What a lot of people do when they sell with the view to upgrading – and rightly so; is try to sell in a rising market to achieve the best possible sale price. They need to do this (to also realise the best possible tax free profit they can) so they have more purchasing power in the next purchase (buy a more expensive property) often wanting to reduce the debt levels in the larger purchase or at the very least, take in more equity. A rule of thumb is to buy and sell in the same market. But this can still be sometimes costly – when you factor in purchasing costs on top of the purchase price and certainly in a rising interest rate environment like we are in now – at least uincertain!
Conversely, in the current market we are in, there are advantages in selling a property on the basis of a “mark to market transaction”. For example if your property was purchased in 2005 for $1.8 million and today (Dec 2010) it could achieve $2.5 million but back in March 2010 it may have got $2.7 million the seller may consider they have lost equity in their property – not true; they have missed the opportunity to realise a greater profit, that’s all and they will have had to pay a higher price for the upgrade property – more than likely...
Consider this though, if the property you purchased for $1.8 million in 05 sold at a realistic price of $2.5 mill today, you will have realised a profit of $700,000 + the equity (which was probably 20% of the original purchase or $360,000). You will have achieved a ROC (return on capital) of 94% - TAX FREE by the way; and now you can purchase the 'upgrade' property (even factoring in higher interest costs – not so if you are an expat borrowing off shore, and even accounting for the strength of the AUD) which in a heated market would have attracted a price of $3.7 million in March 2010, now, in 2011 - with the competition premium evaporating; the same property on a like for like can be purchased for around $3.3/3.4 million or better (this isn’t myth, these are the adjustments we have and are seeing in the market).
A saving on the purchase of $300-$400,000 + is not insignificant when you factor in Stamp Duty Savings as well and the interest savings (See the Table below). The savings shown below would more than compensate for the strength of the AUD currently for expats, and the uncertain interest rate environment we are in - locally; plus the “time in market” upside (cash in property rather than cash at bank).
Even if you have nothing to sell, have already sold, or are relocating, buying in the current market at certain price points will deliver fantastic savings - and are not insignificant and may represent hundreds of thousands of $$$ as well as well as lower interest costs, saving tens of thousands of dollars year on year...
A saving on the purchase of $300-$400,000 + is not insignificant when you factor in Stamp Duty Savings as well and the interest savings (See the Table below). The savings shown below would more than compensate for the strength of the AUD currently for expats, and the uncertain interest rate environment we are in - locally; plus the “time in market” upside (cash in property rather than cash at bank).
Even if you have nothing to sell, have already sold, or are relocating, buying in the current market at certain price points will deliver fantastic savings - and are not insignificant and may represent hundreds of thousands of $$$ as well as well as lower interest costs, saving tens of thousands of dollars year on year...
A Purchase in March 2010 on a like for like | $3,700,000 | A Purchase now in 2011 on a like for like | $3,300,000 |
Stamp Duty | $188,990 | Stamp Duty | $166,990 |
| Total Cost | $3,888,990 | Stamp Duty Saving | $22,000 |
Add Purchase Price Saving | $400,000 | ||
Saving | On the upgrade or purchase | $422,000.00 | |
Interest saving on $422,000 @ 7% | $29,540.00 per annum year 1 |
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