Hi Everyone,
First time post so please be gentle.We currently have 2 IP's and our own PPOR. First IP bought 5 years ago and has approx. $170,000 equity (almost geared positive), the other IP just bought 6 months ago (well negative geared) Both properties are in south east Queensland. Our PPOR has a loan of approx $170,000 and is worth conservitally $280,000 and covering our repayments OK.
Our issue is whether we keep going as we are or sell the first IP, cop the capital gains tax on the chin (guessing approx $25,000) and pay off most of our non deductable debt from our PPOR.
Any advice would be well appreciated
if you objective in investing was to accelerate paying out your PPOR then it sounds like a good plan.
The -ve is getting rid of a property just as it goes +ve cash flow. That should be a long term income stream and appreciating asset for you. Really I would be more concerned about the 2nd property and the overhang it creates in your whole situation. Guess it depends on how optimistic you are re future income and the property market.
Hi
I think that is a good question that more people should ask themselves.
I think you will need to do some calculations and see how much interest you would save annually if you were to pay off your PPOR loan. Then, If you sell the investment you will probably need to purchase another one to keep your investment going. So you will need to work out the buying and selling costs and the CGT see how the figures compare.
To keep costs down maybe you could sell the IP to a trust you set up – no agents fees needed. But bear in mind trusts cannot distribute losses.
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
Hi mate
How are you (or more importantly – how much longer do you intent to work for)?
I would only be selling if you are getting close to retirement and looking at lowering your debt and repayments.
I assume you bought the properties will long term capital gains in mind so unless you are really worried about the current market conditions I would hold on to them.Best of luck
Cheers Banjo Smyth
Rodtrac, I'm with Banjo on this one. Assuming you're investing for the long term, hold on to property number 1 and use the positive cashflow to pay off your PPOR faster. In fact, look at ways you can increase the weekly rent of both properties by minor investments to the property (e.g. aircon or just simple painting, recarpeting).
If you want to get rid of the non deductible mortgage on your PPOR, maybe consider an Equity Finance Mortgage – see http://www.efm.info. This way you could borrow 20% or 30% of your PPOR value, but you don't make any interest payments until the loan comes to an end or you sell. At that point you owe them the original loan amount plus 40% or 60% of the capital growth (ouch!!) from the date you took out the loan. If you have a cashflow problem this might be a solution, but you lose potentially a lot of the capital growth. If that reduction in future capital growth allows you to keep IP number 1 it might be worthwhile…
Talk it through with a good financial planner or accountant before making a decision and do some simple calcs, but to me selling IP1 to pay off your PPOR and then later on buying another IP makes little sense as the transaction costs are simply too high.
Thanks for the advice guys, it's been much appreciated.
I think our main train of thought was how good it would be to finally own our PPOR outright as we don't seem to be reducing our loan too quickly, but it probably wont help us in the long run. We are in our mid 30's so we've got plenty of time up our sleeve.
I was talking to our PM for IP1 yesterday and he was telling us that a new shopping centre was to be built nearby in the next 12 months and we would be mad to sell at this time.
Again, thanks for your thoughts
Rod
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