Aussie Firebug

Financial Independence Retire Early

Our third and last investment property (IP) has officially been sold ๐ŸŽ‰๐Ÿ‘

It was actually the second investment property that we bought and I’ve always referred to it at IP2 in this blog but we sold IP1 back in 2018 and IP3 a few months ago which is why it’s technically the third to hit the road.

Selling IP2 continues our strategy for creating a passive income to fund our lifestyle in retirement. The investment properties had a different purpose in our original strategy for reaching financial independence, but now we exited all our positions in direct real estate except for our PPoR which we bought in 2021.

 

What Was The Return?

Following the theme from the IP1 and IP3 sale articles, I’ll get straight to the point.

We turned $56,326into $119,094 over 8 years which works out to be an annualized after-tax return of 11.29%.ย 

If you’re interested in all the finer details of how we arrived at that figure please read on.

 

The Numbers

IP2 was bought in SE Queensland for $169K in 2014.

Buying expenses

$2,000 Initial deposit
$380 Building and Pest inspection
$25,700 More of the deposit
$6,487 Rest of Deposit
$6,625 Outlays including stamp duty and Legal Fees
$200.00 Settlement Fee
$488 Land Titles Office
$9,900 Buyer’s agent fee
$200 Guarantee Fee
$200 Fee for attending settlement

 

  • I paid a 20% deposit to avoid LMI
  • I used a buyer’s agent because back in 2014 I was very time-poor. I didn’t have the time or desire to go up to Queensland to scope out the place and really do my due diligence so I outsourced it.

Actual money spent so far: $52,181

Cash Flow/Holding Costs

Cash flow Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Rent – Expenses -$1,121 -$2,116 $1,148 -$1,202 $1,672 $64 -$3,144 -$2,041
Depreciation $5,940 $4,556 $3,496 $2,799 $2,339 $2,036 $1,835 $1,702
Tax Refund $2,613 $2,469 $869 $1,480 $247 $730 $1,842 $1,385
Total $1,492 $353 $2,017 $278 $1,919 $794 -$1,302 -$656

Total cash flow over the 8 years = $4,894

Notes:

  • I had a lot of repairs that needed to be taken care of before I sold the property in years 7 and 8.
  • I’ve included depreciation and a tax refund even though this property was held in a trust and not in my name. This means that the taxable income of the trust was lowered but my personal income was not affected. It’s hard to measure the full effect of the depreciation so I just used a refund amount based on the 37c tax bracket as I did for IP1 and IP3.
  • I used the diminishing value method for depreciation.

Actual money spent so far: $47,287

Selling Costs

  • $635 – Conveyancing
  • $8,405 – Went through a traditional agent for the sale because the property was located in Queensland and I wasn’t in a position to go up there and host open days. The commission was a lot more than IP3 because apparently gold coast property has a premium attached ๐Ÿ™„

Total Selling Costs: $9,040

Total money committed to this investment over 8 years: $56,327

The IP was sold in November for $250,000

I invested $56,327ย of my own money and received $119,094 ($250,000 – $135,800 + $4,894) 8 years later giving me an annualised return of 11.29%.

 

Return on Investment (ROI) and Tax

I used this website to calculate my return on investment for IP3. The formula was the following:

Annualized Return = ((Ending value of investment / Beginning value of investment) ^ (1 / Number years held)) – 1

And just like I explained in my IP1 Sold article, I’m only calculating how much of my money was spent, and how much cash I got back after I sold. Because that’s all that really matters IMO, it’s all about the cash on cash returns.

The tax bill for this investment will be washed through the trust and all of the gains will most likely go to my self-funded retiree parents or potentially my sister who has just had a baby and isn’t working. They will hopefully be kind enough to gift the profit back to the trust. So no tax be will be paid for this investment.

One last thing to note is that even though we had this property over 8 financial years, we technically only owned it for 7. So I used 7 in the calculations FYI

 

Why Did We Sell?

In a nutshell, selling our investment properties is part of our current investment strategy. We want to pump more $$$ into our index style share portfolio to create a passive income stream that will free us from the 9 to 5 grind.

 

Conclusion

Not much else to say really. I’ve been talking about going 100% passive for years and it feels awesome to finally be in this position.

The only thing left for us to do is deploy the $200K+ of cash we have sitting in the bank atm. We plan to debt recycling part of our PPoR loan with this money before we dump it into the markets but the details of that are in another article that I’ll hopefully publish before the end of the year (not long now).

Real Estate has been an incredible wealth-building tool for Mrs FB and I but there’s something super satisfying knowing the days of tenant issues are over… at least for now. We have no intention of jumping back into real estate in the future but ya just never know!

Spark that ๐Ÿ”ฅ

 

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