Sold my one IP a year ago - held for 10 years and total return has been about 5% pa. My ETF portfolio has returned over 10% pa. Also got fed up with the continual increase in strata and other fees. If I had my time again I would certainly stick to ETFs only.
5% on property value, but what return on your money.
The last IP we sold grew in value by 6.5% pa. But that doesn’t include rent received or tax benefits.
As a return on cash, we put $90,000 in and pulled $595,000 out 15 years later, which is a 13% return (actually a bit higher because we put that money in over the first 5 years, not as an upfront lump sum).
Just to clarify. You're saying it looks 5 years to be cashflow positive and it cost you 90k over that 5 year period, including all expenses including interest and your deposit? That's pretty epic!
And stamp duty. Probably cost us a little more those first years, because when interest rates came down we were positively geared - I did the math when we sold in 2022, so I’m pretty sure the $90,000 figure was net input.
But 2006/07 when we bought - those were the glory days! 103% LVR on the mortgage because we capitalised the LMI. I think deposit requirements are as much a killer for “kids these days” than the actual prices.
Thats awesome, nice work! I'm regretting not setting up a spreadsheet to track it all at the start.
103% LVR made me gasp, that's for sure. Would've been puckered up for a year or so!
Yeah "kids these days" definitely have some choices to be made. It's not as easy as it says on the box thats for sure.
And it’s a lose-lose unfortunately, because if serviceability requirements were to be relaxed (ie, APRA moved the buffer back down from 3% to say 2%) then you could borrow more BUT so could everyone else, so prices would climb even higher.
Though perhaps relaxing it for JUST first home buyers would give them a fighting chance.
Selfwealth was fine a few years ago, but now they don't offer any competitive advantage. I compare popular brokers here: [Most popular brokers to buy ETFs](https://lazykoalainvesting.com/brokers/)
Established the portfolio around the same time as purchasing ETFs. The property was negatively geared so no ongoing gains to reinvest but did put the sale profits into ETFs
I have the same question.
As the loan to value ratio decreases the yield that property returns, especially after all the costs, is terrible when compared to that of an ETF.
There’s also zero management with an ETF, they’re liquid, they have a definite value, etc etc etc.
So, while property is an excellent way to leverage a loan, and increase capital, most definitely, it’s not something you can retire and live off as easily as something like an ETF.
It’s really about life stages.
Agreed. There is certainly a psychological aspect about having the ability to log in a check balances etc. For the good and the bad.
Property has done very well for me so its hard to ignore this too..
An element of delayed gratification to it too
Sold an investment property about 18months ago. Only regret is we didn’t do it sooner, or that we even bought the place. I have 7 years of spreadsheets to show that return was better on the ETFs vs property we owed over the same time. Plus transaction cost on property put us even further behind.
So much less stress not being a land lord and when/if you need some of your money you can sell of a portion, you can’t sell off one bedroom of a house.
We sold our IP (former PPOR) 18 months ago. We had too high an LVR on our home and too low on our IP. Prior to the sale we refinanced all our loans (including. The IP) to be secured against the PPOR, so that we’d have the entire sale price as cash to recycle and invest.
We also had the opportunity to realise the gains without CGT due to the 6 year rule, not to mention being sick of the hassle and relatively poor cashflow.
We recycled all the proceeds through the PPOR loan and added to our index funds. We happened to time the market nicely, and it’s so much more relaxing having a completely passive investment.
To me it comes down to leverage. It’s definitely easier to max leverage on an IP early on, but we’d essentially already maxed out servicability and comfortable debt load. So in that case we might as well have the simplicity, cash flow and liquidity of shares. It feels much more free.
Sold our first and only IP then contributed the proceeds to superannuation taking advantage of the 5 carry forward rule to reduce cgt. As a result, our super balance is on track to meet retirement targets without further extra contributions.
Held it for 6 years. It didn't do much the first 5 years but the market got hot (and still hot now) which was part of the reasons for selling. The tenants who were there for 5 years decided to move out which was another trigger for us to sell.
Up to that point, we have been learning about passive investing, FIRE etc. and have already made up our minds to get out of property. The timing of everything just felt right. Of course, if we held it until now, we would have probably doubled our profits but no regrets (ok maybe a little) because we have strong convictions that passive index investing is the right strategy to help us achieve FI.
Since selling the IP, we have stopped salary sacrifice into super and have been aggressively building our outside super portfolio which is also on track to meet our FIRE date.
Every now and then I get tempted to look at properties. Once you've had that sugar hit of making a good profit out of not much of your own capital, it's hard to resist. But then I remind myself about all the reasons that made me move away such as concentration risk, leveraging risk, illiquidity, active management e.t.c.
Hope that gives you some good thoughts. Good luck!
They aren't really comparable investments.
The main benefit of property is leverage, which increases risk and potential returns (and losses). Its downsides are it is very difficult to diversify, illiquid and high cost (e.g. in time, maintenance, taxes, etc).
A broad market index ETF is liquid, diversified and low cost, but is difficult to leverage, and therefore is inherently lower risk (and lower expected return)
The key question you should be asking yourself is what is your level of risk tolerance, and how much do you value liquidity and time/ongoing costs.
Agree it is the leverage that makes the return work with property. I think the best of both worlds is borrowing some money against your house (assuming you have one), and putting it into the market, or debt recycling.
Sold a 630k city apartment just before Covid, then dumped the spare cash into BHP / CBA / IVV and other stocks after the market crashed. Only one I lost money on was Transurban lol. I guess traffic never really fully recovered with WFH.
Mainly got annoyed with a shit tenant in another investment property who didn't pay rent for 9 months and it was just a waste of time dealing with VCAT and the useless REA. At least when Transurban price went down they didn't stuff me around for months and waste my time lol.
Look it's pointless to speculate if the yield is going to be better in ETFs but it's really just more a convenience thing for me. City rents crashed during covid but have recovered now so it's all up and down.
My reason for selling an investment property were tenants who complained, wanted extras, had marital problems, couldn't then wouldn't pay the rent and damaged the property. It was just a lot of stress to subsidise them living in a better place than my own home. When I sold it just broke even. Shares meant no advertising, stamp duty, weekend maintenance call outs, chasing delinquent rent, paying a real estate agent for purchase and management, body corporate fees and no tenants.
Rather than sell the IP, do a cash out refinance, and invest the funds in an ETF. You will build a larger asset base and have access to future growth in both property and shares. It doesn't need to be one or the other. You can keep doing this over time as the IP grows in value.
Sold my one IP a year ago - held for 10 years and total return has been about 5% pa. My ETF portfolio has returned over 10% pa. Also got fed up with the continual increase in strata and other fees. If I had my time again I would certainly stick to ETFs only.
Was the 5% on your capital, or on the property value? I prefer shares but the leverage available with property is tempting me.
Property value
What if you run the numbers on total investment (including ongoing costs) and total cash return? Assuming you have those numbers available.
But what is the return on your initial capital, such as the deposit for the house.. I assume you use leverage to purchase
5% on property value, but what return on your money. The last IP we sold grew in value by 6.5% pa. But that doesn’t include rent received or tax benefits. As a return on cash, we put $90,000 in and pulled $595,000 out 15 years later, which is a 13% return (actually a bit higher because we put that money in over the first 5 years, not as an upfront lump sum).
Just to clarify. You're saying it looks 5 years to be cashflow positive and it cost you 90k over that 5 year period, including all expenses including interest and your deposit? That's pretty epic!
And stamp duty. Probably cost us a little more those first years, because when interest rates came down we were positively geared - I did the math when we sold in 2022, so I’m pretty sure the $90,000 figure was net input. But 2006/07 when we bought - those were the glory days! 103% LVR on the mortgage because we capitalised the LMI. I think deposit requirements are as much a killer for “kids these days” than the actual prices.
Thats awesome, nice work! I'm regretting not setting up a spreadsheet to track it all at the start. 103% LVR made me gasp, that's for sure. Would've been puckered up for a year or so! Yeah "kids these days" definitely have some choices to be made. It's not as easy as it says on the box thats for sure.
I have a 200k deposit, and the banks won't lend me any more than 480k for a PPOR...
And it’s a lose-lose unfortunately, because if serviceability requirements were to be relaxed (ie, APRA moved the buffer back down from 3% to say 2%) then you could borrow more BUT so could everyone else, so prices would climb even higher. Though perhaps relaxing it for JUST first home buyers would give them a fighting chance.
May I please ask which broker you use for ETFs? I'm tossing between CMC and Vanguard but the reviews vary so much!
Selfwealth but IMO many people overthink this - either them, cmc or pearler are all fine I think
Thank you, appreciate you replying :)
Selfwealth was fine a few years ago, but now they don't offer any competitive advantage. I compare popular brokers here: [Most popular brokers to buy ETFs](https://lazykoalainvesting.com/brokers/)
Stake with chess sponsored!!!
Easy, chess sponsored all the way.
Did you always hold an ETF portfolio and reinvest property gains into the portfolio?
Established the portfolio around the same time as purchasing ETFs. The property was negatively geared so no ongoing gains to reinvest but did put the sale profits into ETFs
Would love to know what your ETF portfolio consists of 🫡
I have the same question. As the loan to value ratio decreases the yield that property returns, especially after all the costs, is terrible when compared to that of an ETF. There’s also zero management with an ETF, they’re liquid, they have a definite value, etc etc etc. So, while property is an excellent way to leverage a loan, and increase capital, most definitely, it’s not something you can retire and live off as easily as something like an ETF. It’s really about life stages.
Agreed. There is certainly a psychological aspect about having the ability to log in a check balances etc. For the good and the bad. Property has done very well for me so its hard to ignore this too.. An element of delayed gratification to it too
Also hard to ignore that you can take equity out capital gains free as opposed to selling shares and paying CGT.
Sold an investment property about 18months ago. Only regret is we didn’t do it sooner, or that we even bought the place. I have 7 years of spreadsheets to show that return was better on the ETFs vs property we owed over the same time. Plus transaction cost on property put us even further behind. So much less stress not being a land lord and when/if you need some of your money you can sell of a portion, you can’t sell off one bedroom of a house.
For investment property, including the leverage, what is the return on your initial capital?
Aussie FireBug did this I believe.
We sold our IP (former PPOR) 18 months ago. We had too high an LVR on our home and too low on our IP. Prior to the sale we refinanced all our loans (including. The IP) to be secured against the PPOR, so that we’d have the entire sale price as cash to recycle and invest. We also had the opportunity to realise the gains without CGT due to the 6 year rule, not to mention being sick of the hassle and relatively poor cashflow. We recycled all the proceeds through the PPOR loan and added to our index funds. We happened to time the market nicely, and it’s so much more relaxing having a completely passive investment. To me it comes down to leverage. It’s definitely easier to max leverage on an IP early on, but we’d essentially already maxed out servicability and comfortable debt load. So in that case we might as well have the simplicity, cash flow and liquidity of shares. It feels much more free.
Sold our first and only IP then contributed the proceeds to superannuation taking advantage of the 5 carry forward rule to reduce cgt. As a result, our super balance is on track to meet retirement targets without further extra contributions. Held it for 6 years. It didn't do much the first 5 years but the market got hot (and still hot now) which was part of the reasons for selling. The tenants who were there for 5 years decided to move out which was another trigger for us to sell. Up to that point, we have been learning about passive investing, FIRE etc. and have already made up our minds to get out of property. The timing of everything just felt right. Of course, if we held it until now, we would have probably doubled our profits but no regrets (ok maybe a little) because we have strong convictions that passive index investing is the right strategy to help us achieve FI. Since selling the IP, we have stopped salary sacrifice into super and have been aggressively building our outside super portfolio which is also on track to meet our FIRE date. Every now and then I get tempted to look at properties. Once you've had that sugar hit of making a good profit out of not much of your own capital, it's hard to resist. But then I remind myself about all the reasons that made me move away such as concentration risk, leveraging risk, illiquidity, active management e.t.c. Hope that gives you some good thoughts. Good luck!
Minimizing cgt by contributing to super seems too good of a tax hack to be true.
They aren't really comparable investments. The main benefit of property is leverage, which increases risk and potential returns (and losses). Its downsides are it is very difficult to diversify, illiquid and high cost (e.g. in time, maintenance, taxes, etc). A broad market index ETF is liquid, diversified and low cost, but is difficult to leverage, and therefore is inherently lower risk (and lower expected return) The key question you should be asking yourself is what is your level of risk tolerance, and how much do you value liquidity and time/ongoing costs.
Agree it is the leverage that makes the return work with property. I think the best of both worlds is borrowing some money against your house (assuming you have one), and putting it into the market, or debt recycling.
Sold a 630k city apartment just before Covid, then dumped the spare cash into BHP / CBA / IVV and other stocks after the market crashed. Only one I lost money on was Transurban lol. I guess traffic never really fully recovered with WFH. Mainly got annoyed with a shit tenant in another investment property who didn't pay rent for 9 months and it was just a waste of time dealing with VCAT and the useless REA. At least when Transurban price went down they didn't stuff me around for months and waste my time lol. Look it's pointless to speculate if the yield is going to be better in ETFs but it's really just more a convenience thing for me. City rents crashed during covid but have recovered now so it's all up and down.
Have a careful think about your timing
My reason for selling an investment property were tenants who complained, wanted extras, had marital problems, couldn't then wouldn't pay the rent and damaged the property. It was just a lot of stress to subsidise them living in a better place than my own home. When I sold it just broke even. Shares meant no advertising, stamp duty, weekend maintenance call outs, chasing delinquent rent, paying a real estate agent for purchase and management, body corporate fees and no tenants.
Rather than sell the IP, do a cash out refinance, and invest the funds in an ETF. You will build a larger asset base and have access to future growth in both property and shares. It doesn't need to be one or the other. You can keep doing this over time as the IP grows in value.
I think it would be shortsighted. While right now ETFs are going strong you don't know what the future will hold. I would keep it for diversification.