Hello all, just joined up. I have a question, which is, why have an investment property?! We currentky have one whilst living in our own (mortgaged) home. Now, we are thinking of selling my home to buy another home (we need more room) However we are going to keep the investment property. I would of liked to use the equity in the IP to help pay off my home loan but of course unless I am investing the money I cannot which obvisouly sucks and has now got us thinking why are we even keeping this thing!! We have had a broken dishwasher, broken tap, broken tastic, the townhouse IP is in excellent condition, we used to live there so….
But it seems all we do is cough up for repairs, land tax, rates, water and body corp etc, question we have is WHY? Is it not a better solution to sell the IP and reduce our mortgage by approx 180k! What else can I do with the equity in the home? Let's say I borrow against it for 100k and invest it, I will still have to (obvisouly) pay the loan so not sure how people make money on these suckers! Any general thoughts, comments would be appreciated. I think from our perspective that paying off the new home would be better than use the money saved to invest in the future.
Cheers,
Geoff
geoff80,
First of all – why are you paying land tax? What state are you in?You are correct in your thoughts – sell your I/P if you are loosing money. You can pay off some or all of your PPOR.
In the past you only needed to buy property and watch it grow, but times have changed and it is not likely to be the same for at least 10 – 20 years.
Do yourself a favour and sell before it looses more money and you sell when everyone else is selling and loose tens of thousands.I am in the ACT. What is PPOR? I guess another thing to consider is my wife owns that house, we only moved out last December (07) and she will hopefully not have to pay CGT but if we move to new house, that might become her Principle Residence so…..
But thanks for the info…..
Geoff
I would sell. Reducing the mortgage on your main home will reduce interest which is a guaranteed way of becoming wealthier. Consult a tax accountant for principle residence rules. There should be a way to avoid CGT.
geoff80,
ACT – bad luck you have to pay land tax on all land for investment – no free land as in NSW and QLDPPOR – principle place of residence – it means your house you live in – according to the ATO anyway.
If she only just moved out then she may not need to pay CGT depending on who owns the house you are in now etc, you can move out of your PPOR for up to 6 years and not pay CGT as long as she hasn't claimed another house or part of a house as her new PPOR.
Good luck whatever you decide.
OK, so again why have an investment property? What are some basic reasons people buy these investments and say not shares etc? But thanks for the info, will look into it.
HI Geoff – are you claiming depreciation on your investment property? If not – highly recommend getting a scheduled done by a quantity surveyor.
Hi, Geoff80
Why an IP? You can leverage around 90% of the value of the property, and have access to the full capital gains, income and tax-benefits that the property has to offer. If you have $50K, you can potential get a good IP for $500K. Property is seen as more stable, and even the worst falls in prices have only been around 30% in the USA.
Why not shares? It is also a good option. If you have around $50K, you could buy into the ASX20, buying $5K worth of shares in 10 companies to give you the diversification; or you could invest in Exchange-Traded Funds (ETFs), which are a lot cheaper than Managed Funds. You can leverage around 50-70% on your initial capital, but shares are less stable, and we have seen what the wrong business model can do to a company like Babcock and Brown, with a massive fall of 98% in value from its peak. That can result in a margin call if you leverage via shares.
Each has its pros and cons, too much info to explain and it is up to you to learn about them if you desire. Many serious IP investors spend years learning about this area to be successful.
If neither you nor your wife have a true desire to seriously invest in property, then perhaps the best option is for you sell your IP to someone who does. You can then take your proceeds and keep it in Superannuation. Super, in itself, is still a pretty safe option, although the increasing number of baby boomers retiring from 2010 onwards will put in increasing strain on the pension and subsequently on Super as well; although an increasing population will mitigate that to a large degree.
Regards
Daniel LeeJust a correction – I work in the super industry and am fairly certain that retiring baby boomers will not have a negative impact on super.
if anything, there will be a positive impact.
dont forget most baby boomers won't have large super savings due to the recency of the SG legislation.
to the poster: if you cant give a stuff about investments, super is a fairly good choice, since you don't have to lift a finger. However despite working in the industry, for the highest gains you really have to go shares or property (or both)
Ken
why have investment property.
It is hard to see any good points for it at the beginning.
You feel like you are paying out money for repairs and getting a low rental return.
Property is a long term investment. Over a longer term the borrowed money is usually 90% other peoples money and 10% your money.
so if you have a large borrowed amount the value of the property rises over time and so does rent.
Remember this is not your money invested it is the banks money.
So if you own a 200,000 house but only outlay $20,000 to buy it and it goes up in value say 7% p/a averaged over ten years. =14,000 in first year then you are really making 14,000/20,000 * 100% = 70% on your outlay.
Then you can depreciate the repairs over time thus increasing your expenses but reducing your tax payable.
Look at it as a forced saving scheme that takes time to show promise.
If you sell it you incur capital gains tax but if you cna hold on to it over time you can pay down the loan and make it earn you money rather than cost you money.
THen you can borrow against the equity to fund the next investment purchase. (this is known as leap frogging)
If you are good at the share market you can make returns but the risk is higher and you can lose money.
Property is a lower risk so banks lend more against it than they do against share values.
Shares on the other hand do not have land tax, stamp duty , council rates, insurance (unless you but a put option) or repairs.
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