Selling rental

[gannets]

Hi
We brought our 1st rental as a long term investment about 18 months ago. It is a 3bed house in a good area of Napier, and we paid $125000 for it. With the way prices have gone it is now valued at $250000 and our accountant has said to us to sell and take the gain.
We have just let it to a couple who we know and they intend to stay for the long haul. ( we are getting $230 a week). Our problem is that to replace it, you can not find any decent rentals now with the right incomes.
Question. Do we sell and take the gains or sit on it for the long haul and get more gains.

Gannets

[orion]

Firstly, I would change accountants.
Secondly, I would ask you why you would even listen to your accountant - is he/she an investor? Do they derive most of their income from investing, or from bean counting?

Question. Do we sell and take the gains or sit on it for the long haul and get more gains.

Sell - no. What would you do with money - buy another property and hope it goes up in value too - or spend it all?
I think the best thing you could do is sit down and work out what your long term plans and strategies are for your future. This includes how much income you want from properties, or by the sounds of it - is it really what you want to be doing? What you are suggesting to do is unfortunately what many investors do (although I wouldn't say most on this forum) - they buy property, get some gains and turn their cash into trash. Many others will lose money beacuse they expect their properties to keep going up in value, so sell at a loss several years down the track - they usually go interest only too which is a sure sign that says to me they are planning on their property values to increase. Only a very few property investors ever make it a business that they can receive long term income from.

Regards
Graeme Fowler

[Monid]

Contrary to Graeme, I might sell depending on a couple of things.

The first is whether you have paid off your own house. If you haven't I would be sorely tempted to sell to pay this off outright if you can.

I also might sell if I had some idea or way to reinvest to make more money, perhaps there is another area nearby where that $250000 can make you more money.

On the whole though I would be cautious of selling a good investment, the price is unlikely to drop hugely, especially in the long term, so you can afford to hold it, see if you can find better opportunities then put in offers conditional on selling your current rental property.

Cheers David

[orion]

The first is whether you have paid off your own house. If you haven't I would be sorely tempted to sell to pay this off outright if you can.

Why??

I also might sell if I had some idea or way to reinvest to make more money, perhaps there is another area nearby where that $250000 can make you more money.

Such as what??

Regards
Graeme Fowler

[murray-spi-investments]

Buy it , Keep it. Lever off it and buy more. Most investors have got stories where they sold properties and made a profit and then 5 or 10 yrs later wish they kept then . I very much agree with Orion re keeping. The only caviet would be if it is returning a very low return ir 4% or less in which case you really have to question the potential for capital gain.

I have aslo taken profits in my early days and have regretted it years latter. if you are going to buy a similaer property in the same market then what is the benefit?. If you want to sell like Olly Newland and buy back when things are lower (if you can time it right) I still question the benefit of a 10 to 15 % discount if you are holding for the long (think 10yrs +) term. Much better to keep what you have got, ride out the storm - if one eventuates and then have the equity to jump in when you are ready.

I have flip flopped for the past 12 months re selling as my gains have been so strong buy am now firmly in the hold camp. All my IP are positive geared and if they go down a bit, so what, the same thing happended in 1997/98. I will wait a few years and then buy up large.

[pixie]

I have been involved with property over 15 years. Bought and sold not always through choice (divorce is a wonderous thing).

My advice is - own property to achieve the income off so that you can live off said income. Then you have financial freedom.

Why sell now? I can't see the benefit. Leverage off it if that is worthwhile and doesn't leave you topping up mortgages. Or wait for the good buying and then leverage off it. Otherwise have a glass of bubbles to celebrate your good fortune at having purchased well.

I always worry about low returns on values being over stressed - does it matter if it is only returning 4%? Frankly I doubt it because the facts are you only paid $125k for it so your return on investment is still truthfully way above that plus the tax benefits plus the future earning power once it is freehold. Hey its all good news - congratulations.

Try not to be a Noodle - Buying and selling equates to speculation and your accountant should have told you might end up being taxable if the tax man sees too much of this. Plus your accountant is scary - I think you need an accountant who understands property investment.

[Jaberwoky]

My advice is - own property to achieve the income off so that you can live off said income. Then you have financial freedom

.

Thankyou pixie- That has really struck a chord with me.



Jab