Hi,
New to this forum and would like opinions in relation to property investing.
Here’s the deal…….
We have recently bought a home in a nice location in Leonay (NSW) – 6 bedder, 4 bathrooms on the golf course. Settlement in February 2008.
The home where currently live we own outright – 4 bedder, 2 bathrooms renovated in the past 7 years. Agent has given a recent sale range of $450,000 to $480,000. Same agent has also given us a possible rental return of $380.00 PW if we took the rental option.
My question is: Should we keep the 1st house, put on the rental market and re-finance this (maximize tax benefits) or would it be advisable to sell the 1st house, transfer the $$$ and equity to the new house and re-invest in a two or three properties at a lesser value?
A little more info financially: Our combined income is approx $100k and we have $150K invested with a reasonable return in a bank, which is easily available to use in other investments.
Thanks for you opinions.
-BS-
Hi BS
This is a common question.
Firstly, you will not be able to get any tax advantage by mortgaging your existing home now. ATO looks at the use of funds.
So, you will have the existing home without a mortgage and will be renting this out. This will create extra income and you will need to pay tax on this.
And you will need to borrow to buy the new house. So you will be paying interest on this loan, but this will not be tax deductible as it is for personal expenses.
One way around this is to sell and put the money released off the new home, and then buy another investment property. But this has various costs involved including agents fees, legals and the biggest one – stamp duty.
If you wish to keep the existing one you could always consider selling it to yourself. eg. If the wife buys the husband's 50% share 50% of the value may be released and this money can go off the new home loan. Stamp duty will be less this way.
Another option would be to sell to a trust you control.
You will need to calculate the rough costs to do this and then work out the tax savings. If it takes too long to make your tax savings then it may not be worth doing.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
bevans000 wrote:My question is: Should we keep the 1st house, put on the rental market and re-finance this (maximize tax benefits)-BS-
Hope you weren't given this advice by a professional. As pointed out, the ATO looks at what the funds were used for to determine deductibility. In your case, if you use the refinance to pay down your new home then that has no taxation benefits.
You can use this loan to fund another investment or two but it cannot help you reduce personal (inc home) debt AND be deductible.
As one would expect the above comments made by Terry and Simon are bang on.
Certainly you need to weigh up the costs of selling the property into a Trust structure in relation to Stamp duty, potential land tax liability etc etc.
However if you take the interest charged at say 8% on say $465,000 being the potential sale price this amounts to just over $37,000 PA. If you leave things as is the entire amount needs to come from after tax dollars and is not deductible.
Assuming the interest becomes deductible at a marginal rate of say 30% it has to be better in your pocket than the ATO.
As Terry mentions it all depends on how long you would intend to retain the current PPOR as an IP.
Richard Taylor | Australia's leading private lender
Hi again,
Thanks for the promt replies. Your advise is as I suspected.We have an 80% approved line of credit on the 1st home. I thought I may me able to draw down from this and "shuffle" the funds across to the new purchase.
Looks like I will call the Agent and get the ball rolling and put the house on the market.
Next question would be "Unit, units or another house as an IP?" Guess this needs to be posted in the correct forum.
Thanks again.
-bs-
Hi, that's been my welcome to Australia. The tax laws cause us to move house every so often. I've just sold my house & will be moving to one that I've just built.
Like you, I fortuitously bought before I sold so both properties have gone up in value.
It didn't make sense for me to sell the new house & I needed to retire some debt. Selling PPOR gives me the greatest cash back.
Hatefully, there's the hassle of moving house & re-establishing.
Incidentally, I can now transfer one property into a Super fund & develop it within the fund so future capital gain is either tax exempt or tax advantaged.
Good luck to you,
Kum Yin
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