Why I'm happy to pay tax

If you're so happy to pay it you can pay mine for me too if you like!

 

I'm happy to pay them . As long as I get the profits ( if you're making any …)

Cliff

 

thanks @See Change I enjoy this thread too. drawing equity is like gambling on future cg... to me debt is debt but no choice at the moment and have to keep going till got to one point, then will definitely consider this strategy.

 

I see tax considerations as secondary to whether it is the 'right time' to sell. No point holding a lemon or an asset you can get a premium price for just to minimise tax.

Having said that, I think you also need to be looking to minimise/delay any tax paid as far as possible. Also to be conscious of the lost opportunity of that slice of your equity forever gone to the tax man.

 

Not saying debt is a bad thing.

At the moment I probably have more debt than most members on the forum ( of those who are active investors ) , but probably have more equity than most and a lower LVR than many.

Cliff

 

I couldn't agree more Seech, but....I wouldn't say I'm HAPPY to pay the tax. I'd rather keep ALL the CG & not share it with the ATO but paying it and reducing debt is much better than not paying it & keeping the dept.

ALL my properties were cf+ prior to selling down. If you've got significant CG, and enough properties, selling down some & putting the CG into an offset on the others makes a HUGE difference to the amount of cashflow.

As above....I even sold a block of 4 units for $380k that were returning $640pw, because it made sense to do so.

Agreed!

I've got a nice big CGT one sitting on my desk ready to pay. I'm more than happy for you to pay it for me. I've already taken the pesky profits, so you don't need to worry about any of that.

 

In that case, they may have been cash flow positive that the LVR they were at, but not at an LVR of 85%.

Here is an example:
Let's say that you have two properties for simplicity's sake, each worth $400k an each with a mortgage of $200k. If either of the properties was sold, you would end up with $170k in you pocket (the 85% that I keep referring to).
Again to keep it simple, I will assume that interest rates plus all other costs are 4% and my rents are low because I've subtracted all other costs from them.

Have a look at these two calculations, one at $200/week per property and one at $300/week per property. You can see that in the low rent scenario, you're much better off selling from a cash flow point of view, where as in the high rent scenario, you're better off keeping both.

 

provided that cg of both properties is constant over the time

 

good point.

 

I think its great and a constructive thread and that is what a property forum should be about.

At the end of the day the more we know/learn the better chance we have of succeeding.



MTR

 

I'm a bit of a hoarder but agree that selling to deleverage at the right times can be very effective. I sold one of my Gwelup project around the Perth peak and reduced the 1.8m debt to 1.5m with a val of 2.1, paid $72k in tax (CGT + GST) and produced income to live off for 2yrs.
At other times, especially during the accumulation phase, it was more beneficial to hold and access equity than sell.

 

This doesn't even look at capital gains (except attributing some proceeds of the sale towards CGT), it's purely looking at the cash flow before and after selling a property. The graph is all a snapshot in time, it's just comparing different levels of rental income and shows that the point at which the cash flow will be the same for selling an keeping is somewhere just below $300 a week.

I do agree with you though that capital gains is something that should also be factored in when looking at selling. As a general rule, the larger the asset base, the larger the capital gains (yes, yes, I know not all assets increase at the same rate, but I'm simplifying).

If you do want to look at time, I've done a comparison of rents at $250 (the mid point of my previous two examples) and you can see that you've initially got almost $2000 more cash flow by selling. However, after five years, the cash flow for the larger asset base catches up. Plus your equity is obviously much better now.





I'm not trying to say that you should never sell, I'm merely pointing out that you need to look at this decision very carefully before making it. It might determine the cash flow for the rest of your life.
So have a look what would happen if you delayed selling, would you likely be better off in the long run? If so, keep the property, but if not, sell it.

 

I'm happy to pay tax too. It means there are profits

 

Whats Tax??

 

Don't think of it as taxes, think of it as guillotine insurance.

 

Completely agree, and capital gains tax only applying to 50% of the gain if held for over a year makes it very attractive - particularly for a highly leveraged asset, where return on equity may be extremely high.

 

If you are buying in a Trust and operating as a business then its 30% tax and tax on 50% of the gain does not apply.

MTR

 

I can't wait for the day when I am paying at least $1M in tax.

The sooner, the better!!

If Labor gets in and they remove NG, it might be sooner than I had hoped.

 

Kieran, There doesn't seem to be a "I Like This But I Wish I Didn't" button, but if there was, I would have clicked it.

 

A thought provoking post, Spludgey. My wife and I are in the process of running scenarios on our portfolio with the view of reducing debt and increasing cash flow to be able to reduce our working hours. Not an easy job. There are many factors to consider in building the scenarios, including interest rates, fixed loans and break costs, properties with LOC's set up against them that we don't want to loose, best performing properties, etc, etc. In our case, selling 4 and keeping the rest produces the best outcome at this stage. Its interesting to see that if we sell down further, the cash flow only increases by a few thousand dollars on an annual basis, but in the process, we will have sacrificed future rental and capital growth in the portfolio.

I'm happy to post some scenarios once I've triple checked them for accuracy!