Should You Sell Your Investment Property? (3 Main Considerations)
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- Опубліковано 16 чер 2024
- A question that you might be asking yourself is “Should I sell my investment property?” In this video we look at a simple approach to analysing the viability of retaining your investment property and the things to consider before selling it.
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⏱ Timestamps
00:00 - Should I Sell My Investment Property?
01:21 - 3 Main Considerations in Analysing Your Property
01:47 - Investment Property Case Study
02:28 - Calculating Investment Property Yield
02:54 - Comparing Yield Against Risk-Free Return
06:10 - Calculating Investment Property Growth
07:38 - Investment Property Capital Gains Tax (CGT)
09:19 - Considerations of Contributing to Super
10:10 - Benefits of Contributing to Super
12:28 - How Much Can Be Contributed to Super?
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Should I Sell My Investment/Rental Property?
Many Australians have an investment property and, as you approach retirement, you might be wondering whether this investment property should be kept or sold and contributed into super.
By using a few simple calculations, you can easily compare how your current property returns stack-up against other investments, which can help you make the decision to either keep or sell the investment property.
In this video, I’m going to give you the framework that I use when assessing property as an investment, including considerations such as rental yields, future growth, capital gains tax, diversification and liquidity.
I’ll also give you some ideas on how capital gains tax resulting from the sale of an investment property can be reduced or completely eliminated by making certain types of contributions to super.
So, should you sell your investment property? Watch this video and decide for yourself - the decision is yours!
#SuperGuy #ChrisStrano #Superannuation #RetirementPlanning
DISCLAIMER: The SuperGuy website and SuperGuy UA-cam channel contains general advice only. It is not personal advice as it does not take your specific needs or circumstances into consideration. Therefore, you should look at your own financial position, objectives and requirements and seek personal financial advice before making any financial decisions.
General advice is provided by Toro Wealth Pty Ltd trading as SuperGuy Retirement Experts as an Authorised Representative of Core Value FA Pty Ltd (AFSL 480387).
Before acting on any information, you should seek professional advice and verify our interpretation/s before relying on the content or calculators within this website or on the videos, while also considering its appropriateness in relation to your personal situation.
Another very helpful video. Thank you!
Fantastic information Chris. Thank you
You're welcome! Glad you got something out of it. More to come...be sure to subscribe!
Excellent video Chris - presented the salient facts very clearly.
Thanks! Glad you liked it!
this is super helpful, thank you very much, I need to watch it a few times to be able to learn the various factors
You're welcome. Thanks for watching!
I had 2 investment properties back in the 90s. Bought in the low sold in the high, after taking all into account. Interest rate if I left the deposits in the bank, costs to hold the 2 properties, cost to do them up after tenants moved out / damaged them, agents fee to sell and I even sold 1 property myself. The estimated return after selling was not worth the headaches vs leaving my money in the bank. Super is the better way to go if you are close to retirement or leaving money invested in your super company when retired.
I’m pretty sure in Australia we still pay tax on the amount of time you used the residence for investment purposes.
Very informative video Chris. Lots to be aware of regarding IP, CGT and Super.
Glad it was helpful!
My wife and I jointly owned an IP outside of superannuation for 20 years which was negatively geared for 10 years. We had a nightmarish experience with a bad tenant who had more rights than us. As soon as we retired we sold the property to minimize our CGT exposure. Our nett return after all expenses, including growth, was around 5% pa. In hindsight we should have invested in shares as the stress on us when we had a bad tenant severely impacted our health. At least shares can be sold and the funds available in 3 days, however, in our case, it took nearly 12 months to get our bad tenant out and the property sold. Step carefully if you planning on buying an IP.
We had an identical experience as you. Tenant from hell. No wonder people find it difficult to find rental properties. I would NEVER have another one and would never recommend to anyone to have one either.
Thank you for all the information. One thing I have learned is that super is confusing and that I will need the help of a professional.
Personally I prefer at retirement age to have a fully paid off property that gives me an income that I am in control then have Super funds I watched old school families own blocks of units make a fortune because they kept them for 50 years and then passed them on to their family.
Love you chris
Thanks Eddie!
Hmm, complex. Much food for thought. Thank you.
No problem.
this is an interesting topic that i will have to consider. One of my ideas to get rid of the CGT issue is to sell my prime residence then use the downsizer contribution and move into my investment property.
I believe the eventual sale of your investment property may still be subject to CGT for the period it was owned as an investment property. You should discuss with your accountant.
@@SuperGuyAu yes i presume it would but i dont plan on selling that
@@chrisj6321 ❤❤
Risk free at the moment is 5.4% with AMP.
We purchased a holiday home 24 years ago and the intension has always been to be a summer home (close to the beach) and eventually my kids will have it when I pass away. We rent it out for short term stays and special events (that we are not interested in) so selling it is not on my radar as it is also a way of life for our family. We own it and our livin home outright. 754 liked
That's right - everyone has their own unique objectives.
Don't forget you can contribute to super and claim that against your cgt if you are retired as long as it's the same year you signed the sales contract bad advice from my super guy missed by 3 days and it cost me thousands good work on the video
Yes, you are correct Bill. As mentioned in the video, deductible contributions to super can offset CGT. Sorry to hear you missed it. If you're ever considering advice from a different adviser, check us out here 😉www.torowealth.com.au/
You can offset your cgt even if NOT retired through your personal super contributions
G’day Chris, good general info, however I disagree with your calculation of Gross Yield in the example. I think you should have used $500,000 not $800,000 as the denominator, as this would be Mark and Lauren’s real current return on their 5-year old investment property. The $800,000 denominator would only apply to someone buying the property now. Their current yield on their $500,000 investment would therefore be 5.72% for comparison purposes, not 3.57%. Nett yield would be 4.12% (or 2.88% after tax) for comparison purposes with a current term deposit bank return. Just my thoughts on which figures to actually be comparing. Otherwise, great general discussion and certainly is food for thought in my retirement planning efforts. Thanks.
Interesting point.
To compare like-for-like I believe the logical approach is to compare alternatives at any given time. Therefore it must be based on current value. For example, what if this property was purchased at $100k and now $800k. If it was only earning 0.5% on the $800k (which is 4% on $100k) it wouldn't be wise to retain it if you could (for example) get a return of 6% on the $800k elsewhere. You're essentially accepting a lower return for an arbitrary purchase price. What if the property was gifted to you for free from a relative and only earning a yield of 0.2% - then what would you do?
I would definitely only consider selling after full retirement, therefore have the maximum tax benefit. Also my IP was bought over 30 years ago and now it is returning 10% on the original purchase price. The loan is paid off long ago. 2 blocks away the Sydney Metro West is under construction. I hope one day some developer will make a nice offer to building higher density housing.
Nice, well done! Personally, I think calculating the yield on the current value is more relevant than the original purchase price, so that you can accurately assess risk/return compared to alterative investment options.
@@SuperGuyAu very true, shall continue to reassess the return Vs alternative choice.
@@SuperGuyAu In the video you use the gross value of the property when calculating net yield. I think it would be more accurate to use the net value of the property (ie sale price - conveyancing/marketing/repairs and staging/agent fees/lender fees and CGT). That is the true value left to put into a different investment, your thoughts?
@@Tiger_Of_Old Good point. Yes, you could take that into account. My thoughts are that those costs are probably going to be around $10-$20k and the sale price of the property is likely to vary by that amount on any given day, so I guess this is really just a simple approach to comparing options.
Hi there,
I know this video is an old one but still relevant I believe.
I'm receiving a yield of about 10% on my investment property. This gives me a return of $38,000/ year. I feel that this gives me an extra income during my retirement years for a while. If for some unknown reason I require extra funds, I could always sell my principle house of residence tax free and top up my superannuation by $330,000. I can then move into the rental property after valuating it on the day I move into it.
What are the ramifications of doing this. 🤔
The ramifications will depend on your circumstances at the time. I would suggest seeking personal advice if/when you plan on doing this.
Also CG is on average 9%
My idea is as I am an European, I will sell my IP in Australia and in the same year I will relocate myself back to EU and work there for the half year, then come back to Australia, so my CGT will be minimal. Also I saw cases where people built a second home and sold it within 6 months , this is treated by ATO as 2 Places of permanent residency, however you need to dispose one property within 6 months otherwise you are eligible for CGT.
Great explanation and provides good basis for thought
But..... Isn't owning the house providing diversity for their retirement portfolio? - They have less than 50% in property. They could possibly tolerate a higher risk in their super to balance the portion in property.
CGT certainly can eat into your return -, particularly in those areas where there has been long term high growth. Owners can find themselves paying 22% tax on their growth compared no tax if the capital were in super.
Each property is different and each person's individual circumstances are different - and your method of analysis would help a lot when considering options.
Thanks
Yes, an investment property could provide diversification. However, an investment property could be owned within super also. Like you said, everyone's circumstance and investment preferences vary.
Good point - Buying investment property wasn't an option when I bought mine - that is my excuse😢.
Is there any way of shifting it into super - at least if only that the future capital growth can be assessed within super?
I don’t understand why you have to sell property for liquidity? There are other ways of getting access to money tied up in your property.
Financial advisors want you to buy products through them so they can get large commissions.
Are you considering doing a video like this one but "Should I sell my share portfolio"?
I'll add it to the list!
@@SuperGuyAu thanks
What happens if you move in to your investment property and lived in it for 2 yrs before selling it, would that make any differences?
Depends on what you mean by differences. The purpose of this video is to explain some of the things to consider if you were looking to sell your investment property. I'm not sure I understand what you are referring to.
@@SuperGuyAu Like me, I own an investment property for over 5yrs, if I sell it I get slog with capital gains tax between 20% to 30%, but if I moved into my investment property and reside there for at least 3yrs would that reduce my capital gains tax for that property?
@lasserbream no it wouldn't but u would get it valued when u move in to it and any future growth would not be up for cgt if u continue to live in it.
If the Investment Property is fully paid off, can the taxable rental income be used to make super concessional contributions and thus lower your taxable income even if you've reached retirement age and still make a tax-free draw off your super?
Generally yes, but between aged 67-75 you need to meet the work test. Discuss with your accountant.
The government wants to make it as difficult as possible for you to benefit from investing. CGT is avoidable completely on an investment property. CGT is just another tax the government uses to limit your ability to gain wealth.
I built granny flats on my investment properties so the yield is now 10% guaranteed
The rent goes up with inflation
I find that hard to beat
Investment advisors never promote real estate as their focus is commissions on investment funds, a bricklayer can be a financial advisor by doing a 6 wk course😮
Correct, every financial advisor advises you to invest in products that they can sell to you and earn sales commissions and trailing, annual commissions. They only present the problems with other investments, and the benefits of shares. A share market crash will most likely be far larger than a property market crash.
You mentioned not putting all your eggs in one basket. Isn't selling an investment property and adding it to your super doing exactly that?
A common misconception is that superannuation is an investment. But, super is actually just a tax structure. Within super you can invest into any asset/s you like, subject to the the investment menu of your super fund. You can invest your super into 1 investment, 100 or 1000, including property, shares, managed funds, term deposits, etc. - thereby providing diversification. Even a basic pre-mix investment option (e.g. Balanced option) in a standard super fund will often have hundreds of underlying assets for diversification.
Why would you assume a tax rate of 30% rather than one of 15%?
The 30% rate is used because in the example given, the people are working full-time and have rental income, so I have assumed the rent will be taxed at around 30% based on marginal tax rates www.ato.gov.au/Rates/Individual-income-tax-rates/
Hi super Guy iam 60 can I retire
Hi Mark, there is no restriction on what age you can retire in Australia. Anyone can retire at any age. If you would like to know whether you can access your super, then yes, you generally have at least partial access to your super at age 60. You may even have full access depending on your employment status. If you would like us to assist with a retirement plan, please get in touch here www.torowealth.com.au/
What happened to Jane? Is she the divorce option.?
Yeah, sell it to a first home buyer and buy Bitcoin.
No way a 800k house rents for that little ! Be easy 700-800 PW so that throws your numbers out a bit. But great info never the less