Hey Crew,
first time member – long time site user.
I am wondering if anyone has any feedback on the following situation:
Two years ago we purchased a block of six units in WA (south western corner), which we’re currently renovating and getting approval to strata. Given the awesome capital gain over that period we unsure which way to go. (nice problem to have i know).
Options we are thinking of are:
1. Sell some of the units to pay of the debt and retain the balance as rentals.
2. Sell all of the units given current pricing levels.
3. Don’t sell any units and have them all refinanced with the aim of reinvesting the funds.
4. Take on board alternative options…
A collegue has already suggested we follow option 1, as a profit won’t be realised in only selling a couple and hence no capital gains tax payable.
We’re sure there are some investor’s who have faced similar situations and would love to hear from you.
regards
EastcoastIf you’ve ever read any of my posts on this issue you will know my view – never sell unless you have to when you can use the equity to buy more.
It may be a good idea to sell one or two to decrease some debt and increase some cashflow on the ones you keep, but to simply sell all and turn around and buy again is going to eat up a lot of profit in selling and purchase costs unnecessarily. To me that doesn’t make a lot of sense. You will be giving thousands to the agents and lawyers.
Not to mention the loss of future cap gain on the properties you sell.Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Hi Eastcoast
Away from the decision making on whether to sell or not i thought I throw in a couple of points.
1) A collegue has already suggested we follow option 1, as a profit won’t be realised in only selling a couple and hence no capital gains tax payable.
Not sure where he gets this one from. When you purchase develop and Strata title a block of units the ATO proportion the initial purchase as well as the renovation costs and also the capital gain when it comes to selling the odd one or two units.
To explain further assume you purchase 6 x 2 bedroom units all identical for $300,000 the block ($50,000 each) and then spend $300,000 renovating the block giving a total base cost of each unit of $100,000.
You now decide to sell 2 units at $300,000.
You will be taxed accordingly $300,000 – $100,000 = $200,000.
It does not matter that you have spent more than this on the total renovation. In the case where the units are not identical i.e 3 x 2 bedroom and 3 x 1 bedroom units the capital base is taken by applying a floor area proportion and the same with the renovation costs.
2) If the units although 2nd hand are substanially renovated you may well find that this triggers a GST liability although in your opinion they maybe considered as not new.
Having renovated and strata title over 40 blocks of units here in Brisbane over the last 10 years we received a private ruling from the ATO on just this matter. The defination is the word “substantial renovation”.
These points may assist you in determining the outcome of your units but i for one would look to retain them and build up my assets by utilising the available equity.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
Thanks Richard,
That’s exactly the type of response we were searching for, from someone who’s had to make those kind of decisions.
Another question to yourself or other fellow investors ;
Do you often say sell a couple of the units to reduce your exposure to that one building and also inject some ‘new blood’ into the building and body corporate.
Our investment aim is to accumulate over the longer term however we are still coming to terms with holding the whole block or selling a few units. Given the current pricing levels in WA we thought it might be best to say sell 2 of the units and hold the rest. This allows us to capitalise on the current market conditions – given prices are predicted to retreat (at worst) or plateau for an extended period.
Appreciate your insight and thoughts..
regards
EastcoastEastcoast
Must admit i prefer where possible to control the entire block.
This avoids the need for messy body corporates and means that the ultimate value can be higher rather than having individual units within the block.
Also you maximise your Depreciation and Building Write off claims which reduces your expenses.
Financing can be done relatively easy with the right lender so why not utilise the equity and increase your portfolio.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
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