Hi All
I am a newbie here on the forums so please be gentle.
We secured a block of land in WA just at the beginning of the boom. To cut a long story short we bought at 180k and the land is now worth 280 so I think we have 100k equity. We have contracted to build a house on this block which will cost us another 180. So all up I our cost should be 360 and houses in that area are probably costing upwards of 500k.
Thats the boring part. What I would like to know is what I should do next.
Given that we will be hit with some CGT our accountant is suggesting we hold on to the property and put some tenants in at maybe $380-400 a week. I am unsure of how much we could claim in deductions etc but he believes the house could cost us as little as $25 a week.
What are your thoughts ?
We would like to buy our own house and arent sure how the equity could help in our house purchase. Or do we sit on it, buy another investment property and keep renting approx 220 a week.
Please help.
If you sell you will be hit with various costs such as CGT, legals, loan exit fees, and agents fees. Do some sums and work out what these will be. Then weight this up against not selling.
Terryw
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You can avoid CGT completely by completing the building, finishing it off, putting all the bills in your name – it is now your primary place of residence & you can sell the property almost immediately with no tax liability at all. If your accountant can’t work this out, you need a new accountant. Also, I don’t see why GST would be payable in your circumstances.
Also, I question your estimate of rental income – rents in Perth are rising fast but $400 a week is an unlikely number and it will be closer to $300. You need to do some serious sums on what it will actually cost you to hold this property.
So, you might be able to take $140K profit out of this and pay no tax…
The question is, should you hold or sell?
IMO, you should only sell if you have a clear plan to re-invest the $140K into something else with an even better yield. For example, use the bulk of the money as deposits to purchase several more investment properties that can be positively geared… You will probably need to look somewhere like Melbourne for these types of opportunities.
If you can’t be bothered with all that, just hold it and probably have good capital growth in the medium term.
Good luck..
Yeh I have thought about avoiding the CGT but I think I will have a tough time convincing the tax man that I am a permanent resident of WA when I actually work full time in NSW. Sorry, I am a newbie here so maybe this is possible.
I take the point on the lower rent expectation. Not sure how much more capital growth is in the WA market at the moment anyway. Will have to do some more investigation into some positively geared property stuff as well as trying to buy my own place
Hi,
Trump Jnr mentioned that you can “use money as deposits to purchase several more I.P. that can be positively geared”.Am new at all this so what des that actually mean.PMcD
Trump Jnr i think is missing the point.
Certainly you can borrow against the increased equity and use the funds raised to act as deposit and costs for further IP’s however the fact of how you borrow the funds has little bearing on whether the properties will be Positvely geared.
This will be determined by the quality of the investment you will make.
As has been pointed out the CGT will be just one of the costs in selling the others being the exist fees, discharge of mortgage etc etc etc.
If you construct a new home on the property then you will be maximising the deductions in both Building Write Off and Depreciation and you could well find it costs you very little to actually retain.
Cheers
Richard Taylor
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Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
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Hi Chetnik…
The first thing I would do is chat to the council.
Ask about the zoning… is it:
– Low residential
– medium density
– high density
etc etc…
Basically you need to know
Can you build more than a house…?
Two / three townhouses… block of four units…Always try to use land for it’s “HIGHEST AND BEST USE”…
If they say you can build units… but you can’t afford it…
Save for it… Then do it later… Nice little retirement package for you…
eg. Sell one… Keep 3 units renting for $250 each…Hope you get the idea..
Highest and best use.cheers,
anthony.
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