The dust has finally settled in our lives and we have emerged on the other side with an IP in Melbourne and about 260k in debt. The IP is a free standing three bedroom double fronted brick veneer within very short walking distance of Bridge Road Shops etc. There is a long (as in over ten years) term tenant currently paying 270pw rent. We are at a cross road as the property needs a bit of work/renovation to improve the market price whether we choose to keep renting it out or sell it.
We are renting and do not yet own a PPOR, something OH (óther half') is very keen to remedy. What would the great minds that frequent this forum advice? OH prefer to sell as is, pay the debt and buy a PPOR with the balance, I however, would like to do a 'steve mcnight' type deal on it as reckon it will result in a much better return. We are also far away that we cannot just pop on down to Melbourne and do a weekend fix up job.For those of you that invest in Melbourne, what is the market like? am a little far away now I cannot even get API mag so a little bit out of the loop..
cheers
AstraSelling the I.P to buy a PPoR is actually a bit of a backward step in your future investment plans unless you then use the equity (if there is some) to jump in and keep investing.
Not only that, there will be cap gains tax to pay possibly, and buying and selling costs. You may even go backwards in nett funds.
The interest and other costs on the I.P are tax deductible, while on the PPoR they are not. This has a significant impact on both short and long term cashflow.
If you are both earning good wages and paying a bit in tax, you can recoup many thousands of dollars of it through your I.P. Over a lifetime this can fund your retirement. If you use those tax refund dollars to continue investing, you are effectively increasing your asset base with free money that you would normally never get back if you live in a PPoR.
If you select well, you can even keep buying properties that are cashflow positive AFTER TAX, which means you not only get your tax return, but the properties don't cost you any money along the way. They don't need to be neg geared. This is a huge advantage.
The emotional attachment of owning (and living) in your own home is very strong for us Aussies, and there is nothing wrong with that, but if you are planning on retiring through the wealth you create through property investing, then this may not be the best way to go.
If you can get past the emotional attachment and think with your head not your heart then you will see that it is better for you to keep renting a nice house yourself, and pour all available excess funds into your current I.P and/or buy more.
As your wealth increases you can keep upgrading the place you are renting yourself and live in a very nice place. Who cares if you don't own it if you are getting rich along the way?
As for the market; I don't think you could ever go wrong in Richmond any time in the market as long as the property is well located and in good condition. It is a high demand area.
But as I said; my advice is don't ever sell; stay where you are and buy more.
Thanks for your answer LA, and you're very right it would be to nice to hold and hold and hold
The subject of Richmond has come up again, and mostly due to the crazy prices houses are going for over there at the moment. We got a builder friend to have a look at the property and his advice was basically it is a pull down job. The land is 330sqms roughly and the location very central.
Now our option is to just put on the market and let it go to the highest bidder without doing anything or pull down and rebuild. I am sentimental and would like to still have something in the Richmond market, but I think if we sell it and once it's gone there is no way we can afford to buy in again.
Your thoughts would be very much appreciated.
Astra
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