Why sell when purchase price doubled?

Reading a thread by @sash re melton, sell signal is when property is doubled. Heard more than once that once property is doubled to your purchase price, sell and take profits. Trying to understand the reasoning behind this. sell and duplicate in the upcoming suburbs? Obviously, it depends on personal circumstances, but why sell unless the property is a headache?

PS: below figures are rubbery with lots of assumptions and most likely would have missed quite a few details.

cost base 155 + 6k stamps
sell price=310k
sell costs=5k
CG=145K
taxable CG=72.5k
net profit @47% tax rate=107k

2008
=======
interest rate=7.5%
purchase price=155000
gross yeild @6%=180/wk

(rounding to 6% based on the chart SQM Research - Property Gross Rental Yield - Postcode 3337 )

2017
======
interest rate=4% for investors
purchase price=310000
gross yeild @4.5%=270/wk

 

Sell because you need to or want to, not because some arbitrary number is reached.

 

I had the same query when I read the post. Surely there is more to it than that?

I see all the transaction costs as a major deterrent to selling even when prices double. Why sell? What am I missing?

 

Once it's doubled is a good sign you're at the peak. What follows the peak? Drop then flat line. Sell and put your money into the next boom

Better question is why hold?

 

Im more interested in building up an asset base than taking profits now. But I am open to new ways of making money so I am open to it...not convinced yet...

 

I'm the same. I want to hoard property so in 25 years I can look back and be glad I held. Like those who paid 35k in the 80s and now sitting on 800k. I'd like five of those..

 

Ever heard about opportunity cost?

• The held property might be one of the slowest growing properties.
• The market has already peaked and he is getting good returns on it.
• He might think that his money will grow better in another market.
• ventures
• shares
• building units
• subdivision
• There are better opportunities out there in which he sees better growth prospects, most importantly, equity.
• he is freeing up equity to buy more properties in which he sees better growth.
• Personal Reasons
• etcetera

With such numbers of years of experience, you develop a keen eye on detail and opportunities. It is all about Opportunity cost. Would you need more reasons?

Cheers

 

Yes, putting it on black/red is another option. Its not the slowest as it doubled in 9 years in gross or 8% per annum indicates that it was bought very well as it was well under median in 2008.

Completely agree that melbourne is peaking and might go flat/negative growth in next 5-6 years. CG/annum is 4.8% compounding with rental of 4.5% for last 10 years for melton, I would be happy with that as it as long as it picks up another growth sprut starts in another 7 years.

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 prelim 2016 change change Growth PA
locality Median Median Median Median Median Median Median Median Median Median Median Median 2015-2016 2006-2016

MELTON 175000 182000 205000 218000 250000 256000 250000 245000 240000 255000 280000 318000 10 60 4.8


I would say, if the property is doubled, sell/keep depends on whether you can make more money elsewhere using developing/shares or different states. If you want to be investing in the same city, might as well be stuck with known devil than unknown angel.

 

If the property is badly located and not performing or not likely to perform, then that is a reason to ask 'why hold'.

If it has doubled in 10 years, that seems like more of a reason to ask 'why sell', not 'why hold'.

If you are in the situation where it is located well such that the value has doubled in 10 years and might go through a slump but still do well in the long term, then the value in property investment is the combined effect of leverage, compounding, and delayed tax payment.
If you sell and re-buy, you miss out on the compounding of the unpaid tax value plus the compounding of the selling and re-buying costs. These are significant. That would make me say that in this case the better question is 'why sell', not 'why hold'.

 

Hi Mate,

I think I missed to explain my point.

Opportunity cost: what if in past 2-3 years, there are cheaper properties/ better options which have given 50% and more growth.
It makes more sense to buy more such properties.
80%-100% in 10 years will be good return to you or other newbie investors lime myself. However, a slow growth to pro investors or people who generate 15-35% immediate equity by adding value.

Am I able to explain this in a better way? Frankly, i have invested in such properties so I know options are there. Check this post of mine.

Regards

 

There is no simple answer to say sell when doubled. Some areas are so solid that you may want to hold wealth in the asset long term especially if you have no need to sell.

Much of this stuff is a case by case basis imho and no simple template to suit everyone's approach and goals. I have property i've held since 2003 and super glad I never sold when it doubled.

 

Seems to me "it depends on the strategy".
From what I can see:

• Some smart people fully intended to sell down some high yielders once they doubled in price to make it easier to hold better properties and to accelerate retirement
• Other people sell negatively geared money pits and change strategy - ('missed opportunity')
• Some need more money for their developments
• Others buy a whole heap of random properties - some good, some dogs. To save face, they claim that they sell when the property doubles
• Some are just addicted to buying and selling
• Etc etc....basically, take most of it with a pinch of salt

Like you, I intend to hold so thought about it and planned for the worst and got real about it before I bought. I don't want to expend that much time, effort and money constantly buying and selling - I have better things to do.

 

Selling and rebuying incurs a fair bit of cost, and triggers a CGT event - guess you would have to be confident that you could buy something better to reinvest your money into.

 

What if you buy in a mining town at 200k and 5 years later it is worth 800k, if you think it will keep growing you will hold onto it but once you think it has reached a peak you would sell as it will crash.

Similarly if you buy something for 200k and in 10 years it is now worth 400k if you felt in 5 years it will be worth 450k-500k you would probably consider selling if you think you can buy somewhere else for 400k that will grow to 700k in 5 years as it is about to boom.

However many people get it wrong with prediciting the market, people who sold their place in Sydney in 2015 thinking the Sydney boom was over and moved it to Brisbane have lost out. So for me if you cant predict the market and you have bought good quality stock I just keep holding it as you cannot really predict what the future will hold and holding requires much less effort than sell and rebuy and you keep the change over costs.

 

I guess u r asset rich but cashflow ordinary urself? have u converted to share investing like LIC yet