We are wanting to start investing so that like all 1955ers we have a nice nest egg. Journey to now has been rather bumpy and we still have a huge mortgage, however our house was purchased pre 1985 and we are now on good salaries.
Not sure what way to go but have thought of the following and have been to see our accountant but want some advise.
1.Rent our house as our first investment property. I believe that being pre 1985 purchase that there would be no capital gains if it is an investment property when we eventually sell it.
2.Sell the house and invest the money in a couple of investment properties and rent ourselves in Sydney until we are ready to either hit the road or decide where we want to live in retirement.
3. Keep the house and use the equity for our first investment property
Any thoughts would be greatly appreciated.
Also can anyone explain to us dummies just starting out what tax advantages are available with an investment property.
Cheers
KidjaHi Kidja,
Just doing a bit of browsing when I cam across your questions.
Given your home is purchased pre 1985 then you have significant capital gains advantages that I would preserve under all circumstances – that is do not sell.
Questions 1 and 3 are, to me somewhat similar with the only difference being whether or not you retain your existing home as a home or whether in fact it becomes your first investment property.
Ultimately there are also some 'emotional' factors to consider. Is the home still serving it's purpose, can it be subdivided, is it too big/small, is it too far from your place/s of work/lifestyle/family etc All of this 'emotional' factors come into play when determining whether to retain and live in, or rent out, your existing home.
In many respects the use of equity from this point on becomes somewhat secondary as in both cases the equity can be accessed to start your investing.
For me it would be worth you going back a step and work out what you want to achieve in the short, medium and long term – this will then help you determine the correct course of action for you.
As an aside think carefully about what your accountant says – while they may be good at tax minimisation etc are they well qualified to help you achieve wealth?
For example I was talking to someone who had an accountant recommend she sell her property (very valuable and paid off) because, wait for it…………………….. she was paying too much tax. There was little apparent recognition of the possibility of purchasing other property, or continue paying tax (after all she must have been making money), leveraging off the property into other things and so on.
Sometimes a narrow focus can be our undoing.
Good luck
Hi Derek,
You are right the emotional side can definately cloud your judgement.
We have renovated the house over the last 5 years, but it is still a 30 year old house and we are ready to move.
So here is what we are toying with.
Keeping the house as our first investment property and using the equity to obtain a second IP. Renting something that better suits our needs now that the nest is empty.
We still have a lot of research to do first and a few questions to ask but everyone like you has said to KEEP the pre 1985 house.
We also now have to find a good property manager so that we get the right kind of tenants into the house. Any ideas on that one would be appreciated.
cheers
Nice to see some 1955ers with the rent yourself to invest better strategy looking to move forward. Being a 1962er Im not far behind you timewise and my wife and I are a bit further on in the investor journey, but have always said that if we needed to start again we would rent, and all of the difference between the rent and what we would have to pay in mortgage to live in the same area would be put towards developing a property portfolio.
As you have a house you own with oodles of equity, I would rent it out, rent yourself, and get as many investments with the equity that god and the banks would allow. Let them grow for a few years and then review. If some werent performing I would either reno to get a better return or sell. With several properties you would have some carry forward losses each year and this would neatly offset against your cap gains incurred from the sale(s).
Then based on your travels and maturing tasts, decide in which part of the globe you wish to live. Maybe some of the profits could be put into super(upto $50k/yr without penalty under the new super tax laws), and in the last year before retiring this is one small strategy I would use. Then the following year all of the money in super could be withdrawn as a lump sum or as a pension without any penalties whatsoever.
Hope this sparks a few thoughts.
DD
Hi DD
It is certainly lots of food for thought. We have decided to definatley rent our PPoR and will look at where to buy our second IP. Just the money saved through not selling is enourmous much less the captial gains as both hubby and I are in a high tax bracket.
So we will do a bit of tiding up of the house, and look for something that suits us to rent and put our house on the rental market.
We just have to do a bit more homework on tax deductions, landlord ins and property managers, we want to make sure that we know what the pitfalls are before we venture out.
Thanks for all the help
cheers
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