Hey there,
I have a thought provoking situation on my hands. I am considering selling an IP, The loan was for 80% of the purchase price, but since then i have re-financed other properties and used the equity generated to reduce the loan to a balance of roughly $1000, ie just enough to keep the loan open. the re-financed money was from Investments as well.
My question is this… if i choose to sell, what should i do to better set myself up Tax wise? (and keeping it legal) these are some of the situations i have thought of already…
a) Should i Pay out the loan and sell off without a mortgage?
b) Should i leave everything “as is”?
c) Should I withdraw the money that was my initial extra repayment, invest it in a managed fund then sell??Hmmm there may be other options, or ppl may choose to comment on the above. I dont have another IP i can move the funds into again, and the re-financed property they came from are in fixed terms…
I look fwd to your collective responses
Thanx [biggrin]Jason
Hi,
Sorry mate… not sure where you are coming from.
What I would say is that there are two reasons primary reasons to sell:
1. You think you can get better returns elsewhere; and
2. You feel the value of your property will fall and thus decide holding cash is a better option.
As such, the tax implications are incidential to the investment decision rather than the other way around. That’s not to say they should be ignored… no, no, no. They sure need to be quantified (that’s why God gave us tax accountants), but just keep everything in its proper perspective.
Cheers,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Originally posted by TeacherK6:I have a thought provoking situation on my hands. I am considering selling an IP, The loan was for 80% of the purchase price, but since then i have re-financed other properties and used the equity generated to reduce the loan to a balance of roughly $1000, ie just enough to keep the loan open. the re-financed money was from Investments as well.
Hi Jason,
If I understand you so far you have refinanced IP loans to pay down another IP loan. Is this correct?
If this is the case it seems to me all you are doing is shuffling debt around the place with little apparent reason and probably incurring mortgage and stamp duties etc as you refinance.
If this is the case all exisiting interest charges on the loans will remain deductible. You will need to check with your accountant if this remains the case once you have disposed on this particular asset – I suspect you will be OK as the orginal purpose of the loan was to buy an IP.
My question is this… if i choose to sell, what should i do to better set myself up Tax wise? (and keeping it legal) these are some of the situations i have thought of already…a) Should i Pay out the loan and sell off without a mortgage?
b) Should i leave everything “as is”?
c) Should I withdraw the money that was my initial extra repayment, invest it in a managed fund then sell??Selling a property with ‘mortage’ or not is really inconsequential in terms of money flow apart from the need to discharge the mortgage first. The small debt here makes this largely irrelevant – so this to me is a non-issue.
The more important considerations relate to what are you trying to achieve in the long and short term. The best answer to ‘what to do with the money’ is best determined by these answers. In other words where is the best place to put this money for you?
My counsel would be for you to look at your whole portfolio to see what it has done and is likely to do into the future and then consider how best your cash proceeds can be used to fulfil your original goals.
Bear in mind if your portfolio is cross-collateralised the bank may want some of your proceeds anyway and you may have minimal say in where they go.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Hi Jason,
I agree with the comments of the earlier contributors. What you have done is money shuffling. The decision to sell has nothing to do with any loan attaching to a property. If you reduce a loan and sell a property, you receive back the money that you repaid. No advantage. The advantage is in the increase in value of the property.
You mention investing in mutual funds. If you want to invest in mutual funds or anything else, it would be better if you went to see a financial planner. They would take you through a process of establishing what are your financial goals five years and twenty years out. They would see how averse you are to risk, and check out your current resources to see if your financial goals can be reasonably achieved.
Ask any financial planner about mutual funds, and you will see that they underperform the share market on average. You would be better served investing in an investment product that mirrors the market, such as the Standard & Poor’s Index or similar products available from insurance companies. Mutual funds do the same but you pay hefty management fees for the privilege – that is why they underperform on average, due to the higher management costs and often poor investment decisions.
Christopher Raynal
Master Accountants Group Limited
PO Box 46018 Herne Bay
Auckland New Zealand
Ph +64 9 360 3259
Fax +64 9 360 2180
http://www.masteraccountants.co.nzHello Steve, Master and Derek,
Thankyou for your replies thus far. Some background to my question…
I live in Syd, And the IP in question is some 5 hours away. After 5 years of dealing with investment properties i have had my first tennant to fall behind in rent, trash / damage the place leave a mess and do a runner in the middle of the night… [comp]
I was very angry after seeing what these animals had done to my property in a short ammount of time, not one room was spared. In frustration i said to myself that i would like to sell, seeing as the property was the most distant from syd that i own. However i had not thought of that when Shuffling my finances around late last year, and used it as a LOC for future deposits, thus the large ammount in extra repayments.
However I have learnt a lot from this experience. Im not going to let this situation sway me and have decided not to sell. I was very lucky to be fully insured, and hopefully the insurance claim will be finished with no more problems…
SO, a lesson to all owners of IP’s GET LAND LORD INSURANCE!!! THE FEW EXTRA HUNDRED DOLLARS IS WELL WORTH IT!!!!.
Seeing as my initial question is no longer valid… What problems may i face with this insurance claim??? What have other ppl stumbled on in the past??? SO far the assesor has done an inspection, taken pics, told me to get an electricial to fic the damaged electrical bits like light and power point asap (and send the invoice to him, made out to the insurance company) is this a good sign?? also driving out of town on the way home the assessor called me to ask where the keys were as he had already lined up the first builder to do a quote for repairs…
Again, i look fwd to ppls comments
Jason
Originally posted by TeacherK6:After 5 years of dealing with investment properties i have had my first tennant to fall behind in rent, trash / damage the place leave a mess and do a runner in the middle of the night.
Hi Jason,
While these events are unpleasant and distressful they do need to be seen in the grand scheme of things. Events such as this do happen and you now have an opportunity to clean it up and you may even find your rent return will increase too.I am curious – where is the PM in all of this?
However I have learnt a lot from this experience. Im not going to let this situation sway me and have decided not to sell. I was very lucky to be fully insured, and hopefully the insurance claim will be finished with no more problems.SO, a lesson to all owners of IP’s GET LAND LORD INSURANCE!!! THE FEW EXTRA HUNDRED DOLLARS IS WELL WORTH IT!!!!.
Insurance is a critical defense mechanism in a property investor’s arsenal and as such I would never leave home without it. I go to great pains to make sure insurance never lapses on our properties as things can happen at the most inopportune time.
I recommend anyone contemplating not insuring their property have a good read of this months page 78 article about landlords rights – particularly the section discussing public liability.
Forget lost rent and a trashed property – the big costs are potentially in public liability issues.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
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