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Should I sell?

Discussion in 'General Property Chat' started by Bran, 19th Sep, 2015.

  1. Bran

    Bran Well-Known Member

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    Had a phone call out of the blue today with a cash offer on a house.

    Inner/mid ring Brisbane. It's a good offer. (I've edited details).

    Reasons to sell:
    - Ongoing maintenance (wooden house)
    - Major construction next door may make it hard to get a tenant
    - Yield likely to fall due to construction, ageing house
    - Was a PPOR very recently i.e. no CGT
    - No tax benefits with ongoing negative gearing (I think maybe $5k negative a year)
    - The house will be the lone stander between one (coming) 3 story development on one established one-story development on the low side
    - I have no experience to develop it myself.

    Reasons to keep:
    - It's a good developable >600m2 block in a suburb that has relatively boomed the last 2-3 years
    - No available land, only tear downs.
    - Brisbanes position in the property cycle
    - No need to sell, no issues with cash flow.
    - Entry/exit costs to get into the next one
    - Maybe one day I will do the DA


    Help?
    My current strategy was (is) simply to bide some time whilst my attention is on other ventures, lower LVRs with increasing capital (I'm very highly leveraged - like 90%+) and pay down non-deductible debt before purchasing again.
     
    Last edited: 19th Sep, 2015
  2. Natedog

    Natedog Well-Known Member

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    Sounds like either way you will do well keeping or selling.

    Whats your gut telling you?

    Do you need the $$$ right now for any other venture that could return more $$$?

    Would be a good way to reduce non deductible debt as per your last paragraph.

    Good luck deciding :)
     
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  3. MsAli

    MsAli Well-Known Member Premium Member

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    Have you considered if you did a DA what would it be worth? Saw an example in Western Sydney (Parra surrounds)..

    800sqm duplex site, 600k in July 2013
    Sold with DA in April 2013 for 755k --> Person developed and sold both.
    Now just the land with DA is worth $1.1m

    One side has construction, what do you have on your other side? Is there a possibility you may be stuck between two massive builds?

    If you can still develop either way, I would look at the end value with DA.
     
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  4. D.T.

    D.T. Adelaide Property Manager Business Member

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    Why not develop yourself?
     
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  5. FireDragon

    FireDragon Well-Known Member

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    I will keep it if the growth potential is good.

    - Major construction next door should only be a short term issue .
    - How much is the on-going maintenance? Is it possible to do a minor renovation to reduce the maintenance issue and increase the yield?
    - I won't worry too much on negative gearing if the growth potential is good and you don't have cash flow issue and it won't affect your investment strategy.
    - You don't have to develop it now. You can wait until you are ready to develop. In fact you may be able build more if the FSR increases in the future.
     
  6. MTR

    MTR Well-Known Member Premium Member

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    For me it would be a keeper regardless of growth.

    As mentioned OP, don't need to develop now, but what you can do today/now is find out what you can do with the land to maximise your profit.

    I have on sold to a builder with DA (approved plans and permits) and it can be very lucrative, low risk and quick turnover of profits. They are not making land anymore.

    Doing the same at the moment in Melb (plans and permits and on sell), builders/developers want ongoing projects and some do not have the time or want to risk going to council.

    MTR:)
     
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  7. Kinnon Bell

    Kinnon Bell Finance Broker

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    If you cashed in and sold it would you get a better return elsewhere than you would holding it?
     
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  8. Bran

    Bran Well-Known Member

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    Hi all, thanks!

    As to the questions,

    My gut doesn't know! My gut maybe tells me to realise the profit and sell it, and buy something brick and robust that will just tick along. This is a far more risky house on a hill, which in recent years has made good.

    I don't really need the cash. I have tiny equity that I could put to use elsewhere, but to be honest I'm not in a hurry and was just biding time whilst I work on my business. My LVR needs to come down, and I was happy to do this with time. My salary is improving all the time, so serviceability getting easier. The non-deductible debt should be able to be debt cycled over time without selling, as I know have big business expenses that can do this instead.

    MsAli - there are no DA comparables, but I have priced a DA. I have zero development experience, I don't cope too well with that sort of stress (I need to be in control), and I don't have the cash for a development project.

    There is construction pending on one side, the other side is already built out into 1 bedroom units, quite old, but I can't see it would be worth pulling them apart just to build fancier ones. Plus they are all individually owned. We are two stories higher than this block, but the new block will be one story higher than our house.

    Ongoing maintenance is not huge - the house is wooden and exterior needs a paint. It needs new front stairs. Inside is renovated, and fine - almost nice really, so yields are max in terms of minor renos.

    If I cashed in and sold, I'd be starting from scratch with a buy elsewhere. And I'm not a savvy investor - I think I got lucky with this one. I'd perhaps consider a BA. Ive always bought PPORs then moved on and kept them.
     
    Last edited: 19th Sep, 2015
  9. fols

    fols Well-Known Member

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    Aunty Marg would say unrealised gain is worth more than realised gain.
     
  10. Bran

    Bran Well-Known Member

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    Why would anyone say this?
     
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  11. JDP1

    JDP1 Well-Known Member

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    @Bran
    Don't sell. Hold onto it...
    If you needed the money, had better plans for use of the money, or of the place had limited CG potential in the near future eg southbank/Docklands in Melbourne... Then id sell it. Otherwise, hang onto it.
     
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  12. HUGH72

    HUGH72 Well-Known Member

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    Extracting the equity for future purchases is worth more than cash in hand after paying agent fees to sell and stamp duty to purchase again although in this case there is no CG tax so it alters the equation slightly.
    The market is likely to strengthen further and you could miss out on future growth.
    As others have said it comes down to what else you would do with the money and how the negative cashflow affects your budget. Thats the key.
    It sounds like the property is well located and inner city land will only become more valuable.
    If it was me provided the cashflow situation was okay I would hold and look to develop down the track. Really long term is when you will see the compounding growth so I would hold.
     
  13. Bran

    Bran Well-Known Member

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    Ha ha ha. This went right over my head. Of course!

    If someone were asking me, I think I would tell them to hold.

    EXCEPT, the CGT free is tempting, and EXCEPT there is a major development of 40 units across the street, which might temper demand for more.

    (The crux of the dilemma might be the lack of an overall strategy, except for an end goal is a 'comfortable retirement' and a leg up for the kids.)
     
  14. Bran

    Bran Well-Known Member

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    If I'm honest, this purchase was probably more luck than beating the developers to it. I don't like my chances of necessarily picking a good property to replace it.
     
  15. JDP1

    JDP1 Well-Known Member

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    I Would not be tempted by CGTexemption as a driver to sell. In say 10 years, yes you might have to pay CGT then but the compounding growth of property will far surpass the value of CGT.

    Also regarding your second point, additional supply of 40 units.. C'mon...this ain't Docklands in Melbourne... The market, which is rising as @HUGH72 said can accommodate that meagre supply addition.
     
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  16. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    From a risk management perspective, de leveraging and taking a profit won't send you broke esp the cgt free status.

    There are many a sub question here other than the simple and obvious core data.

    Are you like many of my clients that suffer from regret of what may have been. Many of us can't get closure on decisions that were 99.8 % fine with the data we had at the time but......

    Time and further data training research and variations of the ether showed that decision to be poor

    Many will be fine with it, for many others it will dull their future risk profile and grey out other decisions that they were quite capable of making.

    Ta

    Rolf
     
  17. Bran

    Bran Well-Known Member

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    Yep. But I think you might already know this ;)
     
  18. Bran

    Bran Well-Known Member

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    Good point. There is lots of densification, but nothing on the scale of the inner suburbs.
     
  19. wylie

    wylie Moderator Staff Member

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    We are in a similar situation. We had a plan I was working towards with our DA. I've been thrown completely by an early offer, which is nothing at all similar to the original plan. The bait is that the offer is good in many respects (higher price than normal for the BA block) but not so good in others (lower offer on the house in front). The upside is we may not have to spend as much as we would to continue down the path we are on. The downside is we also miss out on the gain we could get from the house.

    Builders are spending right now, looking for land. If we hold too long, that may change, and we will have four years to start the build or sell. My head is spinning, hence my sudden desire to gather figures now.

    My first thought when I read your question yesterday was "why sell, hold on and it increases in value" and "why sell, pay commission (maybe not if private sale?) and then pay for buy in costs on something else?".

    Sleeping on my dilemma overnight, I've woken this morning thinking I'm being manipulated by this developer wanting things "his" way and I'm investigating and stressed over it. I've woken much more calm and still will do the numbers (as we could make good profit on this offer).

    However, I'll continue doing the figures on our plan. The costs we "may" avoid by going with this offer we will lose some of by selling two lots in one financial year and the CGT involved. Plus, we lose the growth in Brisbane.

    I'm unsure if the growth in Brisbane (fingers crossed) is a different beast to the market that seems to be there right now for developers. When the market rises, the developer who wants our block now might not want it. But I guess then we can do the build ourselves.

    No easy answer Bran. Has sleeping on your dilemma clarified anything?

    I've regretted every time I've sold, even though I know at the time we really had to sell to pay debt.
     
    Last edited: 20th Sep, 2015
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  20. Bran

    Bran Well-Known Member

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    I'm less inclined to sell today - but your thoughts are exactly mine. The house is only valuable for the block. If developers get cold feet, then Ill lose big time. But... I can't really see this happening over the long term. Even if I don't develop it for a decade, its still going to be in demand.

    But I imagine cash smells so good. I wouldn't know.


    Edit: I think the crux of it is this: can I do better elsewhere? Unlikely. And the profit is a years good gain, highly possible in Brisbane.
     
    Last edited: 20th Sep, 2015
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