Friday, January 19, 2007

To Flip Or Not To Flip?

I inspected the refurbishment work on my most recent property purchase and was surprised to find that there was nothing that I could identify that needed rectifying. I will of course hang on to the retention money for the full contractual period of 60 days in case there are any problems which my visual inspection did not identify.

Recent sales in the same building would suggest that I should be able to sell the property now at a price that would achieve a net profit after all expenses except tax of about 31% on my capital.

So the question is whether I should take the profit or stick with the plan and rent the property out?

I'm inclined to stick with the plan and rent it out for the following reasons:

1. It is a good property in a good building in a good location. The yield will be attractive (subject to a question on how quickly the fit out will depreciate);

2. Gearing based on current market value is conservative at about 53% and I expect a positive cash flow even with a P+I mortgage;

3. If I sell I may be classified as a dealer for tax purposes which will make it harder to avoid tax on gains on any other properties I may sell;

4. I do not need the capital back (the only circumstance is which I would need capital back is if I wished to invest in a much higher value property);

5. I do not have any other appealing investments into which I could reinvest the proceeds;

6. If I wanted to sell a property, there are others that I would rather sell instead of this one (a case of keeping the best properties and selling the less good ones).

The only reason for selling is to take a profit.

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