I thought I might have a brief discussion on dual occupancy exit strategies. There are many different exit strategies open to an investor, and the exit strategy which best suits them will depend on what their overall investment strategy is and how their circumstances transpire over time.
Now having an exit strategy is very important, but it may not be possible to know exactly what your exit strategy will be as it is very hard to know how situations will go as there are always surprises which can pop up. Exit strategies become far more important when you have a short to medium term investment time frame and of less importance over a long-term investment time frame.
I’ve outlined several basic exit strategies below, and would like to expand on some possible dual occupancy exit strategies. Remember that with any exit strategy it is important to consult a taxation professional and in some cases a solicitor so that you are aware of what taxation consequence will arise from each strategy and what structural options you have open to you.
Buy and Never Sell:
I would always think that the best strategy would be to hold the property for a long period of time and gain significant growth. I’ve always been a fan of the buy and never sell strategy and having the ability to pass down assets to family members, however this will depend on individual circumstances. But if you are in the position to service the loan over time with the rent, and interest rates don’t go up too high in the short term, then this would be a great option.
Sell Down and reduce loans:
Some investors may wish to sell down assets and reduce any loans that there is against other investment properties or against their principal place of residence. Whilst this strategy can mean that there isn’t the chance to benefit from the future Capital Growth on the sold properties, it does give people who are looking towards retirement some peace of mind over not having borrowed funds.
Moving In to the property:
This is a strategy that many people think about, some interstate investors think about purchasing in South East Queensland with the intention of having the option of retiring there one day. Moving into a property that you own can be a good option, however, it can be a dangerous strategy to purchase an investment property based only around where you want to live, as you may not consider the important investment fundamentals that the property should have. Focussing on where you may want to live in the future is hard as you don’t know what the future holds. A far better strategy is to purchase a property for Capital Growth and income return, and then using the equity and growth from that property, purchase a property when you want to move into it. This way you can focus on income return and building equity and growth, and when you do choose a property to move into it will be based around your circumstances at the time.
A dual occupancy property does offer a great layout for an older couple as they may have the option of having family move into the other side and be close by their family without being in the one dwelling. So if a strategy was to downsize into a dual occupancy property then you may still be able to get an income out of one of the two dwellings.
Pass on to family members:
This can be a great way of ensuring that your kids or grandkids are able to enter into the property market. It is worth speaking to an accountant first to assess what stamp duty is payable and what taxation consequences there may be.
Ownership or structure change:
Some people may wish to change the ownership or structure of how the property is held. This may include transferring the property into a Trust. Any changes will need to look at taxation and stamp duty consequences.
Future Development Opportunity
There may be a chance to undertake a development. These can vary from simply turning a standard house into a dual occupancy or if there is a big block or a change in Council Zoning you may be eligible to subdivide.
In summary, there are a number of different exit strategies open to property investors. The final exit strategy will depend on what the situation, goals and aspirations of the individual investor is. It is very important that if you have a specific exit strategy in mind that you discuss this strategy with the relevant professionals as the wrong structure can be expensive and if you have to make changes down the track it can trigger taxation or stamp duty fees.