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**drelly** · 07-02-2005, 11:34 AM

Well.... you'd be risking a developers tax bill or a fine if you don't declare it and then they say you owe money. Even if you didn't pay tax, you'd only make 38k. Could you get a 14.8% return elsewhere with the money?

**Nobleone** · 07-02-2005, 11:44 AM

Hi Dave,

It's the 14.8% that is making me stop and think... It's a nice return and as I said there has never been a problem with the property from day one..

I go for the long term buy and hold stratergy...

Can you expand on your comment ...

"you'd be risking a developers tax bill or a fine if you don't declare it and then they say you owe money"...

Surely deciding to sell one property from your portfolio does not make you a developer?

Cheers, Nobleone.

**grotto** · 07-02-2005, 11:44 AM

I agree with Drelly

If you don't need the money, you'll just end up with a problem (what to do with the $), and who likes paying tax?

It sounds like it's worth hanging onto, given it's never been empty.

**drelly** · 07-02-2005, 11:49 AM

The problem is that you only bought it in September... it makes you look like a developer/trader.

The thing is that you'd only have a problem if the IRD decided to audit and someone disagreed with you about intent.

Personally, I'd keep it. If you want long term income, why would you ever consider selling it unless you could at least replace the cashflow?

**MiniMogul** · 07-02-2005, 07:21 PM

removed

**RentMaster** · 07-02-2005, 08:06 PM

If you sold it, would you use the money to purchase another property? If you did, then it might cost you 80K to purchase that other property if other places in the same area have a similar price. i.e. if you are buying and selling in the same market, then you wont be gaining much.

But you would know the market in that area better than I would. Just a thought.

**Monid** · 08-02-2005, 06:21 AM

I tend to concur with Andrew, why sell the property unless you can buy a better one. Maybe you should scout around, find a new property you want to buy then think about selling if it seems worth while.

**drelly** · 08-02-2005, 08:21 AM

I have to disagree with what some of Mini says... it's not up to your accountant to figure out whether or not you'll be pinged as a trader... the line is far too grey for him to say yes or no so definitely. Either way, it's your risk, not his.

I suspect that you may get away with it once but what happens if you find yourself in the same situation and sell after a short time again? Your ice would be getting thinner...

And yes, while you would get many years cashflow out of it, could you replace the return you'd lost? I think it's best to stick to your reason for purchase otherwise it makes the structures that we put in place to protect ourselves worthless.

**Nobleone** · 08-02-2005, 09:05 AM

Hi All,

Thanks for your many thought provoking replies.

After much number crunching I have decided to keep the property as I can not guarantee to get the 14.8% return elswhere, I can access the CG to use as a deposit for another NZ purchase and I know that this property is in good shape with nothing needing doing to it.

I think initially I was only tempted by taking the cash as a way to pay down some of my PPOR debt.

That's what's so great about this forum, many different views from people who have no ulterior motives, giving people like me the opportunity to look at things from many angles.

Cheers, Nobleone.

**fudosan** · 08-02-2005, 11:03 AM

Originally posted by Nobleone

That's what's so great about this forum, many different views from people who have no ulterior motives, giving people like me the opportunity to look at things from many angles.

That's what this forum is all about --- pooling our knowledge and experience together. Everyone benefits.

**paulette** · 08-02-2005, 03:17 PM

Theres a question I would like to throw in about this topic. Something I'm tossing around at the moment.

I have a IP in Auckland - mortgage $127k rented $260 per week, getting a valuation done this week, looking at it being around $260-280,000. My biggest problem at the moment is I have just about ground to a holt as far as surplus income to buy more IP. So do I sell this one and free up some capital so I can put down good deposits and get +ve cashflow IPs in other cheaper areas.
I know I can use the equity to purchase more but then i'm looking at 100% finance, which means its harder if not impossible to find, this also means that I need my income to increase to cover them.
Any advice would be appreciated.
Paulette

CJ · 09-02-2005, 01:08 AM

Have you worked out yeild on purchase price or on net realisable value. I think for the purposes of this decision it should be the later.

If based on purchase price

$40,000 x 14.8% = $5,920

So if you sell you need to make sure that the money you receive gets a better return than this. this only requires a yeild of:

$5,920 / $80,000 = 7.4%

This should be easily acheiveable in the area you are in.

With any investment you should not look at past performance but say, if I had $80,000 dollars, what would I do with it. Would you buy that house for $80,000 or would buy something else.

This is more a concept with shares but that doesn't mean it shouldn't apply to houses either. Dont turn down the sale just because you cant get 14.8% else where. The reason is because if you use your house as a comparison, the comparitive yeilds will only be about 7.4%. Anything about 7.4 is doing better than your current house.

The question to ask is:

Can I earn more money else where.

To do this, you have to compare like to like. To exagerate the figures, imagine you bought the house 20 years ago for $1,000. The yeild on purchase price would be wonderful and no other investment could match it. But that doesn't mean you shouldn't sell and go else where.

Just a thought.

CJ

**MiniMogul** · 09-02-2005, 03:54 AM

removed

**Gerrard** · 09-02-2005, 07:40 AM

I have a IP in Auckland - mortgage $127k rented $260 per week, getting a valuation done this week, looking at it being around $260-280,000. My biggest problem at the moment is I have just about ground to a holt as far as surplus income to buy more IP. So do I sell this one and free up some capital so I can put down good deposits and get +ve cashflow IPs in other cheaper areas.
I know I can use the equity to purchase more but then i'm looking at 100% finance, which means its harder if not impossible to find, this also means that I need my income to increase to cover them.
Any advice would be appreciated.

Hi Paulette - you are gettaing a 10.7% return on the debt (no idea what you paid for it). I consider that return to be very good for Auckland.

If servicability is the issue then you'd have to be getting some MUCH higher returns to improve your servicability (be worth talking to a mortgage broker to find out what would make a difference).

How would selling this property fit in with your investment goals?

Gerrard

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