Hi All,
I have settled today on a block of land on the Sunshine Coast. The plan was ORIGINALLY to do the following
a – Build house on block and move in as PPOR
b – rent out existing home (-ve geared)After reading Steve’s book – it has opened my eyes to the ‘real’ numbers on the proposition. Roughly outlined below
Current House (the one we are looking to rent out)
– Current Valuation – $435,000
– Current Mortgage – $383,411 (we took some money out to pay for costs on new block)
– Weekly Rent Achievable – $350 (this is current – and obviously it would be 5 months until our new house is built)
– Area – Kawana Island, Parrearra, Sunshine Coast QLD
– Newly built in May 2007 – cost $355kNew House (the one we are going to build)
– Land bought for – $232,500 (again on Kawana Island as there is no dry block land available and lots of infrastructure coming close by)
– House cost – $299,000 (4 bed, study, seperate kids area, DLUG, double storey, rendered, wood floors etc etc etc)
– Cul-de-sac locationWould we be better off to sell our current home and re-invest in something else which gives us some better figures. From what I can work out (excluding tax/depreciation) we will have -$21,276 outgoings after interest, rates, man. fees and insurance (I have included $18,200 rent in this equation as there is a HUGE rental shortage in this area).
OR would we be better off to sell the house we are building – and hold the house we are in currently and use the proceeds of the sale to buy an investment with better cashflow. I have spoken to some agents that I know, and they are of the impression that it could sell for $600k.
I earn $130,000 in a sales role (could be more this year – but would rather be more realistic) and my wife earns $45,000.
If anyone has any thoughts on this it would be most welcome. The growth in Kawana Island/Parrearra has been fairly strong, and with the new rail network, hospital, shopping centre and Kawana Beach development with restaurants and cafes I believe it will continue to grow.
Look forward to your responses. (If Steve could comment – I would appreciate that very much!)…
Thanks
Anthony
with the income you and your wife achieve, it would be better to build your new house and rent it out. You would then have higher depreciation for tax purpose. I am not sure how do you set up your new loan to buy the new block, but just put as much as money to your "home" loan and borrow more from the investment loan to get the advantage for -ve gearing. depend on your financial situation, you can build up a low set to lower down your cost for constructions and have higher rental return compare with a 2 stories house. However, 2 stories house normally have higher cptial growth. Any other question, let me know.
Daniel
Hi Anthony
With all of the figures it is difficult to make a structured answer however just a couple of quick points:
1) You mention that you have taken out some money to fund the land purchase. I am unsure how this may have been done i.e redraw, remortgage or separate loan but the interest on the land funds will not be tax deductible.
2) I assume that the old PPOR is in fact in both names as joint tenants. With the varying income levels and marginal tax rates you are both on the deductions will be apportioned accordingly.
3) If you sell the property you are currenting constructing you may well incur GST and CGT on the sale price which may make you think twice.
Assuming your current PPOR is in an area that you consider will increase in both value and rent why not look to sell the property into a Trust structure borrowing the full amount of the current value and using the surplus funds to pay down your new PPOR loan.
Sure you may incur some stamp duty on the transfer but given the numbers you may well fund that the figures make the deal both palatable and you reduce the non tax deductible interest on your new home loan mortgage.
Richard Taylor | Australia's leading private lender
Richard – see my responses below.
Thanks for your advise so far.
Qlds007 wrote:Hi AnthonyWith all of the figures it is difficult to make a structured answer however just a couple of quick points:
1) You mention that you have taken out some money to fund the land purchase. I am unsure how this may have been done i.e redraw, remortgage or separate loan but the interest on the land funds will not be tax deductible. We did a remortgage to release the equity from our existing home.
2) I assume that the old PPOR is in fact in both names as joint tenants. With the varying income levels and marginal tax rates you are both on the deductions will be apportioned accordingly. Can we get this restructured so that we are tenants in common with me holing a 99% share and my wife 1% in order to get the maximum benefit from it? How would we go about this?
3) If you sell the property you are currenting constructing you may well incur GST and CGT on the sale price which may make you think twice. I would rather hold both if possible as I am as sure as you can be (minus the crystal ball) that they are both going to grow well. Also – I work for the building company so therefore I am building the house for $60k less than retail – and I reckon I bought the land for $15k under market value.
Assuming your current PPOR is in an area that you consider will increase in both value and rent why not look to sell the property into a Trust structure borrowing the full amount of the current value and using the surplus funds to pay down your new PPOR loan. How does this work – would I speak to an accountant or financial advisor? How does one go about finding a suitable person?
Sure you may incur some stamp duty on the transfer but given the numbers you may well fund that the figures make the deal both palatable and you reduce the non tax deductible interest on your new home loan mortgage.Anthony, I think you pretty much already have your 2 investment properties, so well done! Reached your 2008 goals by the 4th of January!
Seriously, I think Richard has some great suggestions and I would talk to your accountant. Ensure you ask them what the structures will do for you from both an asset protection and tax perspective. (I think accountants aren't supposed to talk about asset protection, but a good one hopefully will at least tell you from a very basic level if the structure isn't complicated.) But if you have to pay a solicitor for advice about asset protection of the structure proposed by your accountant, then it will be money well-spent anyway. If you're very lucky, you may be able to find an accountant/solicitor team who can meet with you together and set up the structure that best balances these two aspects of structuring.
With any property you own, you are pretty much always financially better off renting it out as an investment property and renting your own place somewhere else. But you can retrieve some benefits of living in an investment property if the property is owned by a Trust. Even if you don't do it that way, there's an intangible benefit that comes from living in your own home that I think supercedes purely financial considerations…. but if you're not emotionally attached to either the particular home or the idea of living in your own home, then heck, go and rent!
Best wishes,
Tracey in Brisbane
Just incase I did not clarify.
My current PPOR will be rented out.
I will move in to the new double storey home.
The 'rental' is only built in May 07, so I will get good depreciation.
Hi Anthony1) As long as when you did the remortgage you kept the loans separate you would be ok however if not you will have a problem.
2) Yes you can lodge a Transfer with the lenders consent purchasing the shares from your wife however stamp duty will still be payable and you will only be able to do this on the original loan as per 1) above.
3) You can sell the existing property into Trust for market valueation which maybe greater than the Bank valuation. Every dollar will help you reduce your non tax deductible home loan.
4) I do about a deal a week similar to this for clients if you wanted to email me some exact figures i can crunch the numbers for you to ascertain whether it is feasable.
Richard Taylor | Australia's leading private lender
Hi Anthony1) As long as when you did the remortgage you kept the loans separate you would be ok however if not you will have a problem.
2) Yes you can lodge a Transfer with the lenders consent purchasing the shares from your wife however stamp duty will still be payable and you will only be able to do this on the original loan as per 1) above.
3) You can sell the existing property into Trust for market valueation which maybe greater than the Bank valuation. Every dollar will help you reduce your non tax deductible home loan.
4) I do about a deal a week similar to this for clients if you wanted to email me some exact figures i can crunch the numbers for you to ascertain whether it is feasable.
Richard Taylor | Australia's leading private lender
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