There is a myth in Australia that property is forever. I have no idea why this came about or where this came from, but it seems to be in the DNA of Australian property owners. wHeregroup’s Todd Hunter says it’s about time we all shook off our ingrained fear of selling.
The fact is, if selling a property is part of your Game Plan and there is a legitimate reason and a real benefit to sell a property, then sell. Now obviously you should only sell when the market is ripe when you can maximize your profit.
But what reasons are there to sell? Cameron’s story will help illustrate how “selling for a reason” can make real sense for even the most true blue Aussie investors.
Cameron has been a long term client of wHeregroup, but when he first walked through the office door it certainly wasn’t all roses. Cameron literally had a shoe box full of receipts in hand and needed some very serious help. Cameron had owned eight investment properties in the past and his paperwork was a mess. His portfolio at the time consisted of three properties: his home and two investment properties.
So Step One was to walk Cameron down to a local accountant to get his finances and taxes in order. After some extensive bookkeeping and tax return adjustments, Cameron and I now had some figures to work with to put a Game Plan into Cameron’s head that was simple and made sense.
That plan included selling two of the three properties he owned. Why? Well, by selling these two properties, Cameron could get close to paying off his home loan and put himself in a very comfortable financial position, with a budget that left room for him to spend some coin on his passion for buying and selling small boats.
Now, let’s be clear that the Game Plan didn’t simply consist of selling and paying down his home loan. It also entailed replacing those investment properties with a new batch of properties. But why sell if you’re going to simply buy more properties?
To reduce the non-deductible debt (home loan) with tax-deductible debt (investment loans). And, of course, that’s what he did – with wHeregroup’s help!
Now, Cameron could have kept those two investment properties and borrowed against the equity to further invest in more cash flow positive properties, but this would have taken many years to get him in the same financial position. Even if he had 4 investment properties that were $100 per week each cash flow positive, it would still take 10+ years to pay down the $220k lump sum he put onto his home loan after selling his two properties.
The plan doesn’t stop there!
wHeregroup have now helped Cameron with another 4 investment properties, all in different locations - two being in QLD and two in WA. Since all four are cash flow positive Cameron can concentrate on paying off the last $50k of his home loan.
This is where the strategy now changes to buy and hold. Cameron’s current portfolio is made up of properties that he can keep long term. The increasing rents will over time be enough to create a healthy passive income that can replace his current salary.
We are sure he will build his portfolio some more along the way, and as long as they are cash flow positive his plan can continue - but in an accelerated fashion.
So as you can see, the strategy of selling off some of his portfolio makes sound financial sense for Cameron, and he will continue to benefit from that for a long time to come.
Todd Hunter
is director, buyer’s agent and location researcher for Sydney-based wHeregroup.
t: (02) 9544 5554, www.wheregroup.com.au
