To sell or not to sell, that is my question…
I purchased a 2 bedroom apartment in East Perth in Sept 2005 for $245k
This was my first property and I received FHOG and lived in it until March 2007. At this time, I moved overseas and rented the apartment out and started declaring the income and treating it as an investment property.
I have now purchased additional an IP, but continue to rent for my own accommodation.
My East Perth property was valued in Dec at $440k and is currently bringing in $2000/month rental income, my current mortgage over it is around $170k. The positive gearing is great, though helps to fund IP #2 which is quite negatively geared. Overall cash position is roughly break-even after all expenses but before depreciation.
It is my understanding that this property will remain my PPoR in the eyes of the ATO until:
* 6 years passes from when I vacated, ie March 2013
OR
* I purchase a new PPoRSo that means IF I sell the property it is CGT exempt, is that correct?
I will be completing renovations on this property when my current tenants move out, planning to spend around $20k and fix bathroom, kitchen, floors and give it a modern designer feel, as the rental market for this property is city executive couples. Based on sales of other recently reno'd units in the complex over the past year, I am confident the value will increase to at least $475k or more.
So I'm starting to look forward to the future and wondering, what do I do with this property? Do I take advantage of the CGT free and sell up in late 2012 and use the funds to purchase a few additional IPs with 20% deposits? Or put funds aside for a couple years, use it to fund the building of my own PPoR then withdraw equity from that to fun new IPs. OR do I hang onto my little money-earner right next to the CBD which will always be in high rental demand and will continue tro deliver good capital growth? The apartment is currently 17 years old.
Who is the most appropriate professional to speak to in more depth and give more personal details to? A financial planner? Do I speak to the one at my bank who holds the mortgages or would they be biased?
If it is relevant, unfortunately this property is cross-collaterilised with IP #2. was not ideal, but my former lender was not increasing any lending and could not offer me LOC or extend lending any more, so had to switch lenders. So even if i did sell, I'm not sure what portion of the funds would come to me and how much they would reallocate to the other loan.
Thanks,
EmmaHi Emma,
Firstly, yes, you are correct. The sale will be CGT free up until March 2013 OR you buy a new PPOR.
On the subject of advice, your accountant would be able to talk you through the positives and negatives of selling the property, and keeping it as well, One thing I will say is that buying and selling property, even if there is no CGT, is expensive. You would pay agents fees on selling, and stamp duty, mortgage costs and transfer fees when buying a new property.
I'd speak to your bank about what would happen IF you sold, and how much they would take to pay down the second loan. I wouldn't talk to them about whether to sell or not, as they probably wouldn't be licensed to give advice anyway.
In your situation, it really depends on what you want to do with the money if you sell. I personally wouldn't sell, then buy another two properties, due to the costs of buying and selling. If you have no set plan on what to do with the money when you sell, then I would wait for a couple of years, or until you decide what you want to do with the money.
It sounds like a great property, and personally, I would be reluctant to sell it.
Good luck with your decision.
Dan
Hi Dan,
Thanks for your comments. I would be reluctant to sell it. I know you have to keep emotion out of IPs, but it would be so nice to always hang onto #1
I'm going to bring it up with accountant soon and see his thoughts, and then do the renos (with plans to keep as rental property) and rent for another 12 months and see after that what returns and depreciation are like.
I personally believe I don't want to ever sell any properties I buy (unless they're bought with that purpose in mind), so I suppose the CGT rule is not applicable if the property is never sold.
Thanks for the reminder about all the other costs associated, and yes you're right CGT is only cost to factor in. but of course when the growth is $250k + then that is certainly a big chunk!
Cheers,
Emma
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