Property Investing Made Pure
I recently published a post which outlined the substantial capital gains made by Sydney and Melbourne residents over the past three years, and how these capital gains could be reinvested to potentially double your money in 15 years.
So I thought I would be timely to publish a blog about the crossroads that many property investors are currently facing. ‘Should I sell and pay down or refinance and reinvest’? The short answer is that it really is dependent on where you are in your investment journey. But ill provide a scenario for a relatively new investor (five years in the investment game)
Scenario: This is a hypothetical scenario, though I have many clients whom are in very similar positions to the below situation. Remembering that majority of property investors (70% +) only own 1—2 properties and stop at that. With the three scenarios below you have to ask yourself the question. "Why would I not continue to reinvest the profits rather than sell"?
In this scenario the investor currently owns one investment property and their PPOR.
Description | Amount $ |
---|---|
Investment property loan amount | $300,000 |
Investment property sold price | $500,000 |
Capital gains tax property purchased for $400,000 (25% of profit approx.) | $25,000 |
Agents fees (2%) | $10,000 |
Closing costs | $2,000 |
Net profit from sale | $53,000 |
PPOR current value | $500,000 |
New mortgagee amount (originally $300,000) using the profits from the sale of your investment property | $247,000 |
PPOR projected value in 2030 | $1,000,000 |
Monthly repayments to pay off your PPOR by 2030 (based on 6.00% interest rates) | $2,084.33 |
Total net position by 2030 | $1,000,000 |
Investment property loan amount (interest only) | $300,000 |
Investment property current value | $500,000 |
Investment property projected value in 2030 | $1,000,000 |
Net equity position by 2030 | $700,000 |
PPOR current value | $500,000 |
Mortgagee amount | $300,000 |
PPOR projected value in 2030 | $1,000,000 |
Monthly repayments to pay off your PPOR by 2030 (based on 6.00% interest rates) | $2,531.57 |
Total net position on both properties by 2030 | $1,700,000 |
Initial investment property loan amount (interest only) | $400,000 ($100,00 line of credit) |
Additional monthly repayments (interest only 6%) | $500 per month |
Investment property current value | $500,000 |
Investment property projected value in 2030 | $1,000,000 |
Net equity position by 2030 | $600,000 |
New investment property loan | $300,000 |
Investment property current price | $400,000 |
Investment property projected value in 2030 | $800,000 |
Net equity position by 2030 | $500,000 |
PPOR current value | $500,000 |
Mortgagee amount | $300,000 |
PPOR projected value in 2030 | $1,000,000 |
Monthly repayments to pay off your PPOR by 2030 (based on 6.00% interest rates) | $2,531.57 |
Total net position on three properties by 2030 | $2,100,000 |
The brass tacks of the three scenarios is that if you can afford an additional $218 per week (remembering that these scenarios don’t take into account depreciation which could potentially negate the $218 all together) the 15 year benefits of scenario three over scenario one is a staggering $1,100,000.
The key with these scenarios is ensuring that you re invest in strong growth areas that will provide great cash flow. That’s where the services of a qualified and buyer’s agent become invaluable.
Contact us to help start your investment portfolio.
enquiry@purepropertyinvestment.com
1300 98 54 28
Disclaimer - Contents of this site are of general nature only and should not be relied upon solely when making an investment decision. Pure Property Investment nor any of its directors, associates, staff, or associated companies bear any liability from any actions derived from the contents of this website. One should always seek third party investment information from relevant parties such as legal, finance, and accountancy enquiries.