Monthly Cash flow minus all expenses @ 6% Interest only = $2,685
Monthly Cash flow minus all expenses @ 6% Interest Principle = $174

Profit from IP if sell in current Hot market = 950K
CGT Tax $200K Cash Profit = 750K

Holding on to multiple properties as promoted by so many property gurus can it become a nightmare if interest rates move up and normalise.

 

When It gets to a point of unsustainability you may have to sell, but the more you have and the longer you can hold the better off you will be

You have a long wait for rates to get back to 6%

People think home ownership or renting is unaffordable now, when/if rates get back to 7%+ they will lament rates sub 3%

 

Wont they what, it is all nice and easy at the present.

 

Even though for the last few years loan applications have been based on servicing at 7%, people think it's easy and spend far to much on lifestyle choices (instead of building a buffer)

 

Even if you fix the rate at 4% for 5 years Interest only, the whole property loan will revert back to interest and principle after 5 years.

if rates also normalise during this time then I will be hit hard with new higher rates plus interest and principle. I may have to refinace again just to hold on to them.


The scary part is debt is friend when rates are low but your worst enemy when rates are high.

I don’t think I can recover my repayments by simply raising rent.

I’m already getting maximum tax benefit from depreciation but I don’t think taxman will help me recover additional payments due to higher interest rate plus principle.


@6% intest and principle all my income including my salary is required to service all my debt, leaving me with nothing to spend on food and living expense.


Also property market could crash if rates raise to @6% IO compared to current 3%IO


So I may be left holding property worth less than what’s it's worth today with higher interest rate.


Is this a good assumption to sell the property now and take a 200K tax hit plus 750K profit

 

That's a reasonable strategy that I'm applying personally (cash flow+) as well as for new and existing clients with 2 to 3 year fixed rates currently at historical lows.

There are 4 & 5 year fixed rates circa 2.5% P&I and IO for investors ATM.

If interest rates rise and you had to sell then break costs will be minimal in the advent of a forced sale within the fixed term.

 

At the moment in paying @3% IP on all my loans Im able to manage my finances

Im looking to convert to Interest Only fixed for 5 years @3-4% to increase cash flow, but what happens after 5 years is a big problem if rates normalise property price crash and banks force you to Interest and principle loans. I have to basically live of any redraw for while until I can refinance to interest only but if rates keep moving up ultimately I have to sell at a loss if property prices also crashes due to high interest rate.

So is it Wise/Smart to take profit now sell my IP and paydown my PPOR take a 200k Tax hit or wait it out 5 years and in the worst case scenario live of redraw , loss job sickness etc.

200K tax is a big hit but if property price crash you also make a big hit right ?? even a loss in forced sale.

 

No.
So in Sydney at the moment property prices are going up an average of $1,000pw
When the market kicks again in Spring I'd guess you will regret selling....
If you have so much equity you must have held the one you are considering selling for some time, so your rents must have increased (as they do over time).

What has changed since you took out the loans that now has you SO worried ????

 

What’s changed is Increase in PPOR debt due to new build, I’m worried about high debt on PPOR and in the event if rates normalise i will be left holding high debt low serviceability and property correction.


This is a scenario not many people talk about but I feel it’s a real danger.


Holding multiple property is all fun and games when rates are low but when they normalise its going to be a big pain for many as repayment shoot up and rents don’t cover the repayment, tax man also cannot help much if PPOR debt is too high together with all the other IP debts.


Servicing is a big issue when rates go high, I’m just trying to figure out how people manage big property portfolio when rates go high and they high PPOR debt as well.


It just feels better to have no debt on PPOR and sell out now when the times are Good pay of PPOR Semi retire early.

 

You didn't consider rises prior to your build ?
If you want to sell then do it sooner and sleep better at night.
Otherwise keep a paper bag handy