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Should i Sell?

Discussion in 'Business & Startup Investing' started by Triu, 27th Dec, 2006.

  1. Triu

    Triu Well-Known Member

    Joined:
    1st Sep, 2006
    Posts:
    161
    Location:
    WA
    Hi i want to sell my IP and invest in a business. The only trouble is that the business with my wife is overseas. Should i sell my ip and pay the taxes and invest what is left or should i redraw the equity my only problem is serviceability of the loan.

    any ideas anyone!
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
    4,619
    Location:
    Sydney, Australia
    I think it comes down to a cost-benefit analysis ... do the sums ... how much can you reasonably expect to get from the sale of your property after all selling costs and CGT ? What would the likely return be on that money invested in the business ?

    How much will it cost you over the next few years in interest if you redraw the equity instead ? How much capital growth / income from the IP are you expecting over that time ? Don't forget to take the tax benefits into account ?

    It may well be that the cost of the extra equity loan is outweighed by the returns you can get by owning both the real estate and the business.

    If servicability is a problem - consider capitalising part or all of the IP loan interest over the short term - if you expect the long term growth from the property will outweigh the short term benefits from selling.

    Of course, don't forget to take the risk of the business into account.

    If the business fails, you would be left with a large loan on your IP with little or no income from the business to service it.

    I'd sit down with your accountant and go through the numbers for the various scenarios to see which one makes the most sense.

    If possible, I'd try and hang on to the real estate - but if it adds to much risk to the equation, and you think the business will get you the best overall returns, then selling the IP may be what you need to do.
     
  3. Tzaki

    Tzaki Well-Known Member

    Joined:
    20th Sep, 2005
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    72
    Location:
    Canberra
    PLease remember that 80% of small businesses fail (go bankrupt, are sold or de-register) within the first 5 years of operation, and a second 80% fail in the second 5 years.

    In general businesses are a higher risk than property, but with the potential of higher returnsas well, you need to do MUCH more due dilligence if buying a business, and make sure you are looking at the audited books!!!:eek: Ignore any mention of "under the counter cash" as it is unverifyable.

    If your DD checks out then you need to weigh up the pros and cons of the busines vs the property.

    Personally I got into and out of a business (it did not perform to the figures presented, ever!!) and it only cost about $50K, but my property portfolio saved me from any real hardship. I am now using that loss to offset against profits from some JV wraps.

    So, in my case, having the property as backup I was able to wear the loss as it was 2003/04 and the portfolio more than made up for the losses!!!

    The business was to have been the cash generator to offset holding costs of the portfolio... I now use Navrainvest for that!!

    Talk to your accountant and financial planner before making any firm decisions, and get the books and any equipmnet audited/valued indipendantly (MYOB statements are easy to dummy up, and need to be verified by other evidence!!). Oh, and make sure that your advisors know the field that you are looking at investing into!!
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

    Joined:
    9th Jun, 2005
    Posts:
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    Location:
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    Good post Tzaki.

    My main advice to anyone looking to invest in a business is to listen to your advisors !!!!

    If you don't have good advisors who are experienced with small business, I suggest you get some - before you invest !!

    When I invested in a business a few years ago, mine told me not to invest (for what I now see to be very good reasons) - but of course I ignored them ... all I could see was the dollar signs. Now all I have is a tax deduction :rolleyes:
     
  5. TryHard

    TryHard Well-Known Member

    Joined:
    17th Aug, 2005
    Posts:
    863

    "Should I stay or should I go now...
    If I go there will be trouble,
    If I stay it will be double"

    I believe The Clash got it wrong and in fact the trouble is double if you leave quality property :)

    You can always work out ways of making a business work without digging into equity or future growth from your property ... honest. I've been on the bones of my proverbial but never let the business erode the property sid eof things.

    A great business can make you a lot more income than even the best property portfolio, but let it earn its own keep :) Get creative Triu, but keep your properties if you can IMHO.