Looking for some general advice in this kind of situation:
- Purchased investment property within a company structure for the purpose of renovation and subdivision to sell on
- Market and personal circumstances have changed and so now the primary purpose of this property is to hold for capital growth (rental income does not cover interest repayments)
- Property is on >800sqm of low density zoned land on the northside of Brisbane and has good long term growth prospects
- Selling at this point would most likely lead to a small loss due to sales costs involved
- Due to the holding structure, the is a small land tax bill every year which would not be an issue if held in my own name
- There is a potential to proceed with original subdivision plan in the distant future (most likely >5 years)
Would it be wise to wait till the capital growth covers these losses and sell the property to break even OR hold on for capital growth in the much longer term, knowing it is in a structure that won't be eligible for the capital gains discount in the future?
What you have provided raises a whole heap more questions.....mostly along the lines of "who advised you to do this in a company structure in the first place????" And sometimes there are really valid reasons to invest using a company, because in general it has some issues which you have outlined above......
It looks like you have asked the best question of all which is "sell or hold"???
As nerdy as it sounds, this looks like the sort of thing you need to chuck into a spreadsheet to figure out the break even point where you know that after X number of years and Y% growth you will be better off to sell rather than hold.
Do your sums and project your loss over 5-10 years and then project a gain that eliminates this loss.......any rate of gain better then this means you should hold, and if the gain doesnt recover the holding costs then you should cut your losses and sell.......
.....but that all presumes you have a crystal ball and you can tell what the property market is going to do over the next 5-10 years.......
Great question! I am sure that there are lots of people in your situation, whether in company structure or in personal names who are asking this exact question.
The decision would have to take into account your entire financial and personal situation and none of us can guide you appropriately in this without those facts.
Meet with your accountant and advisor and put everything on the table and then you will be able to weigh up your options
When you see it all on paper, the most appropriate path should become clear
In general terms, I would look to hold for the long term. As you say that could be 5-10 years down the track.
Best of luck
I agree with Brendan's comments. The choice of company structure for such a proposal isn't something I would have initially gone with.
It's just a matter of doing your sums. What do you reasonably expect the growth to deliver? If this covers your costs hold on, if it doesn't then sell.
You need to try and remove emotion from the equation and just look at the numbers. A third party eg. accountant can be very helpful here.
All the best.
Graham Doessel - CEO - MyCRA (Specialist Credit Repair) Lawyers (LPH)
Current Rating: 4.65 / 5
As both Scott and Brendan have suggested, Great Question!
They are the people to talk to about finance and finances etc, and I might be able to assist in other areas.
I believe the spreadsheet idea to crunch the numbers and do (or redo as the case may be) a Feso on the property is a great starting place.
The 'bloody land tax' will continue to add to the holding costs, in addition to interest and everything else.
Perhaps (by way of chucking 'ideas' at the wall to see what sticks...) look at a JV with someone to help you finish the project?
Perhaps look at the original DA/BA (if they exist yet) and see if changing will make the project more viable sooner?
Sorry mate, I could be wasting your time with ideas like these. or hopefully you'll see something that'll give you a lightbulb moment and allow you to solve the underlying issues that are forcing you to wait.
Happy to toss around a few more ideas if you see value in it... No charge for a quick brainstorming session (if you buy the coffee) and our Patrick Earl (head of my law firms) might pop along for a free coffee - New Farm coffee might be better than Stafford coffee :-)
Reach out and call me (or Patrick) on 07 3124 7133 as our national head offices are just up the road from you in Stafford.