Hi all !
I was wondering what different poster's opinions would be on the situation I find myself in.
My wife and I have a development in progress set up in both our names (subdivision with 2x dwellings in SA).
As far as I can determine these are our options.
1. Sell our PPOR (owned outright) and move into 1 of the new dwellings to save on CGT and use the other as an IP.
Use the PPOR proceeds in an offset account to maximise tax benefits.2. Stay in our PPOR, sell 1 of the new dwellings, pay CGT and use surplus to reduce dwelling 2's loan (and rent-would be close to CF+).
3. Stay in PPOR and rent new Dweling's and make up shortfall out of salary's. (tight squeeze with rates on the rise)
4. Rent PPOR and go to live in Dwelling 1, rent Dwelling 2 and make up shortfall..
BUT.
Due to the current market position our PPOR would not sell quickly and time is running out before the development is finihsed (Bulider is 1.5 months ahead of schedule)
I understand that there are tax implications and my accountant will help with the decision but does anyone have a suggestion relating to what would be the best decision tom make now.
You mention it would be a tight squeeze, however if you could (option # 3) remain in your current PPOR and rent out the two new dwellings (? town houses/villa units) and ride out the financial side, you will find that the depreciation that is allowed as a paper loss on brand new buildings and accelerated on fixtures/fittings will assist you greatly with regards holding (out of pockets costs). It depends on what tax rate you are both on…….?? assuming that you are both working
Really it's a numbers game and how comfortable you both are to live a little leaner and having a buffer for rate rises. If they're nearly finished maybe lock some or part of ther loans for the shorter term or whatever allows you to sleep at night. Having said that your decision should not grossly impact on your lifestyle or make daily living a huge struggle. If you can ride out the short term, you will have three properties growing for you in the future.
You could try out option 3, for the reasons Michael gave, and if it turned out too tight, switch to option 2 which is a very comfortable option but with less properties growing for you at this point in time.
Avoid option 4 – as the property is fully paid you would not have as many deductions as you would if you chose to rent the new premises.
Option 5 – weigh up the government's incentive to provide new rental accommodation below market rates. The $8k does not make sense on more expensive properties but it may tip the balance on budget accommodation..
Reading between the lines it seems to me there is some equity in the portfolio that you could use to ease the shortfall. If you sell and have to pay CGT; why not hold set up a LOC secured against the equity and use the loc to fund the shortfall for a couple of years. Reassess then. Say you are $100 per week too tight to hold all properties but have enough equity to set up a loc of $10,000, this would see you right for approx 2 years (maybe more if interest rates hold and rents continue to rise) when, like I say, reassess the situation then.
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