Our third and last investment property (IP) has officially been sold 🎉👏
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%.
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 🙄
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 $56,327 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 🔥
Can’t wait to hear how (lump sum or dca) and which etfs you will deploy the funds.
Btw I love how analytical and transparent you are. Thanks for sharing all your numbers. A lot of my friends and family have strong beliefs in property but when I try ask them about the numbers they think I’m attacking their investment choices an it’s hard to get a clear pic. It’s great to hear properly did well for you but like you said, it’s not passive and takes headspace
No worries. Yeah it’s always hard to compare stocks to property. Apples and oranges really.
Matt, huge congrats to you and Mrs AFB!
I’ve been following your journey for years and it’s been wonderful to read the evolution from staunch renter & property investor & renovator extraordinaire, to a fully passive stock market index investing style & owning your own PPOR. Quite the sea change.
Congrats on the huge accomplishment of the multi year, multi property divestment. I love it when a plan comes together 😎
And, a proper welcome to the Aussie & Global Bogleheads cult 😂
“rick james give it to me baby gif”
😂 Thanks Papa.
It’s been a journey that’s for sure. I think having this blog and writing down my thoughts has helped me question my beliefs over and over which has been a huge side benefit. It’s very therapeutic having a blog and my mind is always open to new ideas.
But yes, it feels amazing being in the position we’re in. Truly blessed to have our plan come to fruition 🙏
Did you pay a Gold Coast REA 3.3% commission to sell your IP? Yes REA commission is more expensive on the GC compared to say, Melbourne (1.7% inc GST), but you shouldn’t be paying more than 2.2% inc GST
I think it was around 2% but they of course had the marketing on top. I’d have to double-check.
Congrats AFB on finally getting rid of the last IP.
Would love a write-up on the Pros and Cons of going down the IP route!!
Also if you were to go back would you have done the same thing or go all in on ETF/shares?
Can you actually calculate how much of an annualised return you would have made if you went the ETF/shares right from the beginning?
Love your work always. Cheers
I’ve always thought about this with my IPs, I wonder how it would stack up against the share market once you calculate all the costs as well as the income/tax advantages etc. Would be really interesting.
Thanks mate!
That’s a good suggestion for an article 👍
If I could go back in time I would have invested in Bitcoin right lol. But yeah… I think it’s all a learning journey and it’s hard to say if one investment is better than another because I learnt a lot buying, renovating and selling the properties over the years.
Stuff that I would have never learned in shares so it’s hard to say.
On a pure return basis, I would have been better off just sticking to the index instead of IP2 and IP3. IP1 is the exception but there were so many reasons why it was the exception so that’s not really fair to compare it to shares honestly.
Can’t stand getting ripoffed by lazy PM & tradies, especially handyman (jack of all trades, never know what handy work you’ll get) , more so if you are not local !!!!!!
Congrats on selling the property!
I’m keen to know though why you didn’t see IPs as part of your passive income stream for the future? Getting rental income each month is great passive income!
Or was it just a matter of simplification and tenants are a pain and index investing is just easier?
Thanks Penny.
Basically the latter.
Properties have served us well but I just don’t want to spend any more mental bandwidth on them. We have other endeavours these days and the thought of a 100% passive portfolio is super appealing.
And that’s about it really
Totally understand. I have 2 IPs and sometimes incoming & outgoing tenants etc every year is a bit irritating – but I am blessed with a very good agent who manages 100% of it for me. I’m not sure how I’m going to feel about it once I have to Reno both apartments due to age (they’re 10 years old now), but up to now I’ve found it a great way to reduce my tax each year. Each to their own right! Love your blog!
We sold our 2x IPs in WA back in 2019. It was great to be free of them, was always something that needed to be chased up or fixed! In saying that though, I owned the properties through 10 years of capital loses with WA house prices reducing every year!
Congratulations Matt. Been following you for a few years. So enjoyable to see your journey. Good on ya!
Forgot to tick follow up.
Thanks a lot Declan 🙂
☺️
Great to hear you are now all passive income. looking forward to the debt recycling article, thinking of refinancing my debt free property and doing the same.
If you could jump on a time machine and go 8 years into the past.
Would you still have bought that property?
Or would you rather have invested those 50K on an ETF in the share market?
How better (or worse) would you be today?
I would have invested in Bitcoin of course 😁
… but all jokes aside. ETFs would have provided a better return with less effort but at the end of the day, the IP2 still returned an above-average investment so I can’t really complain.
What was the consideration to SE QLD currently going through a massive property boom vs indexes all very overheated at the moment ? Timing of this transfer is interesting.
Who says indexes are overheated? How do you know SE QLD is going to go through a massive property boom in the future?
you had a loan? where are your interest payments in your numbers?
They are accounted for in the expenses column boss 👍
Hey Matt
Do you work out what the returns would have been like had you invested that deposit money and closing costs into EFTs instead of the property. Would have been better or worse off?
No, I haven’t but that’s an interesting idea. I should model that in Sharesight and see what it comes out at!
Hi Matt & Mrs AFB – how did you find using a Buyer’s agent. We are about to sell our PPOR in a regional town and buy a PPOR in a new city (have rented for a short while so only just starting to get to know the area). How was your experience / anything to learn from it? Cheers – Dan
It worked out well but there are just soooooooooo many sharks in that space.
My sister recently has a great experience last year too.
It really depends on the situation. Are you after something unique? Or a pretty stock standard build?
Are you time poor?
Are you a bad negotiator?
What problem will the buyer’s agent be solving for you guys?
I am in the stage where I’m tossing and turning as to whether to sell my IP. I want to move into ETFs and not have the worry of tenants and strata fees, the increase of mortgage rates or worrying if my rent will cover my repayments. Everyone says to keep the IP but my gut is saying to sell. I’m glad I read this article, it’s helping me make my decision.
If you’ve decided to sell your IP, what ETFs will you deploy the proceeds into, and will you do it lump sum in one hit? I’m thinking of doing the same. I think there’s lots of data saying this is better than DCA into ETFs
Currently I have NDQ and A200 and so I would add to those ETFs leaving a portion in my bank as my safety bucket. I would probably do a lump sum in one hit, but I wonder if it’s better doing it increments.
So interesting to come across this article now, as I just got off a call with a mortgage broker for my first IP. I will certainly reconsider going all out for a single asset class, while still needing to do something with the small deposit that’s been saved up.