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When to sell an IP?

Discussion in 'General Property Chat' started by mimosa, 5th Jan, 2016.

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  1. mimosa

    mimosa Member

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    What are people's thoughts on when to sell an IP? The usual scenarios seem to be long-term hold or develop, and that makes sense from a strategy point of view, but what about for an 'accidental' IP?

    Scenario:
    2/2/1 townhouse purchased brand new as PPOR for a single person 9 years ago
    Property became an IP 2 years later when the single became a couple
    Current tenants about to vacate, which brings the simmering 'should I sell' issue to the surface

    The property is not one I would intentionally buy as an IP (not that I am a property person, shares are more my thing). Rental return after expenses and deductions is very low. Reasons for keeping the property initially were a combination of 'fallback' / reluctance to let go, and diversifying my investments away from shares. I have now emotionally moved on and don't see myself ever returning to live there, but the second reason remains valid.

    Rental return does not justify keeping the property. Capital growth has been good, but how much further can this run? Is there a sweet spot for selling in terms of the age of a property? (I realize this time may have already passed).

    If I sell I am up for CGT, but of course this will be the case whenever I sell. If I delay until retirement I could possibly pay CGT at 34.5% instead of 39% tax rate, but that is only about $10k-$12k difference so probably not as big a consideration as some of the other factors.

    If I sell, I then have to work out what to do with the money it frees up. Stick it into something I am comfortable with (shares) or toughen up and purchase a 'real' IP or two. That's a whole separate topic!

    By nature, I am fairly risk adverse. I am also at a point where both me and my spouse could lose our (IT) jobs to offshoring and may look to retire. We are almost at a point where we could live off investments etc. We don't have the sort of buffer we would like yet, and it would not be a flash existence (no $100k pa retirement income like some of you talk about!), but it gives a lot of peace of mind. So, not blowing myself up and losing the $ is more important to me than taking risks to make more.

    I'd appreciate some thoughts. Thanks.
     
  2. Azazel

    Azazel Well-Known Member

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    Each property would be different.
    Probably not much help, but you probably already know you need to decide according to your needs if it will perform the way you require or if you can put the money to better use elsewhere.
    I don't think anyone can decide this for you, but it can't hurt to discuss to help you come to your decision of course.
     
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  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Any non deductible debt?
     
  4. HUGH72

    HUGH72 Well-Known Member

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    You mention that rental return after expenses and deductions is low? I assume you mean after depreciation is included considering the property is only 9 years old. Thats only a on paper reduction in taxable income so how does your return look considering actual expenses vs rental income?
    I don't think there is any right or wrong answer here but as properties age maintenance costs tend to increase, I don't personally own anything as new as your townhouse though.
    Many people here like go buy and sell but I prefer to hold and may consider selling a couple approaching retirement but transaction costs to do this are high.
    You mention that you are risk adverse yet have a high percentage of your assets in shares, while this is personal decision I'm the other way around having a smaller share portfolio and a large number of resi properties. I do like the income streams from shares but there volitile nature always limits me from being overly exposed.
    I would consider holding on to this asset personally as it provides diversification and a hedge against inflation, it also depends if you have other loans associated with your new ppor. Income from the townhouse will continue to improve as rents rise.
     
  5. Tonibell

    Tonibell Well-Known Member

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    Selling when in retirement provides some further opportunities to reduce the tax liability.
     
  6. mimosa

    mimosa Member

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    Thanks all. Agreed, in the end it has to be a decision based on the individual property and my own circumstances. It's good to get other people's opinions, though, in case there is something I am not considering or cannot see just because I am too close to the situation.

    Good question Terry - no non-deductible debt. Also good point, Hugh, about depreciation being only a paper deduction. Depreciation is about 40% of the expenses. Genuine maintenance is very low.

    I think I know deep down that a mix of property + shares is the answer for me. PPOR is not a mansion, so not hugely exposed there.
     
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  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Also consider serviceability. If you sell this property now could you get back into another property? With all the tightening up you may not be able to - but you sound like you don't want another property.
     
  8. jpcashflow

    jpcashflow Well-Known Member Business Member

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    I usually sell an IP (like i recently did) when the particular suburb i bought in peaked through the roof. Had a local agent (Friend) call me suggesting he had so many buyers, put it on the market and good really good coin for it.