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Living on equity: To sell or not to sell?

Discussion in 'Real Estate' started by KITCH01, 29th Jun, 2008.

  1. KITCH01

    KITCH01 New Member

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    IPSWICH,QLD
    Hi,
    I have 5 investment properties (2 are duplex pair) plus my principle place. I own my principle place (worth 600k) and have around 400k of equity in the 5 investment properties. My issue at present is that I have recently taken a package and begun working in my "dream job", however, I earn considerably less than I used to. To cut a long story short, I have a slightly negative cashflow at present but around 130k available equity in LOC and redraw facilities...which at present cashflow rate would last 10 years. I can also easily obtain more LOC's to cover future lifestyle needs. I would like to say to my wife she can stop working and have done all the calculations on what we can "go backwards by" each year and still be comfortable but I would like to keep our cashflow as close to neutral as possible. Is it worth selling one property to achieve this (on my calculations one sale would be enough) or should we hold onto it even though it would mean increasing debt? I know which version I am most comfortable with but am interested in other educated views. Thanks.
     
  2. Billv

    Billv Getting there

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    I'd keep them.
    Remember that your rents will be increasing every year
    by between $2500 and $5000 and your income will also be increasing
    so your situation will improve over time.
    Where are the properties?
    Cheers
     
  3. KITCH01

    KITCH01 New Member

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    Location:
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    Thanks Bill. I agree. The investment properties are all SE QLD, ie Surfers, Coomera, 2 in Bundaberg and one in Bargara. Paul.
     
  4. Billv

    Billv Getting there

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    Sounds good.
    Also, interest rates IMO have peaked and they could also come down a bit next year.
    Cheers
     
  5. Jacque

    Jacque Team InvestEd

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    Realistically, how much cash (after cgt and other costs) is the sale of this property going to provide and will this make a significant difference to your plans?
     
  6. TryHard

    TryHard Well-Known Member

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    Unless any of the property didn't meet your original fundamentals, I wouldn't sell unless you needed cash for life-saving surgery or a date with Angelina Jolie (after which, you might need medical attention anyway :) ).

    Too expensive to replace later and as the guys mentioned there will be appreciation even if not as exciting as the biggest of the boom time. I've sold property prematurely in the past when 'uncertainty' was approaching, and am now at least a couple of $M worse off 15 years down the track :( The 'uncertainty' was all survivable but I panicked. Enjoy the growth :)
     
  7. AsxBroker

    AsxBroker Well-Known Member

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    Sydney, NSW
    STOP, DON'T PANIC!

    Panicking is a wealth destroyer! Though so many people do it...

    Hi TryHard,

    I had a client this morning in a super account. Her Australian share fund had dropped 8% from 31st May 07 to 31st May 08 (which wasn't too bad as the Australian market has dropped about 14% or so). We had a look at her 5 year return which was 17% pa, including these last 12 months which had sustained the loss.

    She realised that the 8% drop wasn't a big deal as she still got a return of 17% pa over 5 years!

    Cheers,

    Dan
     
  8. Jacque

    Jacque Team InvestEd

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    Along with it's cousin, BOREDOM.
    After all, it's really not that exciting holding property. So many investors get itchy feet after a few years (especially if the property in question has appreciated) and look at selling to trade into something else... like shares :)
     
  9. D&K

    D&K Well-Known Member

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    KITC01,
    Sounds like you're moving towards 'transition'. Much is written about accumulating wealth via property, but there's not so much about how to convert it to a retirement income. It used to be easier when negatively geared property turned positive in a few years; the latest average I heard recently was 14 years to turn positive. All depends on what / where you buy.

    Some say sell half the property to pay off the other half, then live off the rent, which sounds like what you are starting to look at. Others say draw down on the equity (extend the loan) because the equity value will continue to increase faster than you need it too - noting that loans for private use are not tax deductible.

    I'm looking to draw down equity, invest (mainly via Navra), and then use the distributions / dividends as income (you get taxed on those anyway, and all the loan stays tax claimable). It's not a quick process though. I guess by the thread title "LOE", that's what you've been looking at.

    Personnaly, I've got some time to go. But forecasts of 21% growth in SEQ & BrisVegas over the next three years will keep me holding. ... doesn't sound too BORING :D but I know exactly what Jacque means.

    Dave
     
  10. BanjoSmyth

    BanjoSmyth Member

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    Hi KITCH01

    Sounds like you have done a great job with your investing and you dont need anyone's help :) Well done, I wish you all the best with your Dream Job!

    Cheers Banjo
     
  11. Bundy

    Bundy Active Member

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    Kitch01

    If you hold your properties and live off your equity for another 10 years, imagine what your portfolio will be worth then!:) Even in another 5 years.

    You have done all of the hard work. Sit back and let your properties do some work for you now. You just have to monitor your cashflows and adjust your mentality to that of "living off equity".

    Over time, the properties will continue to grow and rents will increase.
    You know what you are doing, don't follow the sheep mentality.

    Best of luck

    Bundy
     
    Last edited by a moderator: 3rd Jul, 2008
  12. KITCH01

    KITCH01 New Member

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    Location:
    IPSWICH,QLD
    Thanks to all that replied. I have confidence in what I am doing and you have all confirmed what I already believed. Holding is something I find exciting but tests my patience...not necessarily boring and is dependant on the market. I am happy to hear what may be happening over the next few years. In response to one comment, the sale of one property, even after cgt ect would reduce my negative cashflow to approx. neutral (if i OR my wife stopped work) but as most of you have commented, the benefits of holding outweigh the sale and I can deal with a change in mentality to reap the reward. Thanks again and good luck to everyone.
    Paul.