Time to cash out of Sydney and into Brisbane? A case study

Hi all, I seek the valuable opinion of PC members.

Unfortunately I have hit my borrowing limit, care of two IP's in Sydney funded through ING loans.

I am considering selling one of my IP's in the Eastern Suburbs with the intention of purchasing a similarly priced property in a growth area of Brisbane. The advantage I have for selling now is the PPOR tax ruling enabling me to sell without paying any CGT. I bought in 2010 and lived in it for 18 months.

I have a very rough case study with a 4 year window as I think this would be enough time to realise growth in Brisbane and then potentially return to the Sydney market.

Financial pro's

- Eliminate 26k CGT if I sell in the next year (I understand the benefit of this would be diminished by inflation on a long term hold strategy but I'm not sure how else to quantify this)
- capital growth assumption that 750k IP in Brisbane would outperform a similar one in Sydney by 15% over the next 4 years: approx 112k
- difference in current rental yield (3.5% Sydney vs 4.5-5% Brisbane) 20-30k over 4 years

Total pro 158k

Financial con's

- stamp duty again 29k
- burn LMI credit on current loan and potentially pay again, approx 12k
- disposal costs of current property approx 15k

Total con 56k

The benefit of moving 750k from Sydney into Brisbane appears to be approx 102k over 4 years.

Other pro's:

• Decrease exposure risk in Sydney (could work the other way too)
• Sell at top of market
• Expect a quick sale in a strong Eastern Suburbs
• Unlock useable equity and move to a less conservative lender that will do higher LVR than current lender (80% at ING for Sydney IP's)
• Purchase new IP with a greater potential to value add (current IP is very limited scope)
• Use a small portion of sale to ease financial pressure of upcoming wedding... sleep factor

Other con's:

• Pulling out of a blue chip area
• Goes against my overall strategy of never sell
• I may not qualify for the same loan amount again under tightening servicing requirements, meaning I may need to settle for a lesser price point in Brisbane. This will potentially reduce the benefit somewhat. I will have to investigate thoroughly with my broker.

Have I missed anything? Any suggestions?

 

The obvious question is have you really maxed out your servicing?

ING is one of the most conservative servicing lenders and their general policy isn't suited well for investors.

Have your broker consider more generous servicing lenders like NAB, Homeloans (accelerate), Firstmac, etc.

 

I think you have convinced yourself you want to do this and I would agree. I'm guessing what you have in blue chip eastern Sydney is a small unit for that much and there isn't much scope for inorganic growth...and the market is near the top for organic growth.

Not so for brisbane.

750 is a lot in brisbane and can buy more in a blue chip brisbane suburb.

 

I would like to think that I would be ok but yes, I will have to nut it out with the broker. All of my IP's are currently under 80% LVR and I have a strong income. I'm hoping that because I'm not really adding to my portfolio but simply shifting it will suffice.

 

That's right, a small 2/1/1 in Randwick. Nothing inside is really worth replacing at this stage. Another worry I have is that it might be likely to sit on the market a while in a slow market as it doesn't have a balcony/secure parking ect, but in this market hopefully that kind of thing would be more likely to be looked over. This was my first purchase when I was relatively inexperienced.

I'm encouraged by the recent clearance rate in the east.

 

Don't sell, see a decent broker to see where you stand.

 

I have a great broker who has looked at all my options already, including Firstmac. It just looks too tight and expensive at the moment to move lenders. I'm tied up with fixed loans at ING. My bad for not being totally clear to my broker on the aspirations of expansion of my portfolio, ING was a great fit in the beginning. Lots of lessons learned. I would not be able to get anywhere near quality growth suburbs in Brisbane if I were to keep Sydney and go again in Brisbane.

 

A Randwick 2/1/1 is still a great property to hold since you are close to the hospital and uni. There will always be demand there. If I were you I'd be doing my best to keep it, while exploring all options to also buy in Brisbane.

 

Thats a shame, maybe look for a cheaper suburb which is higher yielding and more affordable rather than an inner city Blue chip. This may allow you to continue to expand. I don't like selling but I can see how it could be beneficial but no one knows what future cg will be.

 

Personally I would never sell a Sydney property in a blue chip region like randwick for a short term gain in Brisbane. I think over a 10 year span, the Sydney property in that location will always do better. If you leave the Sydney market, you also run the risk of not affording to buy such a well located property in 5 years time.

I'd keep it and look at alternate finance options to buy in Brisbane.

 

It's a very tough decision knowing how well located it is. The light rail will arrive in the next few years too.
If I sell I won't be getting out of Sydney completely, I do have another IP which would benefit if Sydney kept going up, so at least I am hedged a little.

 

Ok. Where is the other IP?

 

I understand your point..although I question how well a 2 bed unit with no car park can do even in 10 years time compared to brisbane similar suburb but more property . Randwick is a good area for sure, but there are suburbs in brisbane just as good like Bulimba etc. If the unit was in say potts point, I'd hold.

 

Hmmm. I wouldn't be too certain that Potts Point is better than Randwick!

 

G

Good points Foxdan. I guess I am making too broad an assumption that Sydney will flatten for 5 years and that I could walk back in at a similar price. Impossible to predict.

 

Parramatta, the pocket south of Great Western highway.

 

@longhaul I haven't read all your posts in detail but why cant you just extract the equity and invest in Brissy then?

 

....hmmmm as much as I like Parramatta.... I'd sell that over Randwick!

 

Agree here!

 

I would have to pull 2x IP loans out of ING and pay fixed term break costs, plus burn LMI credit and start again. A very expensive excercise. This is because ING will no longer lend above 80% LVR on Sydney property loans.