Hi all,
I really need someone's advice here.
I currently own 6 properties between myself and my wife. We have 2 blocks of land (mortgage $175k) with a total value of $880k, IP1 in Dunsborough (value $550k, mortgage $200k neg CF $50pm), IP2 in Perth (value $380k, mortgage $225k CF- $260 pm), IP3 in Perth ($340k, mortgage $315k CF-$750pm) and our PPOR (value $650k, mtg $605k).
We are very negatively geared and find our income too committed for our liking at the moment.
We are looking at restructuring in the following way. We are going to sell our blocks to apply against the mortgage of our PPOR after settling the $175k mortgage. I have also decided to sell IP2 given that it has a negative cash flow of $750pm after tax.
My question is:
– Should we sell IP1 and IP2 (negatively geared to tune of $310pm and pay off our PPOR completely or retain to avoid selling costs, tax and retain future capital growth?
– If we sell, we would like to use the equity in our PPOR to purchase more investment property. Is it likely we can source positive cashflow or even positive geared property at the moment, or is it likely we will have to put ourselves back in the same position of holding negatively geared property (in which case we shouldnt sell in the first place).Your advice would be very much appreciated.
A tricky situation…I would personally steer towards selling my most expensive IP… as my personal believe is that higher value IP will show weaker growth..unless its in a "boom" suburb. With this in mind, I would sell IP1, use the gain to pay of IP2 (and hence turn it into CF+) and the left over on IP3 to offset that mortgage as best as you can. With this strategy, you still retain 2 IPs, one with CF+ and reducing your negative gearing on IP3. So in essence, you would be in a much better position, just by selling that one property, but still retaining 2 IPs and a PPOR, not a bad position to be in. Of course there are other factors to consider, but overall, I think this is the best way to go…my 2 cents…
Good luck you lucky bugger…having that much residential asset, well done!
Hello MArcus10
Nice problem to have.
Your PPOR debt is certainly the killer as I guess you are paying out around $4K per month on it and none of it is tax deductible. Of cause an option you haven't mentioned would be to move out of your home and rent much cheaper elsewhere in which case you would not only have the rent to help pay the mortgage but all expenses would be tax deductible including interest and depreciation. Doing this for up to 6 years would still keep it CGT free.
However, I don't know your situation, age, kids etc. and that's a very emotional decision which only you can make.
However, looking at the question you asked I don't think it's primarily a matter of looking at "what should I sell which reduces the most debt". What I mean is that it's not just a numbers game.
I think it would be a case of going back to the reasons you bought the property in the first place and then seeing if it has performed as expected and what you believe it's going to do in the future. Then dispose of the ones that have not performed or have reached their full potential for the forseeable future.
What was the purpose of the land. Were you going to build for investment? If so, is it no longer profitable?
By my calculation if you sell the land you can clear most of your PPOR debt though the CGT bill will be hefty I assume.
( It may be worth your while getting some advice about both of you making a tax deductible contribution to your super to reduce your tax bill. Better in super than in the govt. coffers. It depends on your other income of cause.)I assume IP3 is your latest buy. Is the reason you bought it no longer valid?
Unless you see no future in IP1 and IP2 any more why would you sell these?. Do you no longer see capital growth in the properties? If you've reduced your monthly PPOR mortgage repayments to about $1K – $1.5K then $300/mnth to carry the properties should not be a problem. I really don't see any reason to sell those except underperformance. If you sell the blocks of land you will have enough equity in your PPOR to borrow aginst it for further investing anyway.
Just my thoughts
ElkaHi Marcus,
You will definately be in a stronger position with a lower debt against your PPOR and that is something you really should address. However, you should be very careful of making buying and selling positions exclusively because of cashflow, it is much more sensible to look at the overall likely return from a property ie cashflow and likely capital gains. Maybe sell the properties that are least likely to perform well in the medium term, you might also consider building on the vacant blocks before you sell, if you think this would increase your overall return.
Regards
AlistairOut of the 3 IPs(1,2,3IP), you could try selling one of those to free up some cash, uaing this free cash you can build on both the blocks of land. Once they are built you could sell one and reduce your PPOR debt. I also like the idea of the super when selling properties, its just logical.
I feel your key here is building on those blocks of land, as that will sky rocket their value and thus your equity that you can grab and use to reduce PPOR.
You can still have a few IP's, but the real concern is that PPOR, once that is more manageable then it'll all turn around.Hi, interesting problem.
Not knowing anything about you at all & looking at the facts, the best option meaning the one with the most money, is sell PPOR.
Then rent a house & build on one block of land.
Obviously, the land could be in another state which means it wouldn't be viable.
The other thing of course is that PPOR may not be for sale. There's too much emotional value attached to it.
It seems to me that you yourself have a pretty good idea of what best to do & posting your query is mainly for moral support.
Good luck,
Kum Yin
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