Thinking of selling after 10 years

Morning all

Appreciate your input on our situation

Young family both 35 with two children aged 2 and 4.

We purchased our first home to live in 10 years ago in Heidelberg Heights and has since acquired two more properties one in Riverview Queensland and one in Greensborough which is our PPOR.

The Heidelberg Heights home has been rented out for the last 3 years at 450pw and we have a loan against the property at $260k with a current value of $800k.

PPOR us valued at 1.2m with a mortgage of 500k and property in Riverview is rented at $320 with mortgage of $232k and a value of $470k.

We roughly earn a combined income of 180k per annum via our business and we have maxed out on borrow power. We work for ourselves and we have no intention of increasing our incomes any time soon as we value spending time with our kids while they are little.

Our mortgage broker recently suggested that we relase the property in Heidelberg Heights as a security as our LVR is low. Our option now is to sell the property and use the equity and remaining loan to invest elsewhere for better returns. As we lived in the property CGT would not be much or none at all since we are also carrying forward a loss from a previous sale. After selling costs we would have roughly $750k that we would could invest in shares or we are considering allocating a portion to investing in property development as a MP.

Since there is no leverage against the property we feel the equity could be allocated for better returns as our aim is to create passive income that we can eventually partly retire of in our 50s.

With a mindset of never selling I am doubing if it's the right thing to do. Usually I would consider drawing the equity and buying more property but with no servicing available that's not an option. Looking into returns from investing in good high growth long term shares it appears we would be better of and have higher returns compared to the current rental.

Any inputs would be greatly appreciated.
Thank you

 

Nothing wrong with selling if you redeploy funds you can debt recycle and reinvest. Unleveraged property is probably not a good investment either.

One of my clients is doing the same

 

Agree with Terry, in the old days never selling was great but these days borrowing is hard. Nothing wrong with selling and debt recycling. You have a tonne of equity, selling now gives you so many lifestyle options. I will be selling after Melbourne's next growth spurt.

 

The ones I am seeing sell down as also those with a home loan. They are selling to pay that down. Ignoring debt recycling this can save a mint when interest is 6.5% and ease cost of living pressures. Yes later debt recycling is a consideration but at the high costs of funding relating to net yields adn uncertain growth while being smacked with land tax many are choosing to sit on the sidelines. Or at least reduce exposure

 

I don't know these areas, but are you sure you can redeploy the funds and get a better return elsewhere? Pundits are often flippant about this sort of thing. It's harder than it sounds.

I wouldn't sell. If your LVR is low, accumulate another perhaps.

 

She said she had no borrowing capacity.

My thoughts. Is Riverview a unit? I'd probably sell a unit before selling a house on land. Refinance Heidelberg Heights to pull equity for another IP or share investments. (Just google mapped it, it's towards Ipswich so it's probably a house)
If it's a house, then I'd sell HH.

 

Thanks Terry. Good to hear I haven't lost my mind hehe.
I always read your replies in the FIRE forum and here so really appreciate your input.
Thanks
Angelica

 

Hi Ian.
Appreciate your comment. Definitely reinforces the decision after always hearing people saying they regret they ever sold. Perhaps because they didn't reinvest the money. When do you think the next boom cycle will come around?

 

Hi Paul
Thanks for your input. I can really relate to this strategy of selling a IP to pay down a home loan. It definitely helps with peace of mind. We would look into reinvesting as we are comfortable with paying our home loan on our PPOR of 500k. Can I ask - Do you have many clients that invest in property development as money partners? I am currently looking into this option and the returns are great. Although a bit risky

 

Hi John
Our borrowing capacity is maxed out so we can't leverage the equity but I am fairly confident we can get a better return in the share market compared to the rental income we are currently getting.

 

Hi Gockie

Really appreciate your input. The Riverview property is a house with good land value. Heidelberg Heights is also a house with land although both properties are in lower socio economic areas.
I think we are leaning towards selling HH as per your advise. The tenants is looking to rent closer to his work and it might be a good time to sell when the property becomes vacant.

 

Selling one property can also allow you to restructure existing loans to improve serviceability and potentially allow you to borrow more than before as well

 

“We would look into reinvesting as we are comfortable with paying our home loan on our PPOR of 500k”

Sorry bad at quoting you here, but wouldn't you pay down the non deductible 500k and redraw separately for investment following the usual advice so the ppor loan will be repaid and the redraw of it becomes deductible?

I have sold over the years for various reasons including renovating new PPOR; help cover capital losses; and to pay off PPOR debt, also to overcome the constraints of lenders as we couldn't borrow more. I have not regretted a sale as the money has been redeployed and grown in other assets. We did not ever use the money to fund non investment purposes, Also freed us up to buy even better properties without PPOR non deductible debt. Go for it….

 

Structuring/tax considerations aside —
As a mum of 3 and prop investor like you
1/ you’re sitting pretty with no real problems
2/ I’ve often done creative things that involve selling one and swapping for 3 etc and in the end all that effort is generally identical to just holding onto the solid ones I had to begin with
3/ doing nothing is rewarded in property
4/ melb about to boom esp Land - hold onto that HH it’s a good area for huge boost
5/ with a 2&4 yo you can now just focus on them for 5 years instead of your investment portfolio

 

Every time I think about selling something I then think about what I'd replace it with. Then I remember that by selling & replacing I'll loose a lot of money to selling costs, CGT & purchasing costs. As a result I never get around to selling.

I do actively pay down debt which improves serviceability over time.

 

Thanks Terry. Thats really good to know.

 

Thanks Vicki. That's a really good point and something we definitely need to discuss with our accountant about making sure the debt is tax deductible when reinvested.

 

Hi Poppy

Thanks for your input. Your are right that doing nothing is definitely the easiest thing to do and holding long-term is well rewarded. My main concern is that the property is no longer leveraged and as far as I know without leverage our return on our money would be better invested in blue chip shares. Of course if a big boom is coming then property may be better of. Just out of curiosity What makes you think Melb is about to boom?

 

Hi Peter

Thanks for your input. We have considered all the costs involved. In our case there would be minimal CGT as it has been our PPOR for 7 out of 10 years of ownership. We are also carrying a loss from a previous property so its likely that there would be no CGT. buying fees would only be applicable if we buy property with the money which is not the intention. Its likely to be invested in high growth shares giving us better dividends compared to the current rent. Selling costs are definitely a consideration as its never cheap to sell real estate. Definitely hard to decide, but appreciate your input.
Angelica

 

Ten years in for property investing and your at the hump, you’re about to break the camels back.
Years 20 and 30 are where your real gains will show themselves.

don’t forget to manage small rental increases annually?

in my view you’ve done the hardest part, if you plan to live off investments at 50, you could combine debt recycling on your current portfolio which over another 15-20 years could also be a sizeable amount without needing to sell down.

Given your loans will be reducing (assuming P+I) rents will be increasing, hence debt recycling can also increase proportionally each year in parallel.

You’re in a good position with low LVR to really get your strategy planned out in more detail and go hard for the next stage of life.

there are forum members who plan these strategies for folks like yourselves, daily!! Spend some time / money talking to them perhaps before you embark on the next stage of your journey.

well done BTW, keep up the good work.