To Sell or Wait?

Yeh but who knows where the market will be headed? Short term probably at best stagnant, at worst probably dip even more.

 

Geez will a no brainer...at their age...get rid of it.

The market in Sydney (assuming this is where it is) is going no where...

 

Ditto ...100% agree...ya beat me to it!

Not sure if it is in Sydney....

 

Learning from the best eh!
Doesn't matter where it is. take the money and enjoy your life.

 

Yep property or rather ip is in Sydney, but they live in Vic.

To be honest said ip is decent but would seriously need an update. 50s BV - they've done next to nothing bar a very tiny spruce up (floor boards, paint work and a bit of tiling in the showers). 2 Bedrooms plus study at $380 a week. So that's $19500 less Council Fees is $6,000 from memory and land tax is $3k based on what they've told me.

The strange thing they actually did consider selling in 17 and that was the peak but wanted to get into another commercial ip at the time. It was the land tax increases that actually tipped them over to consider selling it.

 

I would be looking at what the after tax cash realises. Then also consider a strategy for super - Maybe not both members but at least one.

 

Wow $380 pw...they are left with about 7k after insurance, repairs, and management fees...not worth it.

But on the otherside...they are going to have about $1.1m in CG....after CGT 50% discount they have about 550k added to their incomes. Assuming 47% plus 2% medicare they are up for 110k each in tax. If they can pay interest in advance on other properties they would get this down further.

 

That's what I've pretty much worked out as well, on paper seems like a good idea to sell.

Just wanted to know if I've missed something.

Thanks!

 

Do it sooner than later....things are going to get rougher...

 

Financial advice is the next action
@Paul@PFI is on the right track
There should be concessions for dropping a chunk into superannuation and various other actions to reduce the tax component.

Based on your feedback I agree selling is best.

Most super funds return as much/more than bank returns.

The remaining balance could be re invested into another IP, this way next to no tax would be payable. @Terry_w tax tips might help with strategy

Lastly, well done for helping them out

 

This is ominous imo for future capital value growth too as there are literally hundreds of thousands of baby boomers in similar position earning 1-2% nett on large property portfolios.

- can’t refinance the equity as their incomes have dropped
- land tax and repair costs kill whatever limited yield you start with
- there are increased vacancies and u compete againstthe flood of shiny new units

The only resi property I would hold into retirement would be
- main road property with exposure and potential for rezoning and/or commercial style rent and outgoings recovery
- developable sites
- something suitable for a home business or leaseback
- and anything their children or grandchildren are happy to move into!

Buy and hold in resi makes sense if you are younger, need tax breaks and want to gamble on growth with the banks stumping up 80% of the cash.

Shares and commercial always provides better income and less bs .

 

Would you (try) and hold on to it as you approach or hit retirement if they were bleeding cash?

 

Hey mate
If its unencumbered you likely won’t “bleed cash”. Unless it needs a major Reno and / or land tax shoots up.

People forget that having a “High net worth” only matters if u either sell, refinance the equity or generate income. its the access to cash (and its flexibility/optionality) and cashflow that makes your life better, not the asset base itself.
Everyone can relate to the example of the pensioner or old immigrant in a mansion that can’t afford a nice meal or holiday

What happens (my parents have experienced this) if you don’t manage your asset diversification well is a slow, stagnant decade of low growth and no income. It’s Pointless

Run the numbers. Sell, pay some cgt, dump into super if possible, generate 7-8% tax free, the power of compounding works equally well with reinvested income (either to acquire more income producing assets or pay down non deductible debt) even better than compounded “paper capital gains”.

7% income reinvested in a decade mean so u can still almost double your money. Plus enjoy a good stress free lifestyle... Or u earn 1% and hold a growth asset in the hope of leaving your children a huge asset base that they fight over when you are departed

Take Your pick. No right or wrong answer.

 

Yeah all good points. I need to make some hard decisions if I don't intend working till 65. In my late 40s now and theoretically in a position to retire but utterly confused on what to do despite being in the game for 20 years - how many should I keep/sell, which ones to let go etc. Everytime I think I've worked it out, I come up with a contradictory scenario.

Basically, a lender/s that can see the merits of my LT strategy and 'override' the serviceability constraints will make things a lot easier for me. The make up of my property portfolio is pretty good with lots of quality in it - all metro props in Syd and Brisbane in particular, and mostly houses. But as you've alluded to in older posts, resi is not a good income generating strategy. Without IO, it's hard to get anything to work, yet it's a no brainer if you can stay on it.

Referring again to one of your older posts, is private banking a possible means of being treated differently and offered exemptions compared to the masses?

 

Hey lacrim,

I feel cost of living pressures and rising life expectancies will mean most people can’t afford nor want to retire fully .

But I know what you mean. common dilemma sadly. Private banking may help get slightly cheaper rates and more flexible loans (ie. u can sell a prop, and hold the facility open for a year or 2 while find a suitable sustitute) but I am pretty sure the credit and servicing parameters are the same as in retail loan assessments.

Australia is far too egalitarian. Our banks don’t really do asset based lends and our tax system prevents inequality getting entrenched.

The best strategy i worked out was
- make parents directors of businesses which children are running so income stays high to meet servicing.
- dump cash into super, find commercial
Property, set up bare trust and gear it (labor want to stop This).
- keep working a bit for your pocket money and use investment income to sustain/grow family
Wealth. Full Time retirement sounds overrated anyway

 

Thanks this is GOLD!

I've run a situation with them mock up of the next 5 years starting 2020.

Situation 1:

Sit and do nothing, keep the $9k CF +ve per annum but assume no repairs. Assume Land Tax decreases after 2 years and they manage to somehow get back to $13K CF +ve numbers in the next 3 years. Also assume no additional repairs/maintenance bills.

Situation 2:

Sell at 1.45mil and assume net dollars earnt at payout is $1.24mil after tax and fees and do nothing (well, lets say at the very least park $ into banks) assume 2.8% interest a year over the next 5 years. at the end of 2020 they've probably got $1.416 mil assuming they save and put $10k back a year into the lump sum at the banks.

So now lets pretend in end of 2024 they decide to sell:

If the property is sold at

Market dips below 2019 levels:

1.2mil (market dips) to this point then they would be $260K better off
1.3mil = +180K

Market is stable or roughly at 2019 mark:

1.4mil (more or less the same price they would have sold 5 yrs earlier) = +110K
1.5mil = +10K better off.

Market over and above 2019 levels:

1.6mil = -90K worse off.
1.7mil = -190K worse off. This was probably at peak levels at mid 17.

Overall:

On paper, if market holds true as to current and based on my purely simple raw calcs seems a winner to offload now. Practically based on Brissy and Perth markets whilst not the same as Sydney's I really can't see it recover past the $1.5mil mark.

But my 2 cents I don't see the market heading North any time soon but at risk of probably a 5% decrease.

The problem is selling to my uncle, older Asian values - house brought him a lot of "luck" during the years he ran a business as well as seeing the value of house prices rocket. Added to this is the sentimental value....

 

Willister.. Mine are asian too . All the ethnic parents are the same
Keep fighting the hard battles my friend

I’m not a doomsday merchant but the days of easy buy and hold capital gains are over imo. Capital gains are an abstract concept anyway. Income is concrete, solid, spendable and secure.

A lot of asian societies are seeing a massive
Shift of capital away from property into term deposits and shares . Because the yields there are even worse than AU.

I hope AU doesn’t go the same way as we all have a vested interest. But In India for example, property is down 30% despite enormous economic and population growth. Why?? Term deposits pay you 8-9% and the rental yields are 1% and investor demand has collapsed. Young people save a fortune by renting.

The saving grace in the English speaking West is high Immigration, low inflation, clever governance and lack of investment alternatives!

For my dad it was the realisation that he couldn’t fund the land tax and $30k Reno bill from rents alone and without his son pitching in ... thats finally when he starting listening to me!

 

I really relate to your posts on this thread because the situations are so similar.

I actually have a 'vested' interest in this because this is an older aunt and uncle, my folks would also be in the same position a few years (5) down the track or actually at the moment really considering this possibility as well. Trying to learn from the process as much as possible. My folks are in a similar situation but probably accept land tax is part and parcel of the costs associated with investing, but it did really get me thinking how efficient it is to hold assets.

Asians have historically always invested in property and held it, but the key question was always when to release it. As a kid I always heard from my folks and uncle/aunt never to put in $ into the bank because next to rent it is "dead" money, they always went property goes up but money in the bank will fall due to CPI/Inflation increases etc.

Getting a low yield on a relatively or lucrative asset was acceptable when it was good old capital gains days and not having punitive land tax, but once this came into play....they take notice. Strange really, even at peak times and at a lower land tax value yield on asset was low anyway but people really didn't take notice.

 

The problem with Migrant parents is that they aren’t lifestyle focused or self analytical either. They are hardwired to accumulate for the next generation, never sell assets, and they keep plodding away assuming “life is meant to be a struggle” even when they are far wealthier than the median.

Gently remind them of the end game of why they moved to Australia which is always more income, more freedom and more choices. If your asset mix isn’t providing that, you need to recalibrate.

Good thing is life is getting so much more expensive so their old world thinking is found wanting and they hopefully snap out of it !

 

Good on your oldies! It's really interesting, even my grandparents have/had investment properties, its just been all very quiet, not talked about. My granddad on my dad's side was a very hard worker, market gardening 7 days a week, never taking a break and seeing the family until winter. Also I heard he came over to Australia well before the rest of the family. At that time he worked in a fruit shop. Took 10 years before the rest of the family (his wife and 2 kids) left China.

Not easy, but they succeeded.