Hi all,
I have recently discovered this site and have spent countless hours reading the forums and have learnt a great deal of valuable stuff.I am looking for some suggestions/ideas as to what my options are right now.
I bought a 2 br unit (in Darwin NT) in May 2003 off the plan for $180,000 in my name only.
This was PPOR for my wife and myself until June 2007 when we rented it out for $345 PW.
Currently the unit is worth between $330,000 & $360,000 with $155,000 owing.
The unit is CF+ to the tune of $2,000 PA.We moved out in 2007 because we had purchased a 3 br house for $425,000 (in both names) which is our current PPOR and we plan to be here for quite some time. Currently we have $355,000 owing on the loan, with $20,000 in savings in a 100% offset account. At some time within the next 18 months we will need to spend an estimated $50,000 on the house to make it more livable.
For various reasons, my wife does not have a stable income and she will most likely not have any income in the near future. My income is $60,000 PA.
It has become difficult to survive on one salary as our mortgage repayments on PPOR represent most of my pay. I will change the repayments on IP from fortnightly P&I to monthly IO but I fear this may not help enough and won't cover necessary renovations within our expected timeframe. I have considered selling the unit to my wife but I think that may prove quite difficult given her financial status.
I am considering selling the unit (which is not too bad as the standard of construction and fittings are such that I may have to spend money I don't have on it in the future). CGT should not be too much as we lived there for the first 4 years. The money we make from the sale can partly fund the renovations required and still have enough left over for a deposit on a brand new house as IP.
Does this sound reasonable or does anybody know of other options I may not have considered?
Any comments would be greatly appreciated.Regards
SeanHi Slippy / Sean,
This is certainly not fincancial advice but…… (end disclaimer)…..
Selling the unit to your wife is probably not the best idea – it will trigger capital gains tax, and you'd lose any depreciation / tax deductons that you claim if she does not have an income as such.
Sounds like some budgeting may be necessary – are there any ways to "save" more or "spend" less, so that repayments are not so much of an issue ? Do you know how much your life actually cost s, so that you can paln accordingly ?
Have you fixed the interest rate (and have an interest only loan) ?
Perhaps it might be another idea to consider moving back to your unit and renting out the house ? This would effectively reduce your own personal input into repayments – the tennant and the tax man would effectively be paying more. While this idea is certainly not sexy or glamorous, it will make a big difference in your month to month cash flow.
You have experienced some good growth on the unit over the last few years, and probably have also in the house over a short space of time. I'd try to hang on to both properties and try not to sell either at all if possible.
Perhaps the house renovations might need to wait, or perhaps be staggered. Sounds suspiciously like the whole "delayed gratification" thing may need to be discussed !!
I hope this helps,
BDM
I think with my investor brain far too much I'm afraid.
My thought was to forget about the renos and keep the Darwin property and just plug away at the PPoR loan as best you can.
To sell the IP and use the funds for the renos and better cashflow is not the best financial decision in my opinion. A lot of people do what you're planning, which is a short-term gain, but they are stalling their long-term wealth creation plans and many never buy another IP again.
But, you need to have a lifestyle as well, and there is no shame in taking profits. At least you would be re-investing the profits back into another investment (your PPoR) of sorts.
Maybe sell the Darwin property, put all the funds into the renos and the existing PPoR loan. This will cut down the non-deductible loan to a degree, and you can then re-draw some of the equity towards another IP a little later.
It'll mean you will be using more/all borrowed funds for the next IP rather than a cash deposit, but if you buy well, maximise tax deductions and depreciation, and considering the loan interest is tax deductible you should be able to easily eclipse what you would pay out in non-deductible interest on the PPoR by not using the cash as a deposit.
Thank you both, BDM and L.A. Aussie for your comments,
I'm not considering the sale of the unit lightly, it's not something I want to do if I can avoid it at all.
I have owned property since I was 21 (ten years) and the ride has been well worth it for me, I don't plan to get off it. My wife and I have always managed to live cheaply and we haven't found anything we can really cut back on. I'm just a little concerned that since my wife has stopped working, our savings have been slowly disappearing. Although at this stage, I have no idea what to expect from the taxman this year. I have had a building surveyors report prepared for the unit so I will be claiming depreciation but I don't know what that, combined with claiming the loan interest will equate to in dollar terms. Is there any way I can calculate an estimate for myself?Thanks again for your help.
Have you considered selling the property into a Unit Trust / HDT borrowing 100% of the valuation and then using the surplus funds to pay down your mortgage on your PPOR.
This way you will be able to legally claim the interest on the entire loan balance and shift the burder of debt to a deductible expense from non deductible as it currently stands on your PPOR.
Certainly even at your current marginal rate if you intend to retain the property long term it will have a considerable difference on your net income.
Richard Taylor | Australia's leading private lender
Thanks Richard,
I have not considered a Unit Trust/HDT as I am not familiar with the idea. Anything that allows me to keep the unit, be able to claim interest payments and still have money to fix up out PPOR is appealing to me. Where can I find out more about it?Sean
Forget my last question Richard, I have found out a bit about unit trusts from the forums. I will talk to my accountant soon.
Assuming a unit trust is the way to go, will I have to pay the stamp duty and legal fees or can this be added onto the loan amount?Sean
Yes you will need to pay stamp duty on the transfer but that can be added into the loan amount.
Your Accountant may not be too familar with the strategy as not all Accountant specialise in property and trusts.
Would need some exact figures to work out the entire viability but not hard to do.
Other issue is finding a Bank that will accept or understand why you want to do a transfer into a UT.
Shoot us an email if you need anything.
Richard Taylor | Australia's leading private lender
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