Why You Should Never Sell a Property

Discussion in 'Investment Strategy' started by Arecaceae, 10th Oct, 2021.

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  1. Arecaceae

    Arecaceae Well-Known Member

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    As long as we only buy investment-grade property, a buy-and-hold strategy is arguably the best for property investing. We can earn passive income through the rental income on the property and use this cash flow to pay the mortgage along the way. When you liquidate any investment-grade property, you lose both passive income and capital growth. We only do so when a better opportunity arises or our circumstances change. Otherwise, we only buy and don't sell.

    I'd like to hear your thoughts on this.
     
  2. boganfromlogan

    boganfromlogan Well-Known Member

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    what about when you retire?
     
  3. sash

    sash Well-Known Member

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    I don't think so.....most people will never get the CF from properties to successfully retire unless they pay most of it off.
     
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  4. Sackie

    Sackie Well-Known Member

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    There's no 1 best strategy for all. If I hadn't sold down some over the years to leverage into larger deals/business ventures, I wouldn't have been able to grow as fast.

    Depends on your strategy, stage in portfolio progression, goals, risk tolerances etc.

    The biggest mistake you can make is thinking 1 approach is best.
     
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  5. Cousinit

    Cousinit Well-Known Member

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    The term investment grade is a thing that Yardney talks about quite a bit in his books etc. I think he says only about 2-3% of realestate is investment grade. I don't agree.

    The time I think to sell a property is when you can use your capital more wisely. Sure, buying and holding for the long term makes good sense as well.
     
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  6. Beano

    Beano Well-Known Member

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    Great move .:p
    You will find the cashflow (even after paying taxes and principal) beyond your ability to spend and you will have to resign your job early as there so many tenants to manage and so many things to do with the profits.:D

    After you retire you will find the banks love you and encourage you to buy more properties.:p

    I loved the day when I told my bank manager I now pay the tax department more than I pay you (in interest)

    My major regrets are selling .:oops:
    If I held everything I brought I would have 71 properties now . (Instead I only have 65):(
     
    Last edited: 10th Oct, 2021
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  7. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent Business Member

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    I broadly agree with the initial statement.

    Of course, there are caveats, including 1) what time frame are we talking about and 2) are the loans IO or P&I (the outcome of which might mean that the only exit strategy is selling.

    But I do generally agree that buy and hold, with a renovation or two along the way, is the best standard strategy.

    There are more advanced strategies that introduces more risk, but also requires more competence that most investors don't have (timing, renovating, flipping etc).

    But ultimately, even the flippers have to have a buy-and-hold component of their portfolios. And my guess is that the buy and hold component is probably the best performing part.
     
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  8. LP7

    LP7 Well-Known Member

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    All else equal, buying and holding will always be superior if not for any other reason than avoiding transaction costs and efficiency losses.
     
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  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I used to think that, bu after a client I had sold a few of her paid off properties to invest in shares, and get double the income overnight, after CGT, and less hassles, I changed my mind.
     
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  10. heartsproperty

    heartsproperty Well-Known Member

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    I agree that is the best property investment strategy there is. With the caveat that when the house gets so tired it’s not longer a good investment to hold, it’s time to cash out for the capital gain so someone else can build a brand new investment on it, unless you are young enough to see that through its 50 year life.

    You mention renovating/flipping, which tbh I think is an urban myth. I’ve never seen it done successfully or sustainably with anything better than a hobbyists ROI. Transaction costs are simply too high.

    One mistake I see a lot of people make is conflating investing and developing, which while they use the same vehicle, are very different strategies. One is an asset class with an exceptionally long term view, the other is a business with the shortest term view possible.
     
  11. wylie

    wylie Moderator Staff Member

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    @Terry_w did your client invest into some sort of share fund, or direct shares? We are tempted to look at selling one or two houses and do the same. Lower the land tax, maintenance, tenants, rates, insurance etc.
     
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  12. Ruby Tuesday

    Ruby Tuesday Well-Known Member

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    Just because most people get conned by spruikers and noisey majority and buy properties that give insufficient yeilds for sustainable growing income and liquid assett growth doesnt mean you shouldnt or cant do it. Buy and hold is a good strategy for a large majority of propreties. There will be times when selling can make sense, a couple of properties will be duds or the type that have become undesirable. Some will have high yeild compression selling an 800k property to get a 400k one giving same returns and investing the other 400k in income producing assetts to increase servicability and access of more capital . Selling can make sense where cost base is low because of claimed depreciation before depreciation becomes a real cost, or when that gem in a very tightly held location you have been wanting to buy for a decade pops up. You can also sell to take advantage of a low income year and low tax rates. I have sold 5, two were to get superior properties before they deteriorated, One was the first RIP I bought made the mistake of buying because of the nice garden, sold it for 50% gain bought 2 blocks sold 1 before settlement for 25% gain. Developed the other. 2 I sold on the face of it looked like a mistake missed 200% gain in 6 years, but I transferred the loan and put half the funds in shares and had 400% gains and kept half in LOC for buffer, which I was prepared to use to buy another property but I didnt need to use it , the bank gave me a 150% loan because of increased equity, increased rents and dividends from the shares.
     
    Last edited: 10th Oct, 2021
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  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Index funds.

    But this is not something i advised on.
     
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  14. Ruby Tuesday

    Ruby Tuesday Well-Known Member

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    Well their not investment grade properties then.
     
  15. sash

    sash Well-Known Member

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    I have enought yield...but I am also exiting out of higher maintenance properties as these are invisible yield thieves...;)
     
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  16. MTR

    MTR Well-Known Member

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    stop making sense
     
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  17. sash

    sash Well-Known Member

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    Maybe..but over time some also become bluechip....so when you buy thing for say 400k...with say 500pw...and then later on becomes a 1.5m asset with 800pw return and a 20k land tax bill...therein lies the issue. You get growth...but very little income....after expenses may only 10-15k.

    By selling I am focusing on decent yields but CG will outgrow yield income. Even if I not debt and I have say 13m worth.....the yield may only be 500k on say 18 properties say expenses are 7k each that is about 130k...still a nice 380k income....offset by a depreciation bank of say 150-200k .....that is where I am heading...this is outside of ETFs. Not many people think through this...they just keep acquiring....without a strategy let alone an exit strategy.

    Of you are assuming that common sense and emotion are not big anchors against selling property...a lot will not pull the trigger. This current is classic example...a lot of people expecting more and more....at some point the cow will stop producing milk....then what?
     
    Last edited: 11th Oct, 2021
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  18. bonchovies

    bonchovies Well-Known Member

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    @Ruby Tuesday what determines whether a property is investment grade?
     
  19. Cousinit

    Cousinit Well-Known Member

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    Usually the cow will get dried off before her next calving with about an 8 week spell unless she is empty and will be sold to the meat works:p
     
  20. Car tart

    Car tart Well-Known Member

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    I call BS unless you are an inexperienced property buyer.

    This is a myth, just like the three most important things are Location, Location, Location.

    We (Real Estate Agents) made this up to sell more punters bad property.

    If any of you guys were around in the late 1970s when Agents started formulating these catch phrases you would realise the big con they play on the less educated market.

    A few points to consider;

    Today’s layer is tomorrow’s boiler. I can actually tell stories of properties that had waiting lists of future tenants for 40 years then because of X happening they now have a 30% vacancy factor.

    The buy and hold theory enriches mortgage brokers and the department that collects land tax. If you are a passive investor it may suit but property should be turned over after it has hit a peak “that favours your property” as it is CGT effective.
     

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