Should I sell, and many questions

Hi All,


I am contemplating selling an investment property I own in Melbourne (Patterson Lakes) later this year, and had a bunch of questions. The property was purchased for $320k in 2009 and would sell for approx. $550k today. I lived in for 2.5 years and have rented out for 5 years. It is currently rented out for $350pw.


Reasons I am thinking of selling:

I think it is a good time to sell (I’m thinking of aiming for premium auction weekend in September).

I have had previous problems with current tenant (late rent, eviction notice, vcat, etc).

I owe $300k on the property, so realising $250k would be good for PPOR offset / invest elsewhere.

I own 2 other properties in the same area (minimise risk).

Reap reward of first home owner grant / exemption in my own pocket (starting July 1 in VIC)


Reasons not to sell:

Market may continue to rise for many more years.

CGT, bit of a grey area for me. And I have wage in top tax bracket (just). And not ready for a career break.

I have equity in the place which I have not used. Ie could buy another IP and keep this.

It is a great place, with amazing views.



One other thing to not is that to sell I would evict the tenant and do minor cosmetic renovations. Paint, landscape, etc. Hence, depending time on the market, it will potentially be losing money.


Would love to get some thoughts on my reasoning / ideas. What people think the market is doing (is it a good time to sell?) and any advice on CGT.


Thanks,

 

Not sure what your thinking with regard to first home owner grant?

 

I would only sell to change to a better property otherwise its just a waste of money

 

I think Jeffb is referring to the fact that the first home owner grant might increase the demand and then the price for properties in that price bracket in Vic? Might be wrong though?

 

I'm not a broker and don't know your financial circumstances so take what I say with a grain of salt but if you are planning on purchasing again in the near future, just be cognizant of how much harder it now is to borrow money- I've heard stories of people having say a $500k property, selling it and realising the gains and wanting to borrow say $300k for a different property, and not being able to get the financing.

 

I would have thought it would be more thab 550k....wow....that sounds reasonable......for the area that is......

 

yeah, stamp duty abolished for first home buyers up to $600k starting July 1. Means they have extra $$ to spend and grants always end up in vendors pockets

 

Thanks for the response. I am actually meeting with broker next week, so will ask about this.

However, my thought is that deposit and costs through equity might be just as hard if I leave it in this place.

 

I am personally not a fan of selling as you destroy a lot of net worth with selling and rebuying in property.

550,000 2% agent commission = $11,000
+ marketing lets say 4k
+ legal 1k
+ cleaning/presentation/misc - 1k
Cost 17k (not including CGT which could be another 40k, including the discount) or say total 60k net worth (in selling)

Not sure if hyperlink will work

https://www.yourmortgage.com.au/cal...x/result/?sid=3617357-ry5hu-capital_gains_tax



And I assumed a number of expenses (e.g. 10k for rates (8 years at just over 1k p.a. etc).

Then you add in buying costs when you do rebuy - say 500k (as the market went back 10% from 550k) for VIC which is 21k for PPOR or 25k if it would be an IP. Add in legal and purchasing costs (2k?).

You are looking at a repurchase cost of a potential 27k.

So with rough calcuations your sell and rebuy has costed you 87k

 

If u really have to sell Wait for 1st July a lot of fhb targeting that price bracket probably will sell more

 

Don't sell. This is one you will always regret.

 

aren't you exempt from CGT because you lived in the property less than 6 years ago?

 

I think the more important question is what would you do with the money, the opportunity cost.

Say if the market tanks next yr, then it would be wise to sell and then maybe re-enter before the next boom.

There might be a killer company you want invest, you might be buying the next amazon or apple whatever.

Business opportunities. ect

Think of if you've sold what would you do with the money.

 

I agree you'd get a great price on the property from next month given the FHB changes. Having said that, it may even go for over 600k anyway and therefore price out FHBs wanting to benefit from stamp duty exemptions.

But I don't think you should sell unless you desperately need to. If you can afford to hold onto it, hold onto it. The market's pretty crazy at the moment so you're best to sit tight and see what happens.

The tenants sound like a nightmare - why don't you just get rid of them, do your minor reno and then get the property revalued to draw that equity to purchase another IP? I think this property is a good lesson for you to make sure you diversify your portfolio going forward, no more Patterson Lakes.

 

I am making an assumption that he has another PPOR with his wording of;

'I owe $300k on the property, so realising $250k would be good for PPOR offset / invest elsewhere'

So he would likely need to pay CGT as you can only claim the exemption on one property at any time. It would be exempt until the period he left the property and the value it was then. Even still it might be 30k paying instead of 40k *shrugs*.

I am not a financial planner and I think I have the right structure but not advice and I am making ALOT of assumptions.

 

Thanks all for the feedback.

Only other thing I would need to factor in is that I will want to sell it oneday, so CGT is inevitable

 

Leave this problem to your kids or grandkids.

You will make the right choice for your life and risk profile and no one knows what the future will hold.

 

Are you forgetting about compounding?
Someone above did the costs of selling and re-buying and you would be out 87k. When you rebuy it will then be a lower valued property and when you consider the effect of compounding this adds up to a whole lot more that you miss out on.
This is why it's better to plan your purchases so that you don't actually have to sell to buy a smaller house later (eg retirement), and instead try and plan out your properties such that you can sell down and/or move between them without the need to sell and re-purchase. CG yes you will have to pay one day, but you lose the compounding unnecessarily if you sell and re-buy.

Just throwing it in there in case you had no considered it.