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Sell or hold investment property
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#1 back*again

Posted 19 April 2012 - 10:16 AM

After some opinions on this, I've taken all figures out.

We own an investment property in a mining town (obviously this is a high risk investment).  Rents were sky-rocketing up until a couple of months ago.  We have made other financial commitments with the assumption we would be receiving at least $AA/week in rent.  It would appear now this isn't going to happen.

The housing market in this town tends to fall quickly, and rise just as quick.  After the GFC hit it was less than 12mnths before it was booming again.  Things affecting the price of housing at the moment; over supply of houses, local industrial action and employers capping the rent subsidy to employees (the rent is quite large, just about every one in town is provided housing by their employers).  I don't know how long this could last for, or how low prices can go.  I have enough savings for about 12mnths, if prices don't come back up by then, we're in trouble.

We put the house on the market, although it isn't peak time.  While I do believe prices will come back quite quickly, I don't believe they will sky rocket as much as they did before.  I ran some figures, we need $x amount to sell the house, pay off the mortgage, pay the REA, and cover the expenses the high rent was going to cover.  Or we need $y amount to cover all that, plus buy another IP somewhere more stable.  The REA initially told us she could get $20k more than $y, but called yesterday with bad news.  At this point it doesn't look like we could get $y, although $x is still achievable.

DH doesn't want to sell an IP and not be able to buy another, as that would be moving backwards.  I tend to agree, but in the back of my mind; what if houses prices fall badly and we're stuck with a house that's not worth a cent, thinking we could have walked away with enough to cover all our debts and financial obligations?

So, would you hold out for $y, or settle for $x?

Edited by back*again, 19 April 2012 - 10:17 AM.


#2 threelittlegems

Posted 19 April 2012 - 10:26 AM

I don't ever believe in selling an IP and not buying another one.

I also don't really like mining towns as investments because they are volatile.

If you have a plan of where to reinvest the money, and you can get out without losing money I would consider it.

But not if you don't have a plan on where to reinvest the money to achieve your goals.

I will also send you a PM with something to think about.

#3 back*again

Posted 19 April 2012 - 11:14 AM

QUOTE
I also don't really like mining towns as investments because they are volatile

Not really the point, but the house was bought to live in years ago when we moved out here.  After we moved out of the house we thought we might as well take advantage of the high rents for a few years before selling.....now just have to decide when to sell.

QUOTE
If you have a plan of where to reinvest the money, and you can get out without losing money I would consider it.

But not if you don't have a plan on where to reinvest the money to achieve your goals.

Yes, if I got enough money to buy another house, I do have a plan on what to do with the money.  However, as I said above, it doesn't look like I can sell it for enough money to buy another place.  I can get out of it debt-free though, just wondering if I should take that option.

#4 Ruf~Feral~es

Posted 19 April 2012 - 11:41 AM

Have you factored in Capital Gains tax?  If you are making a large profit, it may be a considerable amount which, when combined with the stamp duty of buying a new property, may make it worth holding on until prices go up?



#5 IShallWearMidnight

Posted 20 April 2012 - 02:00 AM

personally if this town is fairly cyclical Id wait until prices went higher then sell, to cover costs and buy another investment properties.

#6 TwiceTheWoman

Posted 20 April 2012 - 02:28 AM

Be honest with your appraisal of the situation - what are the chances of rental demand going up?
As above, don't forget capital gains tax when you sell + stamp duty when you buy.
Although I'm not wild about investing in flats or units/apartments, it may be worth your while picking one up close to a major CBD, with as low a number on the block as possible - that's if your cash will allow.

Try to get out of debt (bravo if you are!).  We're holding our breath over Spain and continue to watch China.  Luckily China's demand for our commodities, helps keep our economy buoyant.


#7 daisydo

Posted 20 April 2012 - 02:57 PM

Difficult decision OP.

Depends on who you talk to about the real estate values. Some say up and others say down. If only we had that crystal ball!


QUOTE (TwiceTheWoman @ 20/04/2012, 02:28 AM) <{POST_SNAPBACK}>
Try to get out of debt (bravo if you are!).  We're holding our breath over Spain and continue to watch China.  Luckily China's demand for our commodities, helps keep our economy buoyant.


My thoughts were that the Chinese economy is slowing. I am sure I read something about that a couple of weeks ago in the Southern Chinese paper.

#8 Guest_Retro_Mumma_*

Posted 20 April 2012 - 03:02 PM

Depends on what mining industry and what town.


#9 howdoyoudoit

Posted 20 April 2012 - 03:10 PM

My hubby sells to the mining industry and overall they are on a downturn. Not a boom right now and a lot of companies working staff on min hrs etc.... hard choice but I wouldnt have an investment prop in a mining town,way too volatile

#10 TwiceTheWoman

Posted 20 April 2012 - 03:12 PM

QUOTE (daisydo @ 20/04/2012, 02:57 PM) <{POST_SNAPBACK}>
My thoughts were that the Chinese economy is slowing. I am sure I read something about that a couple of weeks ago in the Southern Chinese paper.

^^^We're watching overseas postings closely as we trade our own super fund and are currently heavily in the international market.  The GFC isn't over yet.  We are not prepared to be complacent and are concerned over Spain with 50% unemployed under 25yo.
It still may pitch over to us with the domino affect coming from other countries.
.........all hinged on the Glass Stegals Act being repealed.  I recall watching the pomp and ceremony and thinking what the heck are they applauding for?  This is not good!  Hence sub-prime collapse - guaranteed inevitable disaster. Yadda, yadda.
I'm telling all my children (all in late 20's), stay out of debt for now, save as much as possible and put into high yield accounts.


#11 whydoibother

Posted 20 April 2012 - 05:31 PM

capital gains tax is something to consider.

#12 back*again

Posted 20 April 2012 - 11:35 PM

Thanks for your thoughts original.gif  I have considered all buying and selling and holding expenses in my calculation.  Due to the 7yr rule, we won't be paying CGT.

#13 PlatinumFF

Posted 21 April 2012 - 07:55 AM

QUOTE (back*again @ 20/04/2012, 11:35 PM) <{POST_SNAPBACK}>
Thanks for your thoughts original.gif  I have considered all buying and selling and holding expenses in my calculation.  Due to the 7yr rule, we won't be paying CGT.


I am of the understanding that no capital gains are paid on a principle place of residence. CGT is in deed paid on investment properties. The 7 year rule means that you have 7 years whereby you can claim the house as a PPOR to some point. CGT will need to be paid for the period that the property is classed as an investment. Ie you purchased the house in 2000 and it was a rental from 2000-2008. Any capital gains made during that time will trigger CGT. From 2008-now the house is a PPOR, you would need to have had the house officially valued and any gains made from 2008-now would be excempt. If the property is held for over 12 months, you get a discount on CGT.

I would strongly suggest that you speak with your accountant as I think your comment about 7yr rule and exception of paying CGT is incorrect. Your accountant should be able to explain the CGT rule with you, specifically relating to your circumstances.

#14 whydoibother

Posted 21 April 2012 - 09:58 AM

agree with PP.

ETA Just found this CGT calculator too http://www.yourmortgage.com.au/calculators...ital_gains_tax/

and you have to have paid land tax at some point as well.

Edited by IAmCal, 21 April 2012 - 10:08 AM.


#15 back*again

Posted 21 April 2012 - 10:03 PM

QUOTE
I would strongly suggest that you speak with your accountant as I think your comment about 7yr rule and exception of paying CGT is incorrect. Your accountant should be able to explain the CGT rule with you, specifically relating to your circumstances.


Thanks, but I am fully aware on the in's & out's of CGT.  I did not post this thread asking for a finance lesson.  I went out of my way to leave figures and dates out of the equation.  I'm asking for general opinions on risk level and what we should be happy to "get out" with; i.e. cover debts and obligations or also be able to buy another place.

QUOTE
and you have to have paid land tax at some point as well.


wrong again

#16 Wyn99

Posted 21 April 2012 - 10:16 PM

Tricky. Obviously noone can predict the future but I would get out now, debt free, then borrow to invest in a more stable location.

PS. OP people are only trying to help,
QUOTE
I did not post this thread asking for a finance lesson


#17 back*again

Posted 21 April 2012 - 10:21 PM

QUOTE
Tricky. Obviously noone can predict the future but I would get out now, debt free, then borrow to invest in a more stable location.

PS. OP people are only trying to help,


Not an option.  We cannot sell the place for enough to cover the deposit, buying and holding costs else where.  It's either hold and  hope, or sell and forget about it.

I realise people are trying to help, but firstly their advice is wrong, secondly irrelevant (even if it was correct).  I never asked about land tax or cgt

#18 Ragdoll*Lover

Posted 22 April 2012 - 09:39 AM

I would probably sell it for X.

I am of the opinion that the CGT rule is 6 years, not 7.

#19 PlatinumFF

Posted 22 April 2012 - 02:41 PM

QUOTE (back*again @ 21/04/2012, 10:03 PM) <{POST_SNAPBACK}>
Thanks, but I am fully aware on the in's & out's of CGT.  I did not post this thread asking for a finance lesson.  I went out of my way to leave figures and dates out of the equation.  I'm asking for general opinions on risk level and what we should be happy to "get out" with; i.e. cover debts and obligations or also be able to buy another place.



wrong again


Thanks for the condescending post and on that note, I hope you get hit with a lovely tax bill!

For the record, a very close friend is a chemical engineer in the mining industry and has close business relationships with mining execs but as if I would share that information with you, of all people.


#20 whydoibother

Posted 22 April 2012 - 02:47 PM

well the place mustn't be worth much then as most states will hit you up for land tax for a place that is not your primary residence.

I think you are just a tight wad who doesn't want to pay for financial advice.

#21 Lees75

Posted 22 April 2012 - 03:00 PM

QUOTE (IAmCal @ 22/04/2012, 03:17 PM) <{POST_SNAPBACK}>
well the place mustn't be worth much then as most states will hit you up for land tax for a place that is not your primary residence.

I think you are just a tight wad who doesn't want to pay for financial advice.


The property could be worth a fortune. The OP is still able to claim it as her PPOR for 6 yrs, provided she hasn't purchased another property that she lives in.

Edited by Lees75, 22 April 2012 - 03:02 PM.


#22 kez71

Posted 22 April 2012 - 03:37 PM

id sell it and cut my losses..there are still cheap areas to buy another property..i live in gippsland Vic and theres plenty of houses less than $200,000..even some less than $100,000..my area is on the up due to RAAF and TAFE expansions..a good area to invest

#23 back*again

Posted 22 April 2012 - 04:47 PM

QUOTE
For the record, a very close friend is a chemical engineer in the mining industry and has close business relationships with mining execs but as if I would share that information with you, of all people.

WTF?   blink.gif  Why do I care who your friends are??


QUOTE
well the place mustn't be worth much then as most states will hit you up for land tax for a place that is not your primary residence.

Maybe before responding you should check out land tax laws in different states.  For example, there is NO land tax in NT at all.  In Qld, you only pay land tax when the unimproved value of the land is over $600k.


QUOTE
here are still cheap areas to buy another property

Thanks, but as I said before that simply isn't an option.  We cannot afford the buying and holding costs for what the place will probably sell for.

QUOTE
The 7 year rule means that you have 7 years whereby you can claim the house as a PPOR to some point. CGT will need to be paid for the period that the property is classed as an investment.

Curious about what on Earth you mean??  In your opinion you can only claim a house as your PPOR for 7yrs, even if you live in it?  

Although, as other PP pointed out, it's a 6yr rule, I hit the wrong key earlier.

#24 back*again

Posted 22 April 2012 - 04:54 PM

QUOTE
I think you are just a tight wad who doesn't want to pay for financial advice

Oh this one made me literally  roll2.gif

I NEVER asked for financial advice, and after the responses I'm seeing here I worry about anyone who does try to get it here.  I never brought up CGT, a couple other PPs.  I never brought up land tax, another PP did.

Try reading the OP again.  I left out all figures and date in a deliberate attempt to avoid financial advice.  A simple question of how much risk/reward would most people be willing to accept.  Hoping for a few different opinions with this.  Instead, people have ignored the OP, tried giving wrong advice regarding tax laws and repeatedly told me to invest elsewhere.  I clearly stated I had done ALL the calculations, and cannot avoid to buy elsewhere atm.

#25 Gangnam Style

Posted 22 April 2012 - 05:17 PM

QUOTE (Lees75 @ 22/04/2012, 03:00 PM) <{POST_SNAPBACK}>
The property could be worth a fortune. The OP is still able to claim it as her PPOR for 6 yrs, provided she hasn't purchased another property that she lives in.


Surely if a property is considered a PPOR for CGT purposes, then none of the tax benefits of investment property apply? if so, then why is the OP calling it an "investment property"?

Surely you can't have it both ways?




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