Why I'm happy to pay tax

IMHO, I think this is a very simplistic view.

Yields on properties change over time. Something that you buy today that is cf+ on 85% LVR may always be cf+ if you never sell or refinance, however if you do refinance at some point, may no longer by cf+. If values rise in an area, rents rarely keep pace. Yes, they will go up eventually, but it usually takes time. There are always other external forces at play as well. You may be on 4% interest today, but there are no guarantees as to what they will be in the future. Interest rates can play a huge part on the cashflow.

We just sold something that was cf+. It was when we bought it, and the cf has grown over time...we never refinanced this one. It will be cf+ for the new owner as well. Sometimes there are other reasons (other than cashflow) to sell. Sometimes it's a case of selling the dogs. Other times it's selling the properties that are ripe, or have matured (gone through a boom), and its time to move the money elsewhere.

Imagine if your SA properties grew and doubled in value, but the rents stayed the same. Also imagine that another area was undervalued and people were snapping up low cost properties with 8-9% yield. Would you not consider selling one SA property and buying two or three in this new area? Timing the market in this way can be very beneficial.

Before hubby retired, I did up a large spreadsheet for all the properties, putting in the real figures at the time. Then I played around. What happens if we sell property A? What happens if we sell property H? What happens if interest rates rise to X? How about if they go to Y? What happens if rents go up by 10%? What if they stagnate, or, heaven forbid, they go down?

 

Yep...have to agree on this one...the market waits for no one...sometimes it is best to get rid of things whilst you can at the right price even if it is CF+.

I have the same issue at the moment.

 

Okay, a few things here, first: As I mentioned before, the comparison I'm doing here is a binary one, it's either sell and pay down debt or hold. While selling one property to buy another one is certainly an option that should be considered, it wasn't the premise in the post that I responded to and I left it out for simplicity's sake.

The second thing is that I'm not sure that you understood what I was trying to convey: Basically rents and interest rates are actually arbitrary in my examples, they only serve to calculate whether a property is cash flow positive at 85% LVR or not. Whether rents go up along with interest or not, doesn't really matter as long as cash flow remains positive at 85% LVR.
For this 85% LVR figure, this obviously isn't any kind of exact figure, but something that I plucked out of the air as my best guess to what would be left over after your selling costs (including CGT). This should obviously be calculated exactly for each individual circumstance.

You also mentioned that refinancing would make a difference, but in my example, it wouldn't really. When I'm saying LVR, then I'm referring to the property's value, not its purchase price. So whether it has one single mortgage on it or 17 small ones, doesn't really matter.

I'm struggling a little bit to explain what I'm trying to say, in my mind it's quite clear how it works, it's just that conveying it is the hard bit for me.

 

Interesting thing Spludgey is your saying you're responding to my initial post , but at no point in my original post did I raise anything like your scenario , so to criticise others for going " off topic " is a bit ironical to me .

Since when did we only limit replies to the specific details raised in an initial post ?

Cliff

 

While you didn't explicitly state that you were only comparing these two options, you didn't mention any other ones.
I'm not criticising anyone on here (not in this thread anyway), be it for going "off topic" or anything else. I merely pointed out why I was saying what I was saying.

There are a few people that disagree with me and that's fine, we don't have to be on the same page about everything all the time. That's what discussions are all about.

 

Which is similar to what I achieve with NRAS..... I get to manufacture tax free surpluses, reduce non deductible debt with those tax free surpluses, thereby creating equity and borrowing capacity as a result of that debt reduction, AND I get to hold on to the income...