Newie- question: sell IP to pay down house?

I’ll sell the vacant land and pay off my principal residence. It is precisely because interests are not tax deductible that you pay off your house first. Hope this helps.

Interests on vacant land are generally not tax deductible. However, suggest you talk to your accountant. In particular, reference is made to Steele v FCT97 ATC 4239.

Hi

I am newbie as well but my opinion is that, having
to choose between paying ATO and the bank, I will
choose the latter, ie refinance the IP1 to get
access to its equity, provided it has some!

CGT could be as high as 48.5% (but one-off) vs
bank interest rate <10% though ongoingly. If you
have other IPs that are already +CF, that may well
cover off any short fall from the IP1 that is
refinanced for purpose of getting access to its
equity.

I have interesting discussion on topic of this
nature with various parties and the concensus
seems to be that u need about 5 +CF IP to help
you refinace another IP to access its equity as
“free money” that can be used for lifestyle. I
have no idea of where the number 5 comes from, it
may well be just a reflection of individual’s
situation I spoke to. But the more +CF IP one have
the better off one can be that’s for sure!

Hey DK,

I was having a read of your post and what struck me was that you seem to have a plan. One thing I personally have learnt over the last year is to form your own plan and go for it. Another point to consider is that selling now may attract CGT but then you can realise the gain and put $xx thousand dollars in your bank you did not have yesterday.

I personally use renovating to continue to reduce my debt of my own house and my IP’s. I believe if you go down the path of renovating there will be properties that you just have to hang onto for various reasons. This will allow you to build a good portfolio of properties that are paid for by your renos.

A question for you. Where do you think we are on the investment cycle with property prices ? Obviously this makes a huge difference as to the best time to sell. IF property is near the peak then the holding costs or opportunity cost of not selling may be a good reason to sell.
I have decided to look at all my properties every year and if they do not seem to have 15-20% growth over the next year then I will consider selling. Obviously this is just one benchmark I will use but it is a start. I will keep most but those that have been under achieving may very well be on the chopping block.
I am a bit ruthless with my property as I consider them all trading stock. If they do not meet expectation then they are gone. I also actively buy property to renovate and resell to giver the business a great cashflow that can be used in the future to borrow more money.

In conclusion DK, follow your heart. I started off believing that the only way to go was wrap. Then buy and hold wouldn’t be bad either. Then renovaing is another fun way to do things….. Before I knew it I had a few great options
to work in property. The more options you have the more able you are to make a go of this property thing.

Probably the biggest thing I have learnt over the last 3 months is opportunity cost. If trading stock suits your approach then go for it.

Treat your property like a business. When in business you do what makes you money. You do not want to buy yourself a job though you still need to have assets that give you passive income for the future. Striking the right balance is up to you.

As I first said though follow your heart and do what you love as that will reward you the most (financially and emotionally). Do what brings you the closest to achieving your goals…..ONLY what brings you closer.

Just some meandering thoughts……

Enjoy
AD [:0)]
(Andrew)

“”Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world.”
Albert Einstein

Hey DK,
To the best of my non-accountant knowledge….If funds are withdrawn from a refinance and not used for investment purposesd then they are not deductible.

I was in a similar situation recently where one of my houses is up for rental renewal and it needs a minor reno. I would not get much more rent after the reno but I wuold get a great Capital Gain. I paid $64500 for it a year ago and the resale would sell around $110-120000 (after reno). To me I think that this property would grow no more than $5-10K this year and I know that I could make at least 20% in another deal this year so for me I will sell and take the opportunity to invest elsewhere.

Do what your gut tells you to do. Look at your goals again and do what takes you closer. Sometimes one step back leads to two (or more) steps forward.

Hope this helps.

Enjoy
AD [:0)]
(Andrew)

“”Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world.”
Albert Einstein

There may be a way to make the non-deductible dedcutible.

Steve Navra has suggested that if you were to use his ‘cashbond’ strategy it could help. This is what i remember:
-Get a cash bond (annuity) securing it on the investment property
– do this for the purpose of increasing your borrowing capacity (with a tax ruling to this effect)
-Place all of the income from your annutiy into a 100% offset account against your homeloan.

It doesn’t happen all at once, but the balance of your home loan decreases very quickly, you get to claim a deduction for the extra interest on your investment property to pay for the annuity and your borrowing capacity increases etc And you get to keep your property and get access to any future capail gains.

Regards

Terryw
[email protected]

Ken

I think you’ll find more info at http://www.navra.com.au. There is an article somewhere there called ‘cashbonds’.

Terryw
[email protected]