Sell or Hold

Field explanations

This page explains the information needed to perform a sell or hold recommendation. It explains why each datum is important and how you can obtain values for each if you don't know them off the top of your head.

We strongly encourage you to seek advice from a qualified tax professional, financial advisor or property investment advisor if you are unclear about any of the values to enter.

Property type

The type of property your current investment property is - i.e. house or unit.

We analyse the market in which your current investment property resides in order to forecast its potential for future growth. We then compare this potential with other suitable alternative property markets to see if your equity would be better off elsewhere.

In order to perform our comparison, we analyse the data for your current investment property’s market. Note the use of the term ‘market’. This is not just a suburb, but a dwelling type within a suburb. For example, there could be very different supply & demand characteristics for units in a suburb versus houses.

Our definition of a house is based on how they are classified by real estate agents on listing portals. There are some cases where it is not clear which group a property falls into: houses or units.

Our approach is to classify a townhouse as a house, not a unit, except in cases where the townhouse has only 2 bedrooms. A 1 or 2-bedroom townhouse is considered a unit.

A villa or a terrace is always considered as a house regardless of the count of bedrooms.

Current property's suburb

The suburb in which your current investment property resides.

We analyse the suburb in which your current investment property resides in order to forecast its potential for future growth. We then compare this potential with other suitable alternative property markets to see if your equity would be better off elsewhere.

In order to perform our comparison, we analyse the data for your current investment property’s market. Note the use of the term ‘market’. This is not just a suburb, but a dwelling type within a suburb. For example, there could be very different supply & demand characteristics for units in a suburb versus houses.

Property street address

The street address of your current investment property excluding the suburb, state & post code.

The street address portion of a full address includes only the property number, street name and street type e.g.

123 Somewhere Street

Please enter the address as it would appear on an envelope sent through Australia Post.

Note that there is another entry field for you to select the market in which your current property resides.

We have limited information about the nature of your specific property purely from its address. We are more interested in the nature of the market in which it resides. However, there may be cases where we use the address to gather further information.

Your existing investment property’s address will be kept confidential and all the details about it that you enter. We ask for only as much data as is necessary to perform the most accurate appraisal possible.

Current Property Value

The value of your current investment property, what it would sell for.

The current property’s value is needed to calculate the funds released upon sale that could be recycled into an alternative property. The current value of the property can be an estimate, but the more accurate it is, the better the algorithm will be able to advise whether to sell or hold.

You can obtain an estimate from a local real estate agent. You can also find free and paid-for reports online, try searching for "property price estimate" or "how much is my home worth".

Rental Income Per Annum

The total rent expected to be received annually considering vacancies

The per annum rental income is calculated as the weekly rental income multiplied by 52 weeks minus any periods of vacancy expected. You can enter the rent per week and we'll calculate this for you.

Rent Per Week

The rent per week a property receives in gross terms, that is, without taking off any expenses, not even management fees.

The rental income you receive for your current property can be expressed as a weekly rent amount per week. This is important in determining the holding costs of your property.

If your property receives good rental income, you might be better off holding onto it. However, there are other factors to consider as well as your own financial circumstances.

You can determine the rent per week from a rental statement you receive from a property manager. Enter only the amount per week excluding all expenses from consideration.

Vacancy Rate

The percentage of time a property typically spends untenanted over the course of a year.

It might take a long time to find a new tenant for your current property. This period of time is the vacancy rate. This is important for estimating the future rental income of your current property.

The vacancy rate is sometimes estimated as the percentage of landlord owned properties currently vacant. This allows us to gauge the nature of the market immediately rather than wait a whole year to calculate how many days the property was vacant.

If it takes 4 weeks to find a new tenant, then the vacancy rate would be 8% if you had a new tenant every year. Fortunately, tenants stay on for longer in most cases.
If however, there is a high turnover of tenants in your current property market, then it might reflect poorly on your holding costs and it might add to the argument for selling.

You can get an estimate of the vacancy rate from past rental statements. However, the nature of the market might have changed recently. An up to date vacancy rate should be used instead. One can be found from LocationScore.com.au

Gross Rental Yield

The total rent expected to be received annually considering vacancies as a percentage of the property’s value.

The gross rental yield is the proportion of the property’s value that is received in rental income each year. It is calculated by dividing the annum rental income by the current value of the property and calculating this as a percentage.

Expenses Per Annum

Total costs associated with holding your property including mortgage interest.

The total costs associated with owning your current rental property in dollar terms. This includes mortgage interest as well as things like management fees, insurance, rates, land tax, etc.

Mortgage Interest Per Annum

The amount of mortgage interest being paid annually for the loan over the current property.

If the current investment property has a mortgage, the interest rate and the loan size will determine how much interest is paid annually.

Current Property Loan Size

The size of the loan outstanding, secured against the current property, that would need to be repaid to a creditor upon sale of the current property.

The existing property that is under investigation to sell or hold might have a mortgage against it. The size of this mortgage must be known in order to calculate the net sale proceeds. Net sale proceeds are important in determining the target price of the potential replacement property.

Mortgage Interest Rate

The interest rate for the mortgage for your current property.

The mortgage interest rate is the interest you must pay on the loan used to fund the purchase of your current investment property. The interest rate should appear in loan statements you receive from your lender.

If lending policies have deteriorated since you acquired your original mortgage, it might not be easy to arrange finance for a replacement property. This would lend weight to the argument for holding rather than selling.

If your property is unencumbered (i.e. has no loan secured against it), then you should leave this field blank.

Current Property Offset Account Size

The amount of money currently in the offset account linked to the mortgage for the current property.

The size of the mortgage is adjusted by the offset amount to reduce estimates for interest paid each year and how much money would be available after selling.

For example, if you had a $400,000 mortgage and a $100,000 offset, then the net loan size would actually only be $300,000 not $400,000 because of the $100,000 offset.

This would reduce the interest expense to be calculated based on a $300,000 amount. Also, if the property was sold for $500,000 there would be $200,000 left over.

The size of the offset is an important figure to include in considerations, especially if it is a large amount. It affects both cash-flow calculations and net sale proceed calculations.

Investors usually place any spare money they have into their offset account to reduce interest charges. The Sell-or-Hold model allocates any spare funds available after the purchase of the replacement property to the new property's offset account for this reason.

Your lender should be able to tell you the size of your offset account or even if you have one. This may appear on loan statements you received from your lender each year. Or it may appear online if there is a loan portal you can login to that your lender has provided.

Non-Interest Holding Costs

Total costs associated with holding your property excluding mortgage interest.

There are costs associated with owning a rental property and costs associated with funding to buy one. This field is the sum of all costs associated with the property itself and not the interest on the mortgage. These costs typically relate to insurance, rates, management fees & repairs and maintenance.

Property Management Rate

The base rate property management charges to manage your property.

A property manager will look after your investment property by conducting routine inspections; arranging repairs and maintenance; paying bills; issuing rental statements; chasing up late payment; advertising the property for rent; vetting new tenants; etc.

In return for these services, the property manager will charge a management fee. These fees are usually proportional to the amount of rent charged. Each property manager may have a different rate for your property.

Property management fees are relevant for knowing how much your property is costing you to hold each year. You can ask what the rate is from your property manager or you can provide a typical estimate e.g. 8%.

Property Management Fees

The total annual cost for property management for your current property.

Property management fees are relevant for knowing how much your property is costing you to hold each year. You can determine your total property management fees annually from rental statements. If you do not have a complete year of rental statements you can estimate for 3 months and multiply that figure by 4.

Property Insurance

Total insurance paid annually including: building, contents and landlord’s insurance.

Most lenders will not lend any funds to a property without knowing there is adequate insurance in place. If you default on your mortgage payments and the property burns down, the lender wants to know it can be sold to recoup their loan.

If you paid cash for a property, you do not have to insure it. However, that might not be a good idea.

Insurance is a cost to holding an investment property. Some properties might be difficult to insure cheaply. This might lend weight to the argument of selling and buying an alternative property. However, the cost of insurance is not usually a significant contributor to the holding costs.

Note that insurance can include: building, contents and landlord’s insurance. Some policies include all 3, other policies might only include building and contents or only landlord’s insurance. This field requires you to enter the full cost for all insurances.

You can determine the premium you pay for insurance from insurance statements you receive from your insurer. If your property manager takes care of payments for you, it should appear on a rental statement when it falls due. Note that it’s possible to make annual, quarterly or monthly instalments.

Council Rates

A total figure for all rates paid to the local council for a property for a year.

The local council charge “rates” to home owners in their area. This is to cover the cost of services and infrastructure the local council are responsible for such as garbage removal.

Some councils have a harder time dealing with these responsibilities than others. It might be very expensive to manage the council or delivery certain services.

If your current investment property is burdened by a large expense from the local council, it lends weight to an argument to selling it off. This is not usually a big influence in that decision, however.

You should receive notices each quarter from your local council. However, you may have passed these on to your property manager to handle for you. Check your council statements or rental statements for an annual cost.
The council rates are considered in the holding costs of your current property.

Water Rates

A total figure for all rates paid to the local water provider for a property for a year.

Usually, the water rates are paid for by the tenant. However, there is purely dependent on the lease agreed to between tenant and landlord.

There may be cases where multiple tenants on separate leases share the same water meter. In this case, the landlord typically pays for water. If it is the case that you pay for the water, then include an annual figure here.

You should receive water statements from the water service provider each year. This could appear on your rental statements if you asked the water service provider to send the invoices to your property manager instead of to yourself.

Repairs and Maintenance

The sum of typical expenses related to repairing and maintaining the property each year.

A property will deteriorate over time. Each year there is wear and tear. Some is related to tenant use, some simply pass their useful lifetime. Hot water cylinders eventually need replacing, carpet gets worn in high traffic areas. Walls get banged up and door handles come loose.

Knowing how costly a property is to maintain is an important consideration for estimating future returns. A property with many faults will be costlier to maintain than a new property.

If the property currently owned is excessively expensive to maintain, this lends weight to the argument to sell it. The cost of maintaining the existing property is considered in the opportunity costs.

An estimate for the repairs and maintenance can be obtained by reviewing past property management reports. You could also ask your property manager for an estimate.

Strata Fees

The fees paid to strata management (a.k.a. body corporate fees) annually to insure the building and maintain the common property.

Strata fees, also known as, body corporate fees, are the costs associated with maintaining a property where multiple owners have a “lot”. There is the cost to insure the building, maintain the gardens, clean the common area, security in the foyer, preparation for future one-off large expenses, etc.

These fees are usually paid quarterly. They are most likely to be dependent on the size of the lot owned.

High strata fees can put a big dent in cash-flow. It’s possible that a property with excessive strata fees is worth offloading. That’s why this figure is relevant to the holding costs of owning the existing property investment.

You can get an idea of strata fees from statements provided to you by the strata manager. Your property manager may receive these too. If they do, check rental statements to find how much you’re paying each year.

Land Tax

The amount of land tax being paid each year for all land owned in the same state by the same owner of the current property under examination.

Land tax is charged by state and territory authorities. Depending on the state or territory and the value of the land, this could be a significant deterrent to holding an underperforming property.

Land tax rates vary based on:

•   The state in which the land resides, each state has its own laws regarding land tax
•   The purpose of the property e.g. investment, home, primary production
•   The type of owner e.g. trust, company or natural person
•   The total value of land, marginal rates may apply
•   Thresholds e.g. land tax may not be payable if the total value is under a certain amount

Provide a figure for the annual land tax paid each year in total for all non-exempt property owned, including the current property, in the state the current property resides within. You should receive a notice once a year from the appropriate authority e.g. the office of state revenue. Your property manager may handle payment of this out of rental income.

Other Holding Costs

Other costs associated with holding your property that don’t precisely fit in other fields.

There may be additional costs associated with owning your property and keeping it available for rent that we have not considered. Enter the total for this amount here.

Non-Interest Holding Costs Percentage

Total costs associated with holding your property excluding mortgage interest as a percentage of the property’s current value.

The costs associated with owning a rental property can be expressed as a percentage of the property’s current value. 1.5% is fairly typical. Knowing this figure for your current property gives some indication to how expensive it is to hold the property. This may be influential in choosing whether to sell or hold.

Total Annual Expenses as Percentage

Total costs associated with holding your property including mortgage interest expressed as a percentage of the property’s value.

The total costs associated with owning your current rental property in percentage terms. This includes mortgage interest as well as things like management fees, insurance, rates, land tax, etc. The total costs are divided by the current value of the property and multiplied by 100 to produce a percentage. This figure is equivalent to the gross rental yield required for the property to be neutrally geared.

Exit Costs

The total cost involved in selling your current investment property should you decide to do so.

Exit costs are the total costs associated with "exiting" the market. That is, the costs associated with selling your investment property. They typically consist of capital gains tax (if applicable), the cost of hiring an agent to sell the property and a legal representative to process the transaction.

If the exit costs are excessive, it lends weight to the argument to hold your current property. Exit costs can be significant. So, an accurate calculation is necessary.

Selling Costs

The total of all costs associated with selling your current investment property.

There are costs associated with selling a property such as the agent’s commission and legal fees. The selling cost is a total dollar figure for all expenses related to selling the property. This figure will be subtracted from the sale price as part of the process in determining the capital gain.

Because the cost of selling is significant, it’s important you accurately estimate it. Selling costs play a crucial role in determining whether or not it is worthwhile selling or holding your existing property.

Selling Agent's Commission

The cost of hiring a real estate agent to sell your property

A real estate agent will charge a commission for the job of advertising your property for sale, presenting it to prospective buyers and negotiating with them. This commission will be part of the selling costs involved in exiting the market.

Real estate agent commissions differ on a case by case basis. There are some regulations around the setting of the commission. These differ from state to state.

Apart from capital gains tax, this is potentially the most expensive part of selling a property and is a significant disincentive to selling. It’s therefore important that this figure be carefully estimated.

To get an estimate, you could ask a couple of local agents. This may take some time but would be more accurate. At the same time you could aks them for an estimate of the likely sale price.

If you couldn't be bothered going to this trouble and a less accurate estimate will do, then you could use 2% of the property's current value.

Legal Fees to Sell

The cost of hiring a solicitor or conveyancer to provide legal advice and to transfer ownership.

The ‘legal fees to sell’ are the cost of legal fees incurred in the process of selling the current property. This might be the cost to hire a solicitor or conveyancer. Or it might be the personal cost of undertaking the same responsibilities.

Legal fees might include advising the seller on details of the contract for sale and attending settlement to exchange ownership.

At the lower end, this service is unlikely to only cost several hundred dollars. At the upper end it is unlikely to cost more than a few thousand dollars. $1,000 would not be an entirely unreasonable rough estimate. You can contact a solicitor or conveyancer for a quote. Be sure to ask one that is local to the location of your property.

The legal fees to sell the current property are included in the calculation of recycling costs, specifically the exit costs.

Marketing Costs for Selling

The cost to market the current property if sold and if marketing is not included in the agent’s commission.

Sometimes selling agents will have a separate figure for the cost of marketing. This is a dollar figure for the money spent on marketing a property to sell it.

If this is a significant cost, it might have a major influence on the “exit” costs. A selling agent will have an accurate idea of this cost. You could contact local agents for an estimate or simply things with an estimate of $500 which might pay for an add in a local paper and a sign board outside the property.

Note that marketing costs are not an essential cost to selling your property and may already be included in the agent's commission.

Clean-up

The cost to clean the current property in readiness for presentation to sell.

There may be a cost associated with the removal of rubbish and cleaning of a property in preparation for presentation to potential buyers. Depending on the condition of the property, this may be a significant factor in estimating the selling costs.

A property manager should have some idea of how much this will cost and what those costs are likely to be. Unless the property has not been kept in good order, it's unlikely the cleaning will stretch above $500.

Staging for Sale

The cost to furnish a property for sale.

A property can be staged for sale by hiring furniture to make the property look more appealing during an inspection of would-be buyers. This is usually only possible if the property is currently unoccupied and not already furnished.

If a significant amount is spent on staging, it could add considerably to the cost of selling the property. The idea of course is to achieve a higher sale price than if the property was not staged.

The cost of staging might be relevant in calculating the selling costs of the current property.

It's unlikely that staging will cost as little as $1,000. At the other end of the spectrum, only exclusive properties would cost more than $5,000. Should you wish to go employ staging, an estimate from a staging company would be a good idea. In most cases, properties are not staged.

Other Selling Costs

Any additional unusual costs to selling not already covered by typical selling costs.

Although we’ve considered all of the typical costs associated with selling a property, your case may differ and you may have additional costs. These can be entered here.

You may like to enter the cost of obtaining advice or a report such as Sell or Hold. You might also like to include the cost of your own time.

Other selling costs might be as little as $100 or as high as a thousand. This field can be left blank if you can't think of any obvious figure to put in here.

Capital Gains Tax

The capital gains tax that would be payable if you sold your current investment property.

Capital gains tax (CGT) is a tax payable by property investors for the financial year in which they sell their investment property. We need to calculate your CGT to determine if the sale of your property is financially efficient.

CGT can reach into the hundreds of thousands of dollars. This would obviously make a sale far less likely to be recommended than holding. If, however, there is very little capital gain or even a loss, then it might make selling quite cost effective.

CGT may not be applicable if for example the Main Residence exemption applies or if the property is owned by a company or was inherited. Check with your accountant for a precise figure.

There are different CGT calculation methods. Our calculation assumes the "Discount" method.

Capital Gain

The capital gain that would result from the sale of your current investment property.

The sale of an asset, such as a property, usually results in a capital gain or loss. This may trigger payment of additional tax. Since this can be a significant deterrent for selling your current property, it is important to get the calculations right.

In its simplest form, the capital gain is the difference between the expected sale price and the original purchase price. However, for calculation of capital gains tax, there are other considerations that affect the final figure such as: the cost base; gains or losses from the sale of other assets; and depreciation.

Stamp duty for example, is a deductible expense associated with acquiring the property. The selling agent’s commission is also a deductible expense associated with disposing of the property.

If you’re unsure of the figures that make up the capital gain, consult with your tax agent.

Cost Base

The total cost to acquire the property at the time of purchase, minus depreciation during the period of ownership

The cost base is used to calculate capital gains. The largest part of the cost base is usually the original purchase price. However, it is not the only cost involved in the cost base. Other figures come into consideration such as costs incurred at the time of purchase.

Capital gains can be tens, even hundreds, of thousands of dollars. It’s very important to get this figure right. Any inaccuracy can make a significant difference to your exit cost calculations.

Ask your tax agent for clarification if you’re unsure of the figures to enter for the initial cost base.

Current Property Original Purchase Price

The price you paid for the current property under examination.

The current property’s original purchase price is the price paid to purchase the property originally. This is used in calculations of the capital gain by comparing the original purchase price to the current value.

Capital gains tax can be one of the biggest factors influencing the cost of selling. Since it can have such a significant effect on recycling costs, it’s important the original purchase price is correct.

If the property was inherited, you can leave the purchase price blank, not even zero. Capital gains tax will usually not apply to the sale of an inherited property. Alternatively, you can set a figure, but then set the capital gains tax discount to 100%.

Stamp Duty Paid

The stamp duty already paid for the purchase of the original property.

Note that there are two stamp duty figures: one for the purchase of the original property; and one for the replacement property. This stamp duty figure is for the property currently owned that might be sold in the future.

The stamp duty to pay is a dollar amount usually in the thousands. It is a tax to pay the relevant state or territory authority at the time of purchase for the transfer of ownership.

The stamp duty paid at the time of purchase is important for calculating the cost base of the currently owned property which is important for calculating the capital gains tax liability if the property is to be sold.

There are many free stamp duty calculators available online. To find one, use the search term, "stamp duty calculator". Note that the formula to calculate stamp duty may have changed since the time you purchased the property. Find a settlement statement from the solicitor or conveyancer who handled the purchase for you.

Legal Fees to Buy Current Property

The original cost of hiring a solicitor or conveyancer to purchase the current property.

The ‘legal fees to buy current property’ were the cost of legal fees incurred in the process of buying the currently owned property. This might be the cost to hire a solicitor or conveyancer. Or it might be the personal cost of undertaking the same responsibilities.

Legal fees might include advising the buyer on details of the contract for sale; investigating the title and any encumbrances; and attending settlement to exchange ownership.

At the lower end, this service is unlikely to only cost several hundred dollars. At the upper end it is unlikely to cost more than a few thousand dollars. Find the settlement statement provided to you by your solicitor or conveyancer who helped you with the purchase.

Current Property's LMI

The LMI is a cost associated with obtaining finance to purchase property above a certain Loan to Value Ratio e.g. 80%.

LMI stands for Lenders Mortgage Insurance. The LMI is a dollar amount usually in the thousands. It is a fee paid to the lender or their insurer at the time of purchase. This is usually required for loans with an LVR higher than 80%.

The LMI paid at the time of purchase is important for calculating the cost base of the currently owned property which is important for calculating the capital gain tax liability if the property is to be sold. Given this amount could be tens of thousands of dollars, it’s important to get it right for an accurate estimate of recycling costs.

Loan documents provided by your lender at the time of purchase should make mention of what this figure was. It may alternatively be provided by a separate company called the mortgage insurer.

Improvements since purchase

The amount of money spent on improving the property since it was purchased excluding amounts claimed as repairs and maintenance.

Money spent on improvements to the property since the date of purchase that can be added to the cost base. The cost base is subtracted from the expected sale price to establish the total capital gain.

The larger the capital gain, the larger the capital gains tax. So, minimising the cost base is important. Think carefully about the money you’ve spent improving the property over the time you’ve owned it.

Note that repairs and maintenance do not count here. The improvements in this context are of a capital nature like an extension. Some renovations may count too.

The cost base is then subtracted from the expected sale price to determine the capital gain. The capital gain is then used to determine the capital gains tax.

Check records you kept for any improvements spent on the property.

Cost Base - Other

Any other amount applicable to the cost base for capital gains determination.

The sale of an investment property may trigger a capital gains tax liability. That means you may need to pay CGT.

Calculating your capital gain is not as simple as subtracting the purchase price from the sale price. There are actually many other amounts to consider.

There may be a case outside the usual factors we have considered with other fields. This field allows you to incorporate those unusual cases.

Note that you can offset a capital gain from selling a property with a capital loss from selling a different property or other assets. Similarly, you can offset a
capital loss against other capital gains made in the same financial year. This field might come in handy for doing this to more accurately calculate your tax liability.

It’s possible that a significant capital gain would mean paying a lot more tax. But if it can be countered with capital losses, the additional tax paid would be reduced. Use this field to add any other capital losses by entering a positive number. Values in this field will be used to reduce the total capital gain calculated.

Depreciation

The amount of depreciation applicable for the property for the period of ownership.

The depreciation is the total dollar figure for the amount of depreciation for the period of ownership of the current property. This figure can come from your accountant or from a depreciation schedule written up by a quantity surveyor near the time of purchase.

It is usually in the tens of thousands of dollars. Newer properties can have higher depreciation amounts for short periods. Older properties have less depreciation to claim.

Depreciation is subtracted from the cost base for the purposes of calculating capital gains tax. This is true regardless of whether depreciation was claimed or not. In other words, if you were entitled to claim depreciation, the depreciation must be removed from the cost base whether you claimed it or not.

Note that depreciation entered here should only be division 43 (capital works), not division 40 (plant and equipment). Capital works relate to the structure of the building e.g. its roof. Plant and equipment include items that can be removed from the building relatively easily like carpet. The depreciation to enter in this field is only division 43 for the purposes of reducing the cost base.

Tax laws for property investors concerning depreciation have changed considerably over the years. It might be worthwhile contacting your tax agent to confirm details.

There are a number of online depreciation calculators that property investors can use to get estimates:

- BMT
- Washington-Brown
- Depreciator
- Asset economics

For more, search online using "depreciation calculator" as your search term. You can also ask for estimates from Quantity Surveyor firms.

Other Capital Gains

Any other asset sale triggering a capital gain/loss that can be added to or offset against the capital gain/loss from the sale of your current property (enter a negative number for a capital loss).

If you sell your current property for a capital gain, you will have to pay capital gains tax. This is not payable, if you don’t sell the property. This would make selling less attractive and lend weight to the argument to hold onto it.

However, you may be able to sell some shares for a loss, in the same financial year as you sell your current property. That share capital loss can be offset against the property’s capital gain to reduce your taxable income.

Similarly, you might have a capital loss from the sale of your current property and a capital gain from the sale of some shares. Or you might only have capital gains to declare or only losses.

If we treat the capital gain/loss from the sale of your current property in isolation, we may miss out on a potential tax saving by having an incomplete view of your circumstances. This field allows you to enter capital gains or losses from the sale of other assets which might significantly affect your tax payable.

Enter a figure for any other capital gains you might have during the same financial year as the likely sale date of your current property. Enter a negative number if there were capital losses.

Note that after considering all capital gains and losses, if you have a net capital loss, this cannot reduce your salary. The loss must be carried forward to be offset against capital gains in future years. Only if you have a capital gain is this amount added to your income.

If you’re unsure of the figure to enter here, leave it blank or consult with your tax agent.

CGT Discount

The discount applicable to any capital gains tax calculations.

A discount may be applicable for capital gains tax liabilities depending on the circumstances surrounding the acquisition and disposal of the property.
If capital gains tax is not applicable e.g. in the case the property was the owner’s principle place of residence, the discount would be 100%.

Generally, if the property was owned for more than 12 months, there is a 50% discount applicable. If the property was not owned for at least 12 months, the discount is 0%.

Note that companies have no discount applicable regardless of the timeframe the property was owned for. If the property is owned in the name of a company, set the CGT discount to 0%.

If you’re at all unsure of what to enter in this field, you should consult with your accountant. If you don’t have an accountant or would like one to consult with who is experienced in the needs of property investors, please contact us for a referral.

Salary & Other Income

Your salary and any other income relevant to the calculation of capital gains tax.

The sale of an asset may trigger a capital gains tax liability (CGT). The capital gain is added to your personal income and then you’re taxed on that total amount.

This could be a very significant figure. The sale of an asset may be financially unfeasible if the CGT is extreme.

To determine the impact of the sale of your current property and therefore estimate recycling costs with any genuine degree of accuracy, we need to know your income. This helps us calculate the total amount of tax payable and eventually estimate whether a sale is financially efficient.

Funds to Buy Replacement Property

The total funds allocated to the purchase of the replacement property.

Should you choose to sell your existing investment property, the sale should release some funds after the mortgage is paid back and real estate agent has their commission, etc. These funds can then be used to purchase a replacement property, paying for the deposit, stamp duty, legal fees, etc.

However, you may want to contribute extra equity to target a higher priced property. Or you may want to preserve some equity in readiness for emergencies.

This field is the final calculated figure of funds to be used to purchase a replacement property. This calculation considers funds released from the sale, extra equity contributed and any equity to be preserved.

Post-Tax Sale Proceeds

The amount of money you’ll have left if you chose to sell your current investment property.

If you were to sell your current investment property and pay back the outstanding amount on the mortgage; pay the agent their commission; capital gains tax; legal fees; etc. you would have a certain amount left over to reinvest elsewhere. This field displays that calculation. It is useful for gauging the budget you will have for purchasing a replacement property.

Extra Equity Contribution

An amount of additional money you’d like to contribute to prop up the post-tax sale proceeds.

If your property has had some negative growth or significant exit costs, it’s possible you may not have enough money to fund the purchase of a replacement property with the sale proceeds.

It’s even possible that you have negative equity. This can occur if the current value of the property is less than the mortgage.

You may have extra funds elsewhere, for example an inheritance or some shares you can sell. You might like to contribute those extra funds to overcome negative equity or simply to boost the target price range of the replacement property.

Enter an amount in this field for the extra equity you would like to contribute. This will be added to the sale proceeds and the total will be used to estimate the target price range of the replacement property.

Note that if you use this field to boost the target price range of the replacement property such that it is a lot more expensive than the current property, it will skew the comparison between the current property’s future performance and that of the replacement property. The growth of a $1mil property in dollar terms should easily exceed that of a $200k property in a superior location.

The extra equity contributed is subtracted from the performance of the replacement property to help make the comparison fairer.

Equity Reserved

An amount of equity from post-tax sale proceeds to be held in reserve, not to be used to purchase the replacement property.

The sale of your property might result in a large amount of equity being released. This can occur if the current value of the property is much higher than the mortgage.

These funds can go towards the acquisition of a replacement property. However, you might want to preserve some of that equity for emergencies; renovations; some other investment; etc.

Enter an amount in this field for the equity you would like to preserve. This amount will NOT contribute to the acquisition of the replacement property. The amount will be subtracted from the sale proceeds and the remaining total will be used to estimate the target price range of the replacement property.

Note that if you use this field to reduce the target price range of the replacement property such that it is a lot cheaper than the current property, it will skew the comparison between the current property’s future performance and that of the replacement property. The growth of a $1mil property in dollar terms should easily exceed that of a $200k property in a superior location.

LVR for New Purchase

The Loan to Value Ratio to finance the replacement property.

Unless you can purchase the proposed replacement property in cash (i.e. savings), you’ll need to borrow some money. It's unlikely you'll be able to borrow the entire purchase amount. Most lenders will want you to contribute an amount yourself. This is called the deposit.

If you plan to buy a $500,000 property and you provide $100,000 as the deposit, then you'll need to borrow $400,000. The loan will be 80% of the value of the property. The deposit would be 20%. In this case, the loan to value ratio (LVR) would be 80%. This is quite typical.

Higher LVRs than 80% are possible but are harder to obtain.

Note that the loan to value ratio may not be the same for the new property as is the case for the existing property.

The new property’s LVR is combined with the funds released after the sale of the existing property to determine the target purchase price of the new property. A small inaccuracy in the expected LVR will radically change your target price range for the replacement property and ultimately the opportunity cost.

This figure is very important to get right. It is best you consult with a mortgage broker to ensure that lending policies have not changed, or your own financial circumstances, since your original purchase.

Borrowing Capacity

The maximum amount you’ve been advised you can borrow from the lender.

This field can be left blank if you’re sure you can service a mortgage of the size estimated by considering the replacement property target price and the LVR for the new purchase.

If you have a large amount of equity in your current property, then the sale proceeds may be very large. This means the target replacement property could be in a very expensive price range.

Lenders may place limits on how much you can borrow based on your ability to service the mortgage. A very large figure for the sale proceeds, doesn’t automatically mean you can buy a very expensive replacement property.

If you have a borrowing capacity limitation, it should be provided. This will be used to reduce the replacement property target price to within a more achievable range from a financing perspective.

It is important you provide an accurate and realistic figure for your borrowing capacity. Borrowing capacity heavily influences the target price range.

Your mortgage broker can help here. You will need to provide them with details about your earnings, expenses, assets and liabilities. They in turn can advise you on your likely borrowing capacity.

Entry Costs Estimate

An estimate for the total cost of buying the replacement property to re-enter the market.

Entry costs are all costs associated with “entering” the market i.e. buying a property. This typically includes things like stamp duty, inspection fees, legal fees, etc. The entry costs in this context are the costs of re-entering the market using the sale proceeds of the current property, once sold.

Entry costs are added to Exit costs to provide a total figure for the cost of recycling equity out of one property and into an alternative.

Entry costs are usually very high. This makes recycling equity unfeasible in many cases. Having an accurate measure for the entry costs is vital to determine whether it is worthwhile selling or better to hold.

Note: that at the time of data entry, the calculation for the entry costs include an estimate for stamp duty. Stamp duty is dependent on the state in which the potential replacement property will be purchased. This is not known at the point in time when data about the current property is being entered. The correct entry costs for the potential replacement property will appear in the recommendation report when a specific alternative has been selected.

Interest Rate for New Purchase

The interest rate for the loan to finance the replacement property.

Unless you can purchase the proposed replacement property in cash, you’ll need finance (i.e. a loan/mortgage). The mortgage interest rate may not be the same for the new property as is the case for the existing property.

The new property’s mortgage interest rate is used to calculate the expenses each year that will be incurred for owning the new property. You may need to consult with a mortgage broker to obtain a more accurate estimate since lending policies, serviceability calculations and interest rates may have changed since you last applied for finance.

If the interest rate you enter is inaccurate, the comparison calculations could be out by thousands. It is best you consult with a mortgage broker to get an accurate estimate.

Stamp Duty to Pay

An estimate for the stamp duty to pay if buying a replacement property.

Note that there are two stamp duty figures: one for the purchase of the original property; and one for the replacement property. This stamp duty figure is the one to be paid for the new property not yet owned, that might be purchased in the future if it is financially feasible to recycle equity out of an existing property into a new one.

The stamp duty to pay is a dollar amount usually in the thousands. It is a tax to pay the relevant state or territory authority at the time of purchase for the transfer of ownership.

The stamp duty to pay at the time of purchase is important for calculating the re-entry costs. Stamp duty is a significant deterrent for selling, so it’s a very important factor to consider in calculating recycling costs.

Note: that stamp duty calculations are dependent on the state in which the potential replacement property will be purchased. This is not known at the point in time when data about the current property is being entered. So, an estimate is calculated. The correct stamp duty to pay for the potential replacement property will appear in the recommendation report when a specific alternative has been selected and the state is known.

There are many free online stamp duty calculators you can use. Search for, "stamp duty calculator".

Inspection Costs

The total cost of all inspection to pay for the potential replacement property.

When buying a new property, there are a number of reports buyers can pay for to find out information about the property such as a building inspection, pest inspection or strata report. This equation tallies up all the inspection costs.

Building Inspection Cost

The cost for a building inspector to assess the structure and condition of the potential replacement property.

A building inspection can be ordered to identify any issues there might be with the property to be purchased as an alternative to the current investment property.

A building inspector is required to perform this. They charge a fee in the hundreds of dollars depending on the nature of the property.

You can get a quote from inspectors operating in the area of the intended replacement property.

Pest Inspection Cost

The cost for a pest inspector to assess the potential replacement property for termites, borers, etc.

A pest inspection can be ordered by a potential property buyer to see if the property they intend to buy has any issues with respect to pests like: termites, borers, etc.

The cost for this is usually in the hundreds of dollars. You can get a quote from pest inspectors operating in the area of the potential replacement property.

Strata Report Cost

The cost of obtaining and examining a strata report (N/A for houses on a single title).

If the alternative property to replace the current one is strata titled, then a strata report may be requested as part of the due diligence. This is a report that might outline issues with the common areas shared by the property and other strata titled owners in the complex.

Strata is also known as “body corporate”.

A strata report is usually researched by your legal counsel. This could be a solicitor or conveyancer. However, it is possible to do this yourself. There is a cost to obtaining and examining the strata report. It is usually in the hundreds rather than thousands.

You can contact a conveyancer or solicitor and ask for an estimate of how much it might cost for this service.

Note that a house is on a single title and does not have a strata plan.

Depreciation Schedule

The cost of obtaining a depreciation schedule for the intended replacement property.

The Australian Taxation Office (ATO) allows property investors in certain cases to claim “depreciation” on their investment property. This is a claim to cover the cost of the eventual deterioration of a property over time.

The precise amount to claim is best determined by a professional. These professionals are called Quantity Surveyors. They can prepare a depreciation schedule for your property for a cost.

You can look up quantity surveyors operating in the area of the intended replacement property and ask for a quote. This will usually be in the hundreds of dollars.

Other Inspection Costs

The cost of obtaining any other inspection reports not already covered in well-known inspections.

The usual inspections have been covered in other data fields. However, your replacement property might have a need for additional exceptional reports such as an engineer’s report.

If you think you might need another report, add in the cost of all additional reports in this field.

Legal Fees to Buy Replacement

The cost to hire a solicitor or conveyancer to purchase a replacement property.

The ‘legal fees to buy’ are the cost of legal fees incurred in the process of buying the replacement property. This might be the cost to hire a solicitor or conveyancer. Or it might be the personal cost of undertaking the same responsibilities.

Legal fees might include advising the buyer on details of the contract for sale; investigating the title and any encumbrances; and attending settlement to exchange ownership.

At the lower end, this service is unlikely to only cost several hundred dollars. At the upper end it is unlikely to cost more than a few thousand dollars. Contact a local solicitor or conveyancer for a quote.

The legal fees to buy the replacement property are included in the calculation of recycling costs, specifically the re-entry costs.

Buyer's Agent Fee

The fee to hire a buyer’s agent to find an appropriate property in one of the targeted replacement markets.

If you’re time poor, live interstate, have no idea what an investment grade property is, or you’re a poor negotiator, you might like to hire the services of a Buyer’s Agent (BA).

A BA works on behalf of the buyer, much like a real estate agent works on behalf of a seller. A real estate agent will try to get the best price for their client, the seller. A BA is trying to negotiate the best price for their client, the buyer.

A BA can also research an area to identify no-go zones, good streets, good & bad properties. They can also help with the buying process.
Their experience is extremely valuable. However, their fees reflect that. Some charge as little as $5,000. Some charge as much as $15,000.

Other Entry Costs

Additional costs related to acquiring the replacement property with no specific label.

We’ve covered most of the usual costs associated with buying a property. But there may be some we’ve missed. You can enter a figure in this field for whatever we’ve missed.

Replacement Property Target Price

An initial idea of what the target price range of the replacement property might be.

Knowing the funds available to buy a replacement property and the expected LVR for the new property gives us the ability to estimate the target price range. However, there are other costs associated with buying a new property. The largest is stamp duty. This has to be paid out of the funds available. That will reduce the amount for a deposit and lower the target price range.

This field contains a 1st estimate of the target price range, from which stamp duty and other entry costs can be calculated. Note that this is an approximation and the target property markets we recommend as alternatives may not always contain property that perfectly match this value.

Estimated New Property Expenses as %

An estimate for the expenses (excluding mortgage interest) that the replacement property will incur annually as a percentage of its purchase price - typically 1 to 2 percent.

We don’t know what expenses a replacement property will incur. We can only estimate them as a percentage of the replacement property’s value.

When searching for a replacement property, you might notice expenses above what is considered typical. You can use that as a gauge to help choose the replacement property.

For now, enter a value of what you might expect the replacement property to incur. Use the percentage as a means of estimating. Do not include mortgage interest payments.

Typically, values will be somewhere between 1 and 2% of the property’s value. For example, if the property is worth $500,000 you could expect to pay between $500 and $1,000 a year in repairs and maintenance.

Note that older properties might have higher repairs and maintenance costs. Strata titled properties will have additional costs to maintain the common property. Cheaper properties’ repairs and maintenance might be a higher percentage of the total property price. Properties with a lower land value compared to the building value, will have higher costs as a percentage of the total property’s value.

Inflation Rate Estimate

An estimate for the rate of inflation to gauge how quickly holding costs will rise in the near future.

To keep our analysis accurate, we need to forecast a rate for the increase in the cost of holding a property. It’s no good forecasting future capital growth without considering the decreasing value of money due to inflation.

You may be able to get an estimate and possibly even a forecast by browsing the Reserve Bank of Australia's website.

Recycling costs

The cost of selling and the cost of buying elsewhere with the sale proceeds.

Recycling costs include the costs associated with selling a property (i.e. exiting the market); and the costs associated with re-investing the sale proceeds into an alternative property (i.e. re-entering the market).

It is impossible to make an informed decision to sell or hold a property without knowing the recycling costs. It might be so expensive to recycle equity from one property to another, that the performance of the alternative property can’t possibly overcome the recycling costs.

The superior performance of an alternative property is known as the opportunity cost. It’s named “opportunity cost” because it is the cost of missing out on an alternative investment opportunity because your equity is tied up in an inferior asset.

The recycling costs are compared to the opportunity costs to see if it makes sense to sell and buy elsewhere. If the recycling costs can easily be overcome by a better opportunity, the recommendation is to sell and buy elsewhere. If the recycling costs are larger than the opportunity costs of the best alternative property, then the recommendation would be to hold.

Opportunity Costs

How much you’d miss out on by not recycling equity into an alternative investment.

The current investment property’s forecast net return is compared with the potential replacement property to see how much you’d miss out on by not replacing your existing property with the alternative. This is forecast for several years into the future.

Current property market's DSR+

The DSR+ of the market in which your current investment property resides.

We analyse the market in which your current investment property resides in order to forecast its potential for future growth. Our key metric of supply & demand is the DSR+. You can learn more about the DSR+ from . . .

DSRdata.com.au

Can’t find a field? Doesn't answer your question? Just email info@sellorhold.com.au and we will get back to you as soon as possible.

Please note that our support staff cannot provide tax, financial or investment advice. We strongly encourage you to seek advice from a qualified tax professional, financial advisor or property investment advisor. Click here for a list.

“Sell or Hold sample report”