Hi everyone….any comments/opinions on our situation are most welcome! We have been investing for 2 years thus far and have 3 properties. I'll give a brief history so that you get the picture….
Property 1. Purchased for 144K, Feb 2005, now valued at 320K – Rockhampton, current rent $285pw
Property 2. Purchased for 209K, August 2006, valued at 285K – Rockhampton, current rent $265 pw
Property 3. Purchased for 177K, March 2007 – Burnie, Tasmania, current rent $200pw
Personal debt of 70k, refinanced 6mths ago – repayment of $420 per month.
We lived in Property 1 for 12mths, it was our first home, however now it is purely a rental property and we have no intention of ever living there again. My husband is a miner and the house we live in is provided for free by the mine, so we have no rent to pay ourselves.
We spend approx $145 per week on servicing the loans, rates, management fees, water etc for all three houses. This is not a problem.
We are seriously considering selling Property 1 for 320K, paying off the loan of 144K and being left with a capital gain of any where between 160-170K. 1st question – do we pay CGT on this property as it was our PPOR? I don't think we do? Correct me if I'm wrong? So, if this is correct, say 160K, we are thinking of paying down the 70K personal debt and then being left with 80-100K to then reinvest, whether it be paying down the burnie house, then it would be cash flow postive or using this surplus as deposits to purchase more property??????????? Or do we even sell at all and wait a little longer, let the houses appreciate a bit more and just continue to service all debt as it is? However we want to create PCF properties in the future.
As we are only new at this, we are not sure what is the best option? We are flipping from one idea to the next and it would be great if anyone out there has been or is in a similar situation, perhaps you can shead some light on our situation.
We have no problems servicing the loans, however paying out the 70K will give us more cash flow per mth and it will clear the WORST kind of debt! We earn approx $115K per year.
If there are any other suggestions that you all might have, we are open to hear what you have to say.
Also, we are looking for a brillant accountant, someone who is a investment property specialist …any names, phone number greatly appreciated in this regard.
Thanks for taking the time to read this and again any ideas on the above situation we would gladly love to hear.
Warm regards, Cresta76.No opinions on this situation????? Come on…..really would be helpful…..warm regards…..
I would suggest you speak to your accountant, however a little room for thought are your properties on interest only? this would also increase your cash flow. It is not sure if you are living in property 1 or if you have moved out if you have moved out you would need to move back in for a period to prevent the CGT but again speak to your accountant or even ring the Tax office you do not have to give a name.
On a personal level I think selling a property for personal debt is a bit drastic when you seem to have a reasonable income, why not set yourself a budget and pay the debt off? I have a couple of Xcel spead sheets set up as calculators if you would like them email me and I will send them to you. Or you can sell if you feel that is the better option
Thankyou for your reply…..yes the three properties are structured under an interest only banner. We have not lived in property 1 for over 12 mths, however we did live there and it was our ppor for a period of 12mths. I think you may be right, selling this house which gives us a great deal of leverage to continue to invest may not be the answer?
I would appreciate it if you could email me the spread sheets you suggested. My email address is – [email protected]. Warm regards.Overr the time frame you've refinanced the $70K you will pay almost $100K in interest. In the first few years you're hardly repaying any principal and no doubt the items you've purchased will need to be replaced at some time while you're still paying them off.
On your income you have the potential to save substantially and make extra payments off the debt.
Hello Cresta76
I am not a mortgage broker nor an expert on interest rates but I just had a quick look at the ANZ site to see what the rates are for a personal loan and an equity loan.
The personal variable loan was 13.17% while an equity loan was 8.57%.
Seeing as you have so much equity in your old PPOR wouldn't it be possible to get an equity loan against it or maybe even better, increase the mortgage as this would have an even lower interest rate, instead of paying the much higher personal loan interest rate? Of cause this extra loan would not be tax deductible as it will be used for personal debt, but your current personal loan isn't either. If you increase the mortgage you will have to have it structured correctly so that you can easly seperate the deductible interest from the non deductible.
I would certainly not sell a property that is appreciating nicely and is CGT free for up to 5 more years at which point you move back in for a few months and then start another 6 years. Check this part with your accountant.
I also think that at your income and with no rent to pay you should be able, with some budgeting, to clear this personal debt quite quickly, specially at the lower interest rate.
Cheers
ElkaI think you are in a really fantastic position, holding three investment houses for such a small weekly amount, and with a good income. I would hold onto everything and pay off the personal debt as quickly as you can. ($70K personal debt is small fish compared to the assets you are holding.)
We have sold a couple of houses to clear personal debt, but really had no choice. Still wish we had held on, even though it was not possible. When I look at what the houses we sold would sell for now, it hurts.
I'd hold on and never sell.
Wylie
Hi Cresta76. I totally agree with last 2 posts. I thought about selling a property last year to clear my mortgage but decided to hold off and it has gone up another $100,000 since then. It looks like you need to see the bigger picture. Make your own excel spreadsheet of your current assets and liabilities, repayments, rent. Then double the figures of rent and asset value for 7-10 years time. This may help you see the value of holding on for long term. I would see if you can remortgage PPOR to get rid of personal debt.
Hello Cresta76
This is a small addition to my previous post.
If you decide to increase the mortgage on your old PPOR to clear the personal loan then make sure you do it as a split loan to keep the personal debt separate from your IP debt. At the same time organise a 100% offset account linked to the personal debt part of the loan and put all your wages and rental income into this account.. You can then use this as your working account paying all expenses, both personal and investment, from here. This will save you lots of non deductible interest and help you get rid of this loan much quicker.
If you don't understand this then maybe you should use a MB to set it up for you correctly. If you don't know one who puts your interests before his own then there are a few on this forum who may be able to help you.
Hope this helps
ElkaHello seer76,
My personal preference (because i don't like personal debt.) is to sell and pay debt off and move on to the next deal or three.
This gives me more leverage with banks, and ready cash for "the next big thing". But i like to keep active in the market and move quickly on a purchase. So you can still hold some property for long term but it does not give you restictions on lending. You could then buy 5 properties and watch them all make $100,000. IMO.Dom
Thankyou EVERYONE! Wow, it is great to have so many points of view. At this point I feel that we are going to keep all properties and start making more payments towards this debt. We actually have it structured as a seperate mortage and not as a personal loan per say, so the interest is around the 7% mark. I like the idea of the spread sheets and looking at the bigger picture – 7-10 years time…this is what we are investing for….the bigger picture and in the larger scheme of things 70K is small fry's. We just want to keep investing…it's like money for jam!
Thankyou all, happy investing.
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