I am selling 57 of my investment properties

I was in Prague a week ago visiting the in-laws and like a lightening bolt the idea came to me to sell part of my portfolio.

I had been used to saying to myself "never sell" but I had overlooked 2 very important things:

1. The opportunity cost of capital
2. The new capital gains tax rate of only 18%

The opportunity cost of capital is an accountant's term to calculate what return you could get from applying your capital which would then be stated as a cost if you did not apply the capital.

Its best explained using an example.

I own a property in Harlow bought 10 years ago worth £250,000 with a £120,000 mortgage outstanding on it.  This means that there is around £130,000 in equity.  The property breaks even on the rent and has no likelihood of growing anymore in the next 3 years.

Now if I were to keep this property I would make at best nothing or maybe lose a couple of thousand over the next 3 years.

If I were to sell the property I would realise after tax around £94,000.  Now if I were to put it in the bank I would earn around £17,000 over the next 3 years.  Which is a lot better than a few thousand being lost.

However, if I were to use this £94,000 as deposits to buy around 20 flats for £30,000 each which will give me a £150 profit per month plus an anticipated 50% capital growth over the next 3 years I would expect to make a whopping £400,000.

So I came to the conclusion that I need to put my equity tied up in some of my earlier purchases to work,

The new capital gains tax rate is highly favourable.  It used to be 40% less a bit of taper relief which at best made it 24% but sometimes only reduced the effective rate down to 36% which is way inferior to the new rate.

So I am now in the process of selling 57 properties which will raise about £1.7m after tax which I will gear up to buy £11m worth of property which should grow by at least 50% making me a cool £5.5m over the next 3 years.  Even if it doesn't grow by this much I will still make a monthly profit of £55,000 if I get full occupancy.

If you want to get some of these properties have a look at what my office have found.

Visit: Latest Deals

Ajay

Posted on: 1st Apr 2008