Hi
This is my first post on this forum but have enjoyed visiting it for a long time – would really appreciate your views please on our situation.
Husband and I have 2 IPs (Melb worth $580k & Syd $420k) . We’ve had the Syd property for 12 yrs and Melb 4 yrs. We rent our PPOR ($260 p/w). Husband is retired – I work full time and plan to retire in approx 5 yrs. We have mortgages over both IPs and owe $300k for Melb property and 100k Syd property. We receive total $35k p/y rent (before expenses) for these IPs. We now want to purchase a PPOR. My dilemma is, how do we finance it? Should we sell one or both IPs and use the proceeds? Should we withdraw some equity to use as a deposit and are you allowed to do this as we wouldn’t be using the equity for investment purposes? IPs are not cross collateralized. Do we wait and sell the IPs when I retire thereby reducing our CGT liability? Any comments would be greatly appreciated.
Hi Terri
Have you ever lived in either of your rental properties? If so, you may be able to sell that property CGT.
You could use equity from an IP to help with the purchase of a PPOR, but you just cannot claim the interest on this.
Terryw
Discover Home Loans
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Hi Terry
Thanks for your reply. No, we have never lived in either IPs. I understand that if we did chose to move into one of them at retirement, that the CGT liability continues to accrue whilst it is our PPOR.
I think I missed something here, can you list each property how much you owe and how much it rents for and how much it is werth. For your post I get:
IP Melb $580k, owe 300k, rent ???
IP Syd $420k, owe 100k, rent ???
PPOR $???k, owe ???k, rent $260/wkHi
IP Melb $580k, owe 300k, rent $340 p/w – IO loan
IP Syd $420k, owe 100k, rent $335 p/w – P&I loan
PPOR $???k, owe ???k, rent $260/wk – we don’t own a PPOR, we are currently renting a house for $260 p/w.My gut feeling is that we should continue along these lines (hang on to IPs and continue renting ourselves) and re-assess the situation when I retire?
Hi, the Melbourne property looks scary. What % yield is $340 pw on $540000?
Just my thinking aloud.
Good luck,
Kum YinI.M.H.O,
to buy a PPoR at this stage of life (trying to retire) and having any mortgage on it is going to impact on your lifestyle severely.
You will have to sell the I.P’s, which cuts out the income from the rent, then fork out for non-tax deductible interest every month. Or, if you sell both I.p’s and are able to buy a PPoR outright and debt free, what are you going to use for income? Surely not the pension; that is a pathetic existence.
You have been renting all these years so far, why change?
One scenario;
after you retire, sell the Melb I.P (less C.G.T after you retire), pay out loan on the Syd I.P. You now have maybe $200k of cash, probably more if you sell in 5 years after properties go up in value. You could buy another I.P for cash and have unencumbered rent income to go with the I.P you keep.Or, you could take the $200k down to the casino and whack it all on red (just kidding).
Keep renting where you live, or maybe upgrade a little to a nicer pad.
The rents will have gone up in 5 years as well so you will have a decent income from your I.P’s.
Or, if you want, move into the Syd I.P and have a nice debt free house.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Thanks Marc – yes we’ve considered all of your options (apart from the casino of course!) and you are quite right about not wanting to take on non deductible debt at this stage.
Thanks everyone for your comments
it depends if you want to use the rents in the propertys as income..
in 5 years time with P&I u could have the property paid off… if you dont plan using the income for rent, why not live in that one? (depends where u live now)
you say u dont want to increase no deductible debt, sydney will have nearly no debt in 5 years time, live in that (no interest payments) and you could buy another investment property (to replace sydney) and you would have 100% deductible debt then
the would be the opportunity cost of $75 per week of the higher rent value you would lose from sydney than from what your paying now
i still see melbourne being negatively gearing in 5 years though, rent is $85 less than interest at the moment.. once retired you would lose all/most tax benefits, so you still need to fund this difference some how (plus rates, agent fees etc)… in this aspect it may be better to sell melbourne… (atleast sydney is making money for you currently)
Terri,
Could you live in either property? Maybe you could move into one and sell the other?
If you do have to sell, maybe you should consider selling each in a different tax year.
And if you are getting the pension, watch out for any effects this may have on your entitlements.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.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
Hi Dave & Terry
Thanks for your replies. We bought the Melb IP with the idea of eventually living in it – 3 bed unit in Bayside suburbs, nice place to retire to but now not sure we could live in a unit (beholden to Body Corp, close neighbours etc) but probably just something we need to get our head around. Syd is a unit as well but as we’re Melb based, want to stay here.
We’ve had the same tenants in Melb since purchase and haven’t increased the rent since they moved in as they’re excellent tenants but I know we could get a fair bit more if they ever moved out and we put it back on the rental market. We’ll probably sell both props when I retire, as you say Terry, in dfferent tax years and buy a cheaper house.
Great to talk to like minded people ! Thanks again for your comments.
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