Selling Resi to buy Commercial IP??

Discussion in 'Commercial Property' started by Tim34, 14th Feb, 2022.

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  1. Tim34

    Tim34 Member

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    Hey guys and gals!

    I feel like this might be a bit of a long post so if you get to the end and STILL have time to reply, I thank you!

    My partner and I run our own events business, we are 34 and 32 years old and are starting to think about the next chapter of our lives, kids etc. Whilst COVID had a HUGE impact on our company we were able to change the core part of our business to be able to get through, unlike many other event-based companies. Whilst we made it through COVID with a lot of stress, hard work and some good luck, COVID did impact our mindset towards our investment portfolio towards more of a positive cashflow investment portfolio.

    We are now starting to contemplate selling down one property within the inner-middle ring of Brisbane to fund a deposit for a $2 - 3m commercial purchase. Our thoughts are that we could sell one of the Brisbane homes that we have an $800k - $900k equity position and combined with another $200k in another or our PPOR to fund the deposit of the purchase. Hopefully, create a positive cashflow position of circa $100k per year.

    I understand I'm going to get some biased answers here having posted within the commercial part of the forum - I thought that I would also get the most honest answers.

    I guess I'm seeking advice/stories both good and bad of people who have sold resi to get into CIP. Would you do it again?
    What are the major headaches of CIP that you wish you knew prior to getting in? It can't be all rainbows and lollipops.
    How much of your positive cash flow do banks take into account for future purchases?
    Any advice/stories on BA's within the industry would be highly appreciated?

    Thanks in advance and Happy Valentine's day!
     
  2. The Y-man

    The Y-man Moderator Staff Member

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    Thinking of doing similar, but we have a specific problem with CGT, as one of us is still incoming quite a bit, and the resi props are in joint names.

    The Y-man
     
  3. The Y-man

    The Y-man Moderator Staff Member

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  4. Tim34

    Tim34 Member

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    Hey Y-man!

    Our IP's are structured within a holdings company to be able to move credits etc around. This is partly why I am wanting to make the move now considering that our business has had fewer profits and assuming that events will pick up next FY.

    Yes, I have read both threads as well as some CIP books and a lot of podcasts. I found the post by Xjas particularly helpful. Is it purely the CGT that is holding you back or are there doubts that you have prior to making the swap?

    Cheers
     
  5. The Y-man

    The Y-man Moderator Staff Member

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    Trying to make the numbers work to have the cake and eat it too - i.e. keep the resi and buy comm props.... but it's going to be a bit close to the line if the property is vacant...

    Thinking of "starting small" (I guess that's common) - especially since I am looking at buying outright (no loan), so trying to see what is possible out there...

    The Y-man
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

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    @Tim34 I'd agree with the having your cake & eating it approach - extract the equity & redeploy (if possible). Saves selling & CGT issues as well.

    As for a vacant property, is it something that you're considering occupying for the business?
     
  7. Tim34

    Tim34 Member

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    Ideally, we would love to be able to keep all of the properties. However, we have struggled with finance due to our portfolio even with an equity position of $1.5m+ across 3 properties. This is more than likely due to such a heavy downturn in our industry and that we were receiving government grants etc.
    I'm sure that if I was to postpone the purchase till the end of 2022 or the start of 2023 then it wouldn't be an issue - I'm not great at waiting hahaha.
    I would assume that if we were to sell one of our properties we would be provided with the serviceability given the +ve cash flow on the purchase to finance a $2m loan.

    At this stage we are WFH. This will continue for the foreseeable future so there isn't a need for an office/event space.

    I didn't think of purchasing a CIP outright. Would love to know your thought patterns with this and why you're not leveraging a deposit to retain some liquidity?
    My partner and I would have a high-risk profile with investments, we don't (try not to) stupidly jump into things but when we make a decision we typically try to move quickly and go all in.

    Cheers
     
  8. The Y-man

    The Y-man Moderator Staff Member

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    Just a outright cashflow issue. Could do a loan and still service it while maintaining the resi fleet, but would need both of us still working IF it goes vacant.

    The Y-man
     

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