Sell PPOR and start over or convert to investment and rent

If you can save tax and increase borrowing capacity then it may be worth considering.

In this case the loan set up may suit turning it into IP. Is it fixed interest only or fixed P+I? Either way there is not that much profit in selling so perhaps worth considering keeping it as you say. The infrastructure project development for your area sounds positive but FYI the growth rate of 15% was in 2013 not sure if there is evidence this is currently happening in the market right now. SQM has rising listings and vacancy rates for your area so I would expect a slower softer short term growth picture, not saying you should sell, just take a long term view. You have mentioned buying more and paying down debt. Both are good but at a certain point you will need to choose between putting your extra savings into deposits or into debt reduction. This can change from yr to yr but it is difficult on limited cashflow to do both simultaneously. All the best with it.

Hi Vardy,

A few months ago I switched to a fixed rate interest only home loan for 2 years just to increase some cashflow.

OK, one to take VERY careful note of if wanting to sell or refinance. The “break costs” when ending a Fixed Loan ahead of its natural EndOfLife can be CRIPPLING !! Be sure you KNOW how much it will cost BEFORE you go ahead with any Sale or refinance.

If the Variable Rate is higher than the Fixed Rate of Interest, then it may not be too horrific. But if Variable is LOWER, the cost to break out will be enormous (way more than you might reasonably calculate – I found this out the hard way some years back).

One to watch !!

Benny

Vardy wrote:

Due to refinancing to keep the place the LVR is around 90%, but hoping after the fixed interest period it will be closer to 80% or even slightly less

It is only the interest on the loan associated with the purchase of the property that is deductible against this property. So if you have ever increased the loan or used redraw the interest on this portion won’t be deductible against this property’s rent.

Vardy – no. The ATO considers this a loan for a family law settlement and that the interest is not deductible. You should seek advice on getting the relevant portions right and then split the loan. You original 50% of the loan may be still deductible though.

A tax agent or a lawyer could assist. Tax agent would generally be cheaper. Perhaps the one the does your tax return.

If it was a transfer under a family law settlment then it will probably be as if younwere the owner from the beginning. If it was not a family law transfer then you would have 2 different interests in the property. The fist 50% and the second 50%. They would each have different costs bases.

Hi Vardy,

If I was to rent it out and then sell it, would I pay CGT on the original purchase price, or the price used for the seperation settlement?

Since this was your PPOR, there would be no CGT to be paid. BUT, if turning it into an IP, then get a valuation at the time, as you may be up for CGT down the track (from the time it was made into an IP though). So original purchase price should not even come into it…..

And, if you went on and rented while you had this old PPOR as an IP, then you won’t be claiming a new PPOR, so this one (now a rental) may remain CGT exempt for up to 6 years – so still no CGT to pay upon sale.

But hey, lots of checking to be done. That is how I think it works – there is quite an option of lots of savings for you – check it out with your adviser.

Benny

Hello
If you have outgrown your current residence or want to move for other reasons, you have a few choices to make, such as selling or renting out your home. If market conditions are favorable, you could sell the property, cashing in your equity and making a profit. If getting your equity out of the property isn’t a must, you may also consider using the house to generate income as a rental property.
Thanks.
sonipatpropetry

Hi Vardy

Looks like you’re getting plenty of advice. I’ll just add that CGT is only a problem when you sell and you can gain access to that equity as well through LOC’S etc which are tax free. So it’s not just extra rent you’ll get. For example if you’re positively geared you can get a LOC against the property for $X (say 50% of the equity gained that year) and use the rent to pay the interest (it’s not tax deductible or income tax free though). Eventually you can live this way.