House Not For Sale – Should You Sell your Real Estate Property? - Part 1
API Magazine of Australia examines why some real estate investors try to trade their way to real estate riches… but is buying and selling property really the best investment strategy? This is what Terry Ryder explains in this article. Part 1 of 2.
Sydney property buyers agent Patrick Bright applies the philosophy of American share market legend Warren Buffet to real estate investing. “Buffet’s approach is to buy something he would be happy to won forever. His fundamental question is, ‘if you could never sell it, would you be happy forever?’ “That’s become my focus with real estate. If you follow that approach, you’ll make sure you do proper research and look at areas with future prospects.”
Many real estate property analysts agree. Monique Wakelin of Wakelin Property Advisory in Melbourne says: “Trading is absolutely not the way to go.” And Perth analyst Gavin Hegney of Hegney Property Group says: “If you’ve done your research and bought the right property, you should never sell.”
Gold Coast solicitor Rob Balanda of MBA Lawyers sees many real estate investors make mistakes with their assets because they get bored with them. They sell property assets they should keep because they lack long-term vision. “Patience isn’t a virtue many investors have,” he says. “But it’s a virtue real estate investors need to have to be successful and create wealth.”
Balanda says some residential property investors get too caught up in problems with tenants. They make the mistake of trying to manage the property themselves. Hegney says too many investors in property apply a ‘get rich quick’ mentality and lack a long-term outlook.
He says, “People buy a property, it goes up in value by $50,000 or $100,000 and they think: that’s my vision. I’ll sell and take my profit. And typically they spend it on a car or an overseas trip. “People don’t see real estate investments as businesses. They see them with a terminal life: making a certain amount and then spending it. A good investment is like a business. If it’s a good business and continues to create wealth, why would you sell it?”
Hegney says some sell real estate and properties too soon because they don’t understand the impact of compound interest. “If you have a million dollar asset and it grows 10 per cent, its value is $1.1 million after one year. When it rises another 10 per cent, that’s 10 per cent on $1.1 million, not on the original rela estate property price. By the time you get to year 10, it’s $2.6 million. It’s that compounding effect of property investing that creates the wealth.
“The same thing happens with rental return. With the current rental rates and growth, within five to ten years your rents are well and truly servicing your repayments for a high-growth asset. “In 90 per cent of cases, the most an investment property will cost you is in the first couple of years. After that, your costs should decrease as your rents increase.”
Hegney says in an ideal real estate investment world the only asset people should trade is their principal place of residence. As they create wealth, they can buy a bigger and better home and not be liable for capital gains tax. “But all other real estate property assets you hold forever – unless some drastic change comes to your life.”
Brisbane buyers agent Scott McGeever agrees that the only time you should trade in real estate is to upgrade the family home. “You do that to give yourself a better standard of living and it’s a tax-free ride,” he says.
Real estate investment advisor and author Margaret Lomas says a lot of people trade property assets because they believe it’s the way to get ahead. “But I haven’t seen anyone make a lot of money doing that,” she adds. “And if you do it too often, the Taxation Office will conclude that your business is property trading, which has many implications.
“I knew people who used to do that. After doing it for 15 years, they weren’t very far ahead. All they had was a pretty good house in a good suburb but they hadn’t built up a great amount of equity. They would admit, I think, that it didn’t work for them.”
Imagine if you’d bought the average Melbourne house in 1990 – and did nothing since. You would have paid around $150,000 for the property and by 2005 it would have been worth around $365,000 – providing enough equity to finance you into several investment properties (depending on your ability to service the loans). On the other hand, imagine if you’d sold it in 1992 for the then-average price of $144,000 because the real estate market was taking a caning and property values had fallen in the wake of the bust which followed the boom of the late 1980s. You’d cry every time you drove past it wouldn’t you?
Selling an investment property before buying another means you’re handing a big chunk of your capital gains to government, the legal profession and lenders. Taxes and fees eat a big share of the profits. Bright says buying costs are about 5 per cent of the price – and selling costs include 3 per cent to the marketing agents, 1 per cent in marketing costs, solicitor’s fees and mortgage discharge costs, as well as stamp duty and capital gains tax.
“if you sell and buy again, you’ll blow around 9 or 10 per cent on costs.” Bright says, “You’re just wasting money. It doesn’t make sense when you can save that money and borrow against the property you have to buy a second property. Rather than trading up you’re better off having multiple properties.”
Lomas says a property investor who’s made $300,000 in value growth is looking at $80,000 in capital gains tax if they sell. And Wakelin says: “the bottom line is that property real estate isn’t an inexpensive asset class to get into and out of. So it requires a long term strategy. It’s important to buy the best quality real estate property assets you can and hold them long term.” “When you buy and sell, you’re up for very hefty costs, not the least of which are stamp duty and capital gains tax. Why line someone’s pockets? Line your own.”
For more tips, please read through more articles on Condo Blogger or visit the API Magazine website.
Ever driven past a house you owned 15 years ago, knowing you sold for $150,000 and it’s now worth $500,000? If you have, you’ve experienced one of the reasons why most property analysts agree that if you own good real estate, you should never sell. There are other strong reasons to reject the trading method of wealth creation. The high cost of selling and buying real estate is one of them. So too is the power of equity in creating a real estate portfolio.
Sydney property buyers agent Patrick Bright applies the philosophy of American share market legend Warren Buffet to real estate investing. “Buffet’s approach is to buy something he would be happy to won forever. His fundamental question is, ‘if you could never sell it, would you be happy forever?’ “That’s become my focus with real estate. If you follow that approach, you’ll make sure you do proper research and look at areas with future prospects.”
Many real estate property analysts agree. Monique Wakelin of Wakelin Property Advisory in Melbourne says: “Trading is absolutely not the way to go.” And Perth analyst Gavin Hegney of Hegney Property Group says: “If you’ve done your research and bought the right property, you should never sell.”
Impatience and Imprudent Decisions in Real Estate Investing
Gold Coast solicitor Rob Balanda of MBA Lawyers sees many real estate investors make mistakes with their assets because they get bored with them. They sell property assets they should keep because they lack long-term vision. “Patience isn’t a virtue many investors have,” he says. “But it’s a virtue real estate investors need to have to be successful and create wealth.”
Balanda says some residential property investors get too caught up in problems with tenants. They make the mistake of trying to manage the property themselves. Hegney says too many investors in property apply a ‘get rich quick’ mentality and lack a long-term outlook.
He says, “People buy a property, it goes up in value by $50,000 or $100,000 and they think: that’s my vision. I’ll sell and take my profit. And typically they spend it on a car or an overseas trip. “People don’t see real estate investments as businesses. They see them with a terminal life: making a certain amount and then spending it. A good investment is like a business. If it’s a good business and continues to create wealth, why would you sell it?”
Hegney says some sell real estate and properties too soon because they don’t understand the impact of compound interest. “If you have a million dollar asset and it grows 10 per cent, its value is $1.1 million after one year. When it rises another 10 per cent, that’s 10 per cent on $1.1 million, not on the original rela estate property price. By the time you get to year 10, it’s $2.6 million. It’s that compounding effect of property investing that creates the wealth.
“The same thing happens with rental return. With the current rental rates and growth, within five to ten years your rents are well and truly servicing your repayments for a high-growth asset. “In 90 per cent of cases, the most an investment property will cost you is in the first couple of years. After that, your costs should decrease as your rents increase.”
Hegney says in an ideal real estate investment world the only asset people should trade is their principal place of residence. As they create wealth, they can buy a bigger and better home and not be liable for capital gains tax. “But all other real estate property assets you hold forever – unless some drastic change comes to your life.”
Brisbane buyers agent Scott McGeever agrees that the only time you should trade in real estate is to upgrade the family home. “You do that to give yourself a better standard of living and it’s a tax-free ride,” he says.
Real estate investment advisor and author Margaret Lomas says a lot of people trade property assets because they believe it’s the way to get ahead. “But I haven’t seen anyone make a lot of money doing that,” she adds. “And if you do it too often, the Taxation Office will conclude that your business is property trading, which has many implications.
“I knew people who used to do that. After doing it for 15 years, they weren’t very far ahead. All they had was a pretty good house in a good suburb but they hadn’t built up a great amount of equity. They would admit, I think, that it didn’t work for them.”
Real Estate Property Value Growth Does the Work For You.
Imagine if you’d bought the average Melbourne house in 1990 – and did nothing since. You would have paid around $150,000 for the property and by 2005 it would have been worth around $365,000 – providing enough equity to finance you into several investment properties (depending on your ability to service the loans). On the other hand, imagine if you’d sold it in 1992 for the then-average price of $144,000 because the real estate market was taking a caning and property values had fallen in the wake of the bust which followed the boom of the late 1980s. You’d cry every time you drove past it wouldn’t you?
Why hand your gains to the government?
Selling an investment property before buying another means you’re handing a big chunk of your capital gains to government, the legal profession and lenders. Taxes and fees eat a big share of the profits. Bright says buying costs are about 5 per cent of the price – and selling costs include 3 per cent to the marketing agents, 1 per cent in marketing costs, solicitor’s fees and mortgage discharge costs, as well as stamp duty and capital gains tax.
“if you sell and buy again, you’ll blow around 9 or 10 per cent on costs.” Bright says, “You’re just wasting money. It doesn’t make sense when you can save that money and borrow against the property you have to buy a second property. Rather than trading up you’re better off having multiple properties.”
Lomas says a property investor who’s made $300,000 in value growth is looking at $80,000 in capital gains tax if they sell. And Wakelin says: “the bottom line is that property real estate isn’t an inexpensive asset class to get into and out of. So it requires a long term strategy. It’s important to buy the best quality real estate property assets you can and hold them long term.” “When you buy and sell, you’re up for very hefty costs, not the least of which are stamp duty and capital gains tax. Why line someone’s pockets? Line your own.”
For more tips, please read through more articles on Condo Blogger or visit the API Magazine website.
Labels: Capital Gains, Cashflow, condominum tips, House For Sale, Property Investments, Sell Real Estate, tips for selling, Why Sell?
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