I was hoping for some advice on how best to use the equity in my home. I have a property in Tas that is paid off and valued at around $400,000-450,000. It was my PPOR until 14 months ago when I moved to Melb, and it is currently rented out for $420pw.
I would like to move from the tiny flat that I have been renting in Melb for $200 a week. I run my own business and work from home, and I have recently seen properties that I am interested in buying for around the $500-$600,000 mark. I'm not sure if I should take the risk. Because my income/cash flow can fluctuate quite a bit I wouldn't want to be paying any more in morgage repayments than I currently am in rent. There have also been times when the rental income has been very useful, but is there a way of getting a better return on the investment?
should I:
a. Forget buying for now and continue renting
b. Sell the place in Tas to purchase in Vic & minimise dept
c. Use the equity and hope my tenants help me pay it all off
d. other suggestions??Also, now that I am renting elsewhere, does this make the property my PPoR or my IP?
Any feedback would be much appreciated
From the date that you put tenants into your PPOR it became an IP. this date shoudl be used to calculate things such as capital gains % if you sell as well as for taxation purposes, although you probably would not have a lot of deductions if you own the property outright. cheers Sonya
Remember the interest on the new loan will not be Tax deductible in the main (with the exception of anything you can claim for running your own business from part of the house and then you may not want to) so the interest on the entire loan will need to come from after tax dollars.
Have you crunched the numbers to see whether it is viable to sell your Tassie property into Trust and borrowing 100% of the current value and using the raised funds as deposit on your new PPOR.
This would convert a lot of the interest from non deductible to deductible. Maybe a bit of stamp duty and consideration of Land Tax but could work very well for you given the potential purchase price.
Richard Taylor | Australia's leading private lender
Thanks for the feedback. I'm afraid I don't know anything about selling into trust, could you explain how that works? Is there any way I can get around the capital gains tax issue too? I'm not desperate to purchase a property, I just feel that I'm really not making the most of the cash that's locked into the house, or minimising the tax I've got to pay etc. I know I've got options, but don't know what they all are are! Cheers Anna
Since you own your own business and work from home it may be best to rent. You can keep the previous house as you main residence an have it exempt from CGT. At the same time you can use a portion of hte place you rent as you place of work and thereby claim the rent. Just start buying investments initially.
Since you are self employed a trust will work well. You should seek tax advice about setting your business up properly and using a trust, with future purchases through a differrent trust.
You have big potential with a $400k house paid off.
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 there. I've been working from home for 12 years. I got tired of having to buy bigger homes to accomodate my business. 2 years ago I bought a new PPOR and we calculated the area used by my business was 40%. The property was then purchased in two names. 60% in my name and 40% in a trust. The trust then rents their portion to my business. Best thing I ever did.
He Rae
Thats interesting, but 40% of the house would be subject to CGT and land tax issues too.
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 Anna, I am formerly a real estate agent but more interested in investing. I dare say at $200 a week, your unit would be very small. It would be a large jump to go into a $500k-$600k property. What is clearly needed here is some thought as to what it is YOU want to achieve. The feedback and responses here are great and true. But it sounds to me like you need to have a clear vision of what you want out of it- this will make clear what you do next. Buying a property worth $500 or $600,000 is a great investment but will that suit you, will that do what you want it to do? Are there alternatives that will give you a similar result that will not cost you so much? Do you plan to go back to Tasmania? There are many options but the place to start is to ask what you really want? Then see an accountant to set up your trusts or if renting is the best option for your business.
Hi Rahrahprincess,
Thanks, sound advice there. I am planning on staying in melb for a while yet The flat I'm renting is actually $400 a week and I have a rather long suffering flatmate, who is tiring of finding sequins and cotton everywhere! I would like to be able to contain the mess for both our sanity. He would move with me if I purchased, but I want to make sure I could service the loans without a tenant. I downsized my business when I moved, but feel it is time to build it back up again, but it is difficult given my current arrangement. I think based on everyones comments it's time I bundled my paperwork and went to see an accountant. Thanks all.
AnnaHi Anna, you could always come to our women in property meeting and talk to other women interested in property first hand.
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