Hi, this is my very first posting !!!
I have a property in the Sydney’s Eastern Suburbs which was purchased pre 1983 thus no capital gains if/when ever sold.
It was purchased for $83000 and is probably worth around $900000 today.
Given the tough rental market in the East, the rent is certainly nowhere in terms of the 11 second fomula.
There is presently a $70000 personal load against this property which is not tax deductable and is being very slowly paid off at about $550/mth
If I sold this property and paid out the loan I would have approx $820000 cash to use to start my Cash Positive property investments.
Alternatively I could retain the property and borrow further against it to kick start my Property investing.
I currently receive $480/week as rent which is then taxable as part of my income.
Most grateful for Forum readers to put their two cents worth in as to what you would do if you were in this position.
It’s nice to receive $480 each week but for such a value, surely one could do some much more with this value of property just sitting there.
I wish I had your problem, wow!
You could borrow up to 80% of bank valuation and invest into other property, shares etc.
On the other hand, you could take a tax free profit and reinvest, consider placing into super, there are huge tax benefits in that I believe, speak to your accountant.I agree with Regina, it is a great problem to have.
I would be incloned to keep this property as it and borrow against it for income producing property which you could then redirect into that personal loan. Do you have a loan on your PPOR?
When you decide to retire (could be very soon!), you could sell this proeprty and then pay off some of the debt on your positive cashlfow properties and have a great passive income comming in.
Terryw
[email protected]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
Is $480 per week the median price for similiar properties in your area? Based on the market value today I’d of thought it’d fetch more than what’s paid.
Hi there
If you get out 600000 at 7 percent and can invest it making a 14 percent return, shares+stocks/property/business, you should be about 42 K per year better off….
cheers-
MiniPS Young gun – we are renting a house in Paddington for 400 per week, that would be worth 800K. The one next door has just rented for 500 per week and it’s not as nice. So 480 per week sounds about right.
Rents went steeply down about..oh…2 ish years ago? And have stayed down.
You certainly have plenty of equity, and you could borrow a lot more than 80% of that equity, because the 80% will be of the total valuation of your existing property and all others you acquire.
Your limiting factor will probably be your ability to service the loan repayments with available cashflow, not your equity, especially if you go for negatively geared properties. Remember that banks typically only consider about 80% of your rental income when evaluating the servicing ratio. You are only getting about 2.7%Gross Rental Return at the moment, so if you really want to push your portfilio to the limit, then you should sell that property, and invest in a suite of properties with better GRR eg 10.4% if you can find Steve’s type of property. You have to weigh this up, of course, against the posibility of further tax free capital gain in your little gold mine.Dont ever sell that property, you are currently receiving your increases in property value capital gains tax free, you will never be able to buy another property capital gains tax free.
Borrow against the equity in that property and purchase another income producing property.
Positive cash flow residential property will never keep up with the return on good capital gain property especially if its capital gains tax free.
Why isnt the interest on this property tax deductable if you are receiving rental income?
You may be able to pay interest only on the loan to free up some more cash flow for further investing.
Derynaka, a loan is only deductible if the purpose of that loan was for the purchase of income producing property. harrymak has taken out an equity loan for personal reasons.
I agree with you about keeping the property. Pre CGT property is a valuable resource. Hmmm, I wonder if the banks take your CGT liability into account when evaluating your equity. I’m sure the ATO would have first dibbs on your estate if there were a problem, before the bank gets what’s left, so theoretically a pre-CGT property should be worth more as collateral.Harrymak
Congratulations you have an asset that most of us dream about. Will you adopt me??
Derynaka is absolutely 100% correct do not sell this property. If prices in your area increase at 5% per year you are getting a tax free gain of $45,000 per year. That equivalent to around $60,000 gross.
Property investment boils down to what your life goals are. In my situation I am aiming to work 3 days a week have have net rental income of $35K – $40K per annum. Any more income and the taxman takes 48.5%
My recommendation to you is to sit tight and watch your capital appreciation roll on.
beancounter…. just a note while im dreaming about harrymac’s property .
for every dollar the tax man takes 48.5 cents i will get to keep 51.5 cents… and if its passive income ill take it thanks you.hi derynaka,
your quote
*** “Positive cash flow residential property will never keep up with the return on good capital gain property” ***
i think most people would agree with that, but it depends on what you’re looking for. With my strategy, I’m on a 10 year plan, where I aim to have 20 fully paid for properties giving me today’s equivalent of $150 per week, that’ll be $150k before expenses, which will be rates, PM costs and insurance… it’ll still leave me with more than 6 figures of income (talking in today’s terms) which is plenty of fat to live the life that I want and it is comfortably achievable.
I’m in the fortunate situation of having a reasonable job, so I’d also like some more high growth stuff as well, my place on the vic coast has gone from $170k to $370k in 2 years.
cheers mate
r
Hi Richmond,
20 properties is a huge committment to maintain and would almost be a full time job. I wish you well.
I have two cash flow positive commercial properties, one returns $ 24,000 per year and the other $ 28,800. They are both retail shops.These provide great income but the capital gains are linked to the amount of rent I receive. An investor will want 10% return on investment.
EG: The property returning $ 28,800 per year was valued last week at $ 250,000 by the bank.Which is Rent less expenses x 10%. The residential house on the same size land next door is on the market for $ 495,000.I have just sold a house in Wilston, Brisbane last week. I have owned this house since 1984 and it has returned $ 14,400 a year in rent and $25,000 per year in capital gain. It has always valued up well and been easy to borrow money against.
My PPR on the Gold Coast went on the Market yesterday (another capital gainer) and I have a house in Clayfield on a double block under contract. Nothing like stacking up deals to cause a little stress.
My point is, even the best positively geared property does not compare to good capital gain property. But you will still need both to continue to borrow money.
My goal is to live in the house at Clayfield
(the capital gain-er) and pay off my loans with my commercial property.I will then use the income from my commercial property to aquire more commercial property (the positive cash flow-ers).
Regards.
hi derynaka.
you’ve obviously been doing this a lot longer than most, so it’s great to have your input, and I’m getting some new perspective on things reading your ideas.
one of the keys to getting stuff out of this forum is taking things on board, and deferring to those with greater knowledge, so the collective knowledge is increased.
perhaps my goal posts might change over the journey, we’ll see.
thanks for the response!
r
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