I own a property which has been my principal place of residence since I purchased it just over one year ago. I have since found that it is not suited to my actual needs (its far too big). The good thing is that it appears to have increased in value quite well and if I sell I could potentially have a tax-free profit (after all costs are considered) of around $60-70k on a purchase price of $275k.
My question is do I sell, down-size and use the surplus money to invest in other IPs or do I keep the house and negatively gear it. The extent of the -ve gearing would be the depreciation and the misc expenses such as maintainance and agents fees. That is to say the rent would cover the P&I repayments and rates. My estimation of the depreciation is about 5k/year and other costs around 2k thus reducing my taxable income by a nett figure of around 7k which is currently taxed at the highest rate.
I’d appreciate some thoughts from this group on strategies that will allow me to move forward from where I’m at now and achieve a position whereby I am living in my own moderate home and hold a portfolio of investment properties yielding me passive income.
Cheers,
Hi,
Contrary to public opinion, I am not totally anti-negative gearing.
However, I think that’s important to see a strategy for what it is, and re: -ve gearing, it’s about capital growth.
If your goal is financial independence then I think a better model is to build cashflow assets first and then reinvest in capital growth assets out of replenishing income returns.
This way it doesn’t matter if your assets increase or decrease in value as you always have the regular income stream.
This being said, you need to weigh up the cost of selling your home vs. redrawing the equity.
However, the question of keeping or selling should boil down to answering this question…
Will keeping my property bring me closer to, or push me further away, from my investing goals?
…I am living in my own moderate home and hold a portfolio of investment properties yielding me passive income.So, does turing your property into a -vely geared property help or hinder you here?
Cheers,
Steve McKnight
**********
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