11 The truth about selling Flashcards
(30 cards)
What is the right time to sell an investment property?
When you can earn a better return elsewhere
Selling should be considered for maximizing returns.
What is often believed about selling investment properties?
It should be avoided at all costs due to triggering capital gains tax
Many investors prefer refinancing to access equity without tax consequences.
What is the Property Lifecycle model?
A model that explains the phases of investment properties from pre-purchase to decline
It illustrates the timeline and returns associated with property investments.
What does the pre-purchase phase involve?
Searching for and analyzing potential deals without earning profit
This phase is time-consuming and does not yield financial returns.
What happens in the purchase and growth phases?
Returns begin to increase as better quality assets are acquired
This leads to positive cash flow and/or capital gains.
What occurs during the maturity and decline phases?
Cash flow and capital gain returns plateau and then decline
This is due to the need for larger dollar increases to maintain the same percentage return.
What is ‘lazy money’ in real estate investing?
Untapped potential in investment properties that earns low or no profit
This situation drags down overall returns.
How does property appreciation affect cash flow returns?
As property appreciates faster than rent, cash flow returns fall
This can lead to decreased overall profitability.
What is the significance of compounding returns?
The more frequently returns compound, the higher the total returns
Daily compounding yields higher interest for lenders and investors.
Why might selling be considered a ladder in investing?
Selling can fast-track wealth creation by allowing reinvestment of returns
This increases the rate at which returns compound.
What are common reasons investors cite for not selling?
- Avoiding tax
- Ability to refinance
- Missing future gains
- Costs of buying back in
These reasons reflect a conservative approach to property investment.
What are advantages of selling an investment property?
- Focus on making money
- Provides cash for debt repayment
- Easier to demonstrate financial capability to lenders
- Avoiding tax deferral issues
Selling can lead to immediate cash flow and better investment opportunities.
What is the risk of relying on refinancing?
Increased debt can make it harder to borrow more in the future
Refinancing may not always provide sufficient funds due to lender restrictions.
What is the better way to fund financial freedom according to the text?
- Use positive cash flow income
- Use cash reserves
These methods avoid increasing debt and interest expenses.
What should be the focus of investing?
Maximizing returns, not saving tax
This principle guides better investment decisions.
What lesson can be learned from the analogy of the monkey and the glass bottle?
Letting go of unproductive assets can lead to financial freedom
Holding onto assets out of emotion can trap investors.
What is a key insight regarding cash flow and capital gains over time?
They will plateau and then decline, requiring larger increases to maintain returns
Investors need to be aware of this trend to make informed decisions.
What is the impact of having large untapped equity in an investment portfolio?
It likely indicates lazy money and missed better return opportunities
Investors should assess their portfolios for untapped potential.
Fill in the blank: The only reason you wouldn’t sell is because you didn’t want to pay _______.
tax
This mindset can limit investment growth.
True or False: Selling an investment property always triggers a capital gains tax.
False
Capital gains tax is only incurred upon the sale of the asset.
What is not a smart way to fund financial freedom?
Using borrowed equity
Positive cashflow and gains converted into cash are better options.
What should you do if you have to sell to achieve your investing goals?
Sell the asset
Avoid being a ‘monkey investor’.
Under Australian tax law, when is a capital gain taxed?
When you sell the asset
You can borrow against the equity without tax consequences.
What are the two factors that determine the choice of property investing strategy?
- The profit outcome you want to achieve
- The needs of the person paying for the property
