Hi,
Secenerio:
Got 3 investment properties several years back which have some good capital gains, want to sell them off to pay off the PPOR and personal debts. However on second thoughts, these investment properties have achieved good rents, worried that once sold these properties, may not be so easy to get some good cheap properties in the future. Any suggestions?
Thanks
Why sell them ….?
Refinance your loans so that you pay off your PPOR and leave the loans on the investment properties….
There are a few guys on this site that I'm sure could help you refinance.
If you are able to hold onto these properties… the long term compound growth is where the real money is made.
Also… if you sell now… you pay a lot of CGT…
The governements has made some announcements today on tax changes that will have an impact on this.
If you can afford to… I would refinance and lock the rates up for a few years.Hope this helps.
Cheers.[quote=The Contrarian]
Refinance your loans so that you pay off your PPOR and leave the loans on the investment properties….
Cheers.[/quote]I'm sorry but I don't see the point in this. If you refinance your IP's to pay off your PPOR then this extra lending is not tax deductible as it will be used for private and not investment purposes.
At least that is what I understood you were suggesting Contrarian. Sorry if I misunderstood.
If you have the equity then you might like to refinance either your PPOR or one of your IPs to clear your personal debt assuming this is at a significantly higher interest rate. You could do this via a split loan and for a much shorter period than your housing loan. This new loan will not be tax deductible either but would save you interest.
Personall I would not sell good IP's to pay off my PPOR or personal debt unless my back was to the wall.
Hope this helps
ElkaHey Catherinec,
This suggestion is not as exciting as refinancing or anything like that. But without knowing your full situation, I am going to assume that a several years back means that you may have bought this properties early boom and you know have positive cashflow.
Therefore I would consider the following – sell one of your properties to either reduce your PPOR amount or pay off all personal debt. If for example you manage to pay off your personal debt and reduce some of you mortage then apply some money management. What I mean by this is apply the same loan repayment to the reduced amount owing and also apply the personal debt payment or most of it to your mortage as well. This way you will still own 2 cashflow properties and will also be dramatically reducing your debt. Without creating more.
May take a little longer but will get you where it sounds like you want to be
Good luck
ChrisYou could sell the properties to your own trust, this way you can release equity, pay down PPOR and then get to keep the property too. CGT and Stamp duty will apply, but these costs have to be assessed against interest savings and tax savings.
You can also sell your properties slowly over a few years to minimise CGT. eg. one per year, or even 1/2 a property per year.
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
elkam wrote:[quote=The Contrarian]
Refinance your loans so that you pay off your PPOR and leave the loans on the investment properties….
Cheers.I'm sorry but I don't see the point in this. If you refinance your IP's to pay off your PPOR then this extra lending is not tax deductible as it will be used for private and not investment purposes.
I agreed with you elkam, refinancing my IP's loan to pay off PPOR and personal debt will not be tax deductible, it will be a big NO NO. I know if I hang on to the IPs, the compound growth will be very good, however at the moment, I am paying a big chunk of interest on PPOR which is non deductible as it is not income producing assets. I am just trying to see whether anyone agrees with my logic or can suggest some other creative way for me such that I can keep the IPs.
Regards
catherinecAt least that is what I understood you were suggesting Contrarian. Sorry if I misunderstood.
If you have the equity then you might like to refinance either your PPOR or one of your IPs to clear your personal debt assuming this is at a significantly higher interest rate. You could do this via a split loan and for a much shorter period than your housing loan. This new loan will not be tax deductible either but would save you interest.
Personall I would not sell good IP's to pay off my PPOR or personal debt unless my back was to the wall.
Hope this helps
Elka[/quote]
Hello Catherine
There is one solution that some investors on the forum use to solve that problem but it's very much dependent on your personal circumstances and feelings.
If you move out of your PPOR and rent it out for a while then not only the interest becomes deductible but all other expenses as well. Depending on the age of the property you may also have some good depreciation to deduct and being a non out pf pocket expense, this is very helpful for cash flow.
You can rent out your home for up to 6 years without losing its CGT free status.I assume your IP loans are IO. If not, this can be changed.
Do you have an offset account linked to your PPOR loan ?.The accounting firm Ban Tacs has a booklet about how to pay off your PPOR sooner. The link is below but it says it's being updated and will be back soon.
http://www.bantacs.com.au/booklets/How_To_Pay_Off_Your_Home_Sooner_Booklet.pdf
Hope this helps
ElkaHave you got your structure right? Are you "Debt Recycling"?For those of us with a PPOR mortgage (or any personal debt) the opportunity to reduce that loan using IP rent, while capitalising all associated investment costs in a separate tax deductible line-of-credit, may have little effect in the short term but be very beneficial in the bigger picture.
Using this type of structure, even if your property were to have a pretty ordinary year (say, for example, 5% yield plus 3% growth minus 8% cost of finance), You'd still be in a better position at the end because a portion of our personal debt would be recycled into a tax-deductible loan. Your investment debt would accumulate quickly but our PPOR debt would be fast approaching zero. The benefits would be realised with the submission of each tax return for years to come.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
