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To sell or not to sell

Discussion in 'General Property Chat' started by Chill, 2nd Aug, 2015.

  1. Chill

    Chill Member

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    I know that the standard protocol is to hold onto investment properties for as long as possible or never sell but I am considering selling my 2 investment properties to pay off my PPOR. I would then start again with 2 new investment properties.
    My reasoning is:
    1) my PPOR is getting paid off at a slow rate. I have an interest only loan of $480K and an offset account that extra cash is put into for my PPOR. We have not been good in putting extra cash into this offset account so we are not really going anywhere. The IP's have obviously experienced significant capital growth and now we have enough equity in these IP's to pay off our mortgage after CGT.
    2) My partner is very stressed about cash flow and debt. I cannot convince her on the benefits of good debt (debt from IP's)
    3) I am 40 years old now and would have expected to have no mortgage by now.

    Considering my circumstances would you considering cashing in or wait? Will I regret such a decision in 10 years from now? I am still keen to purchase 2 new IP's after ridding myself of our PPOR debt.

    Thoughts?
     
  2. wylie

    wylie Moderator Staff Member

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    The costs involved in selling two IPs and then buy another two IPs are going to outweigh any saving in the interest you pay that isn't tax deductible for your PPOR.

    I would not sell. If you are not disciplined enough to put extra cash into the offset, then look at paying if off the PPOR. Of course, better to keep it in the offset in case the PPOR ever becomes an IP, but if paying it into the loan is what you need to do to stop it being spent, then that is better than tipping thousands away just to clear up the PPOR debt.

    Without knowing the value of the IPs, you could be wasting $50K or more in selling fees and stamp duty to buy back. All you save is the interest that is not tax deductible.

    You can always look at your partner buying some of the IPs from you which makes her loan tax deductible. I think you might not have to pay stamp duty in Victoria, but not sure.
     
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  3. Chill

    Chill Member

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    So I could sell my 2 IP's to my wife and use her payment to pay off the PPOR? Would this be seen as tax avoidance?
     
  4. wobbycarly

    wobbycarly Well-Known Member

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    This can be done and it's not difficult; I "bought" my wife's half of a joint property, as she had stopped working, and we were getting no refund on all the interest. Talk to your accountant, as she still had to pay CGT, and because the property was in Qld, there was stamp duty. For us, in the longer term, it made sense, I think after 3 years.

    Back to the original question, I (we) have sold 3 properties. In both cases, I felt like it was a step back to take 2 steps forward. With the most recent sale, the proceeds have all gone into the offset account on the PPOR, and we have effectively "paid off" our home loan (until the CGT fairy comes along next year). This is a HUGE psychological boost, and frees up some cashflow to now re-invest. I don't have the same challenges you seem to with your wife's reluctance, but in your circumstances, perhaps not having any PPOR debt will convince her that taking on some investment debt is manageable.

    I used to be of the attitude "never sell", but at the risk of sounding corny, everyone's circumstances and risk profiles are different and life throws you some situations that can make you change your mind. Over on Somersoft, I used the signature: "When faced with two choices, simply toss a coin. It works not because it settles the question for you, but because, in that brief moment when the coin is in the air, you suddenly know what you are hoping for." While somewhat unscientific, crunch some numbers, and then do this. :)
     
  5. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    I wouldn't sell.

    If you got problems allocating your excess funds to the PPOR's offset account, why not change it to a P&I loan, that will force you to pay it down steadily.

    The real issue here seems to be, what are you doing with all your excess funds anyway?
     
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  6. Perthguy

    Perthguy Well-Known Member

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    Where are the properties located and where would you buy? If you are selling in a market that is peaking and moving your equity to a market that is in recovery or rising, there is potential to make some good capital growth. Of course you would need to select your new properties carefully, do your due diligence and all of that, but you have the potential to get a better return on your investment if you move into a different market. I think this is a legitimate strategy and one you should consider. However, exit and entry costs will eat away your profits, so these will need to be factored into your decision.
     
  7. jpcashflow

    jpcashflow Well-Known Member Business Member

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    Hi,
    Selling a property is not a bad idea!!!
    I sold one of my investments and I paid off my PPOR, bought some shares which i recently sold and bought another property in a area that is growing.

    We are in business and if you can sell a property for a good gain sure go ahead and just ensure the funds are used in a productive way :)
     
  8. Chill

    Chill Member

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    As my 2 investment properties are under my name only, does this mean that I could sell both properties in full to my wife? It seems that transferring the loan from myself to my wife will avoid selling costs through an agent. Any other savings?
     
  9. Chill

    Chill Member

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    My properties are located in Frankston and Frankston South in Melbourne. Haven't considered where we would buy next. Maybe QLD.
     
  10. Chill

    Chill Member

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    Like many people we tend to spend whatever we earn. Maybe P&I loan is the go to force paying off the PPOR. Still will probably take us 20 years to pay off the PPOR.
     
  11. Perthguy

    Perthguy Well-Known Member

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    Personally, I think your plan has potential. Of course you will have to keep monitoring both markets, but it appears Melbourne maybe reaching a peak soon, whereas QLD might still have some legs. I would certainly consider it. I am currently investigating cashing out my Melbourne IP and moving my money to the Perth market.
     
  12. Debz

    Debz Member

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    I wanted to start my own thread but thought the questions are similar. So i am in the same dilemna, have pretty much decided to sell one IP in Melbourne that has made some good gains over the last year and another also in Melbourne that is a lemon. My wife has stopped work this financial year and I was thinking this move would allow us to pay little CGT due to all the above factors. Properties are 50-50 joint ownership. Will then reassess market and buy again in couple of years. Thoughts?
     
  13. Perthguy

    Perthguy Well-Known Member

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    With an unknown impact of the latest lending changes, I think timing will be tricky. Myself and my parents are looking at cashing out of Melbourne in spring this year. Wait for the property market to pick up but not too close to Christmas. But then Feb/March next year might be a better time to sell. Who knows?