Well done Marty!
Thanks. Dumb luck more than anything haha. At work we were in disbelief that the markets hadn't reacted to COVID-19 earlier than they did. Like we're supposed to have believed that China had it all under control?
What an interesting move, buying the investment property. Would you be able to walk us through your thinking? You’re going to get a tax hit for selling right? And then stamp duty and the costs of purchase? Do you believe the investment property will yield more than index funds? What’s convinced you that active management of property is financially smarter?
Not trying to challenge you, just learn as you’re one of the members whose views I value here.
Good questions
A few answers:
- Yes the equities portfolio generated substantial capital gains, but as chance would have it, I had an equivalent amount of capital losses still carried forward from 2009-2010 (margin lending fucked my life lol). I'll have about $2k in CGT payable, not going to lose sleep over it.
- No getting around stamp duty, its an "inconvenience". You pay it (~$37,500), but consider it over the period I expect to hold this property (20 years or more) it's not so bad. Of course, you don't pay this for shares, so that's a plus in the shares column and a cross against property.
- Yields from property have always been terrible, that's nothing new, I'll be getting around 4.5% gross on this one. The flip side is leveraged capital gains, and leveraged gains that are relatively safer than shares, because it's unlikely I'll be forced to sell. I've bought into a relatively affluent area, that already experienced a 20% fall in value over the past 2 years, but is now on an upswing. Definitely have not paid top of the boom prices. I don't expect any issues with getting it rented - the apartment is a 4 bed unit which is rare and a huge positive, and an equivalent one in the complex was just leased for more than expectations within a week of it being advertised.
- Tax! I have aimed for a neutrally geared outcome on this property, but after capital works deductions I'll come out ahead tax wise. The share portfolio was going to result in a substantial ongoing tax bill with it generating significant dividends (and not all of it franked either). Selling up and buying the property will help a little bit tax wise.
- I still have funds ($250k) in offset on my PPOR. Can easily debt recycle this and put it back into shares if I want to. That money was always set aside as a deposit for a future PPOR, but its unlikely I'm going to buy a new home anytime soon.
I'm planning out the long term. I have 26 years until I can access super. If/when I FIRE, I won't need to sell any of the properties immediately - I'll likely have several years, if not decades worth of funds in offset accounts and well as in equities when I rebuild the share portfolio.
Too often people fall into the trap of thinking its a "bad time to buy now". However, when you look back 30 years you'd definitely wish you bought in 1990. Sure prices could go down in the next 2,3,5 years, but sure as shit they won't be at these "low" levels in 2050.