Selling house (IP) 7 months after buying?

I bought a house in Syd's upper north shore late last year, I don't know what I was thinking (I believed the RBA's no rate hikes till 2024 nonsense). I have very, very little affection for the house, and it's been rented out at ~2.3% gross yield. My mortgage is variable.

I've been doing some calculations and forecasts and I believe I will get better investment outcomes (and less hassle and idiosyncratic risk from a single property) from selling, unlocking my equity, and investing in share markets instead.

The property is tenanted until Dec, I am thinking of offering the tenants generous amounts of free rent and ask them to move out earlier.

I would like to sell ASAP and get ahead of further rate hikes; however I am concerned about the perception of buyers wondering why I'm selling 7 months after buying. Would you wait?

 

Probably yes.

Why?

• No CGT discount if you have benefited from capital gain (Less than 12 months)
• Transaction costs - stamp duty paid, selling costs
• Land tax outstanding (if you weren't registered)
• Market has peaked and sales in short time frames can arouse suspicion

 

I would not be making any capital gains after stamp duty and transactional costs so the 12mo isn't so relevant. And as for transactional costs, I would have to pay these costs no matter what when I sell, and if I believe I'll earn more returns from other investments (and bearish / neutral on property in the medium term), why not sell now?

 

Maybe revisit why you bought in the first place. There must have been a reason that you thought this property would be a good investment. Remember, the only money you have invested in this property is the deposit you paid, the rest is the bank's money. If you sell, after transaction costs, would you really be better off in the sharemarket?

And as for the yield, you would have known going into it, the rent it would achieve. This is likely to increase, going forward. Put some real thought into this, before you rush in.

 

I chose this property it seems to have the most owner-occupier appeal and convenient location and privacy; and buying in a blue-chip suburb felt safe, but to be honest, I didn't really think it through. I got caught up by peak FOMO and watching property literally go up fortnight by fortnight, so I bought mindlessly. In hindsight, this was a mistake.

I understand, but that makes me more concerned as leverage works both ways. A 10% drop in property values would mean a 25% drop in my equity (I am 60% LVR), and I am more bearish than bullish.

 

You would lose 150k just on stamp duty? Another 30k+ on agents fees?

imagine you bought in 2017 and panic sold in 2018. Sure 2019-2022 was a surprise, but how sure are you that you will do better in shares compared to that property?

how long are you going to be bearish for? If you buy back thats another 150k stamp duty. Even if you buy back at 10% less, you barely break even.

 

Though heck you are a 25 year old who managed to buy at least 4m in property. You know what you are doing.

 

It may all be hypothetical. If you put on the market, I'm not sure you'll be willing to accept the crystallised loss.

Buyers right now will be thin, given RBA rate going up.

May just have to hold on and ride the wave. Welcome to property investment, wait until you need to do capital improvement because the tenant complains about something

 

I've lost $150k on stamp duty. That is already lost.

For property to appreciate more than income growth, it would require an expansion of credit availability and household debt. Since the 1990s, interest rates have continuously gone down.

I believe there is the very real possibility that the financial conditions that have allowed home prices to increase beyond income growth, will no longer be true over the next decade due to higher inflation. That means a reversal of such drawbacks. For an example of how this is playing out, look at US stock markets.

I understand US stocks and Australian real estate seem like a crazy comparison; but bear with me:

1. Most of the growth in US equity since 2008 came from an increase in multiplies (made possible by lowering of interest rates).
2. As higher interest rates get priced in, multiples contract; resulting in deep losses even when inflation in the US is 8% per year.

If we look at the Sydney housing market:

1. Most of the growth in Sydney property came from an increase in price-to-income ratio (made possible by lowering of interest rate).
2. As higher interest rates get priced in, ratios contract. I believe residential property markets have not priced in the impacts yet.

I made a mistake earlier this year not hedging or selling my overvalued stocks when it was only down slightly. Now it's down 30-70%. Of course, housing is much less volatile and won't be down as much, but I'd rather sell at a 5% loss instead of waiting for a 25% loss.

 

If you believe it that strongly, why ask?

 

Yes:





What do you think will happen if we see a repeat of 2005-2008?

 

If you believe your prediction, you know what to do.

Though it's not like these trends are new. Why did you buy at all?

I don't care what happens for a few years, or in a few years. I think about whether my grandkids will want to inherit the properties that I own or not.

The answer, at least imho, is yes.

 

I'd hold onto it and see what happens over the next 6 months. How long were you planning to hold the property when you initially purchased?

 

For someone who has such strong bearish views on the market now, I'm amazed you bought at all end of last year.

 

This!

You say you expect property to pull back at least 10%.

How will you feel if it doesn't, and you've sold? Interest rate rises can be scary, but they don't guarantee it's all doom & gloom, you know.

 

Property is a long term investment. Keep for at least 3 if not 5 years.

 

FONGO can be just as compelling as FOMO.
Crunch the numbers, reconsider your most likely scenarios vs your risk appetite for each one..

 

To your credit you recognise you bought in FOMO, you recognise the sunk costs, and you have formed a considered view.
You've basically answered your own question.

Remeber this is a property forum so if you are looking for validation in your decision to sell I doubt you will find it.

The only thing worse than forming a view and recognizing your mistakes, would be to then simply hold on in hope that things improve without being able to convince yourself why they would.

Your views are similar to mine, only I didn't buy in the first place so I don't have the emotional burden.

 

To the op I guess it comes down to
A) could you make a better return elsewhere on the money you have locked up and,
B) do you expect the market to remain flat or drop

 

Apart from FONGO, it seems HIMO is the new FOMO

Happy I Missed Out