G'day,
I've been lurking for ages, but haven't posted for a while….. sorry !!
Some opinions please would be fantastic.
My wife and I are fortunate enough to have 3 investment properties that are all worth much more than what we paid for them. The rents pretty much cover their respective loans, and in the global scheme of things there is only an upside.
We also have our Principal Place of Residence, which also has a mortgage, which is obviously not tax deductable.
We have two daughters – 7 and 9 yo – and life is quite nice at our place.
We have reached our borrowing limit as far as the mainstream banks are concerned.
While we are very lucky to have everything we "need", there are a few "wants" on the list – private school fees, renovations (or even bulldoze and rebuild) to name but a few.
The idea behind our investment property purchases was to give us choices in the future. Perhaps the future is now…. ?
If we sold our IPs, the profits after CGT/costs/etc, would be more than enough to pay off our PPOR loan, with a couple of hundred K's to spare. However, we therefore miss out on any future capital and rental income growth.
If we keep the IPs, and continue with our current situation, the "wants" unfortunately are not an option.
So – my question(s) are:
What would you do ? Sell the IPs, take the money, make life easier (which was the whole point for investing in the first place), and start again by purchasing new Investment Properties ?
Or keep the existing IPs, and keep slogging, knowing that our retirement (15 years off yet) is well on the way to being covered ?
Has anyone else faced this situation ? What influenced your decisions ?
Thanks in advance for any suggestions or ideas
BDM.
I'd try and hold on to them.
Just imagine what they'll be worth in another ten years!
Have you looked into all your options for getting more funds?
Are you using a broker? or just approaching each bank yourself?
what a great position to be in, well done
what is it that limits you borrowing any more? servicability? surely your 3 ips have enough equity to fund a deposit on another property or to draw out and take care of some of those "wants" ?
i would hold on to them and explore more avenues regarding borrowing ability, break that glass ceiling!
Ben
Hi Ben and Dean,
Thanks for your suggestions
Equity is not a problem. Servicability, however, is the issue.
Purely from a value of the IPs point of view, yes, I agree that holding them makes perfect sense. In 10 years they will most likely be worth a heap more than they are now.
Borrowing against them for the "wants" can also be done with some effort. Brokers, low doc loans (higher interest rates) can all be explored. This, however, puts pressure on our day to day cash flow. Not impossible, but certainly unwanted.
I guess I am questioning how hard my wife and I are prepared to work in order to have it all.
Paying off the non tax deductable debt as soon as possible makes loud and clear sense to me. Selling up the IPs, paying off the PPOR loan and having spare cash left over is a very attractive proposition.
Using this spare cash to fund new investments, and having zero non tax deductable debt, strikes me as a good idea. The sun would shine, the birds would sing, there would be no pressure on our finances, and we would probably have even more choices than we do now.
I have done it before, and I can do it again. Buying a few more IPs and waiting for another 10 years or so would be the plan, should we sell the existing IPs.
But…… yes, in 10 or 15 years time, the existing IPs would be worth a lot.….
"Financial Freedom" is different things to different people. Having a net worth of a Squillion Dollars now or at some point in the future is not much use, to me anyway, if you are not able to enjoy most of it.
Yes, this is a nice position to be in !
I've got my cake, should I eat it ?
Or, miss out on eating my cake now purely for the sake of having a bigger cake in the future ?
Thanks,
BDM
BDM wrote:Hi Ben and Dean,"Financial Freedom" is different things to different people. Having a net worth of a Squillion Dollars now or at some point in the future is not much use, to me anyway, if you are not able to enjoy most of it.
Absolutely agree!!!!i personally try to live for the moment, holiday when possible, eat good food, own relatively nice things, whilst putting in the yards for that "bigger cake" you speak of.
if you are content with having that 10 year period to wait again for the gains on new investments again, whilst enjoying life now, then go for it! who knows wether we will be here in 10 years time! and if it means that 10 year wait is made all the more enjoyable then the journey was fun too!
just my 2 cents,
best of luck mate
Ben
Hi All!
I have also been lurking a while without a post so I feel today is a good a day as any to break the ice!!
I think that you should hold all properties. Selling them as you have mentioned will mean that your will be up for both GCT and selling costs. Because the purpose of selling the properties is to pay down non-deductable debt (and be in a better position tax-wise), I do not see the logic of selling and therefore paying tax to achieve this. You will be paying tax either way, so I think you may as well keep them.
Just wondering if all of your properties (including your PPOR) are on a Interest Only loan. This will reduce your mortgage payments and hopefully help with servicability. Even consider having your PPOR as an IO loan and put excess funds into an offset account.
Also, I would definitely not refinance or draw any money from the equity of an IP or PPOR to fund a "want" as this will increase your non-deductable debt- contradicting the reason that you are considering selling them in the first place.
Anyway, that is just my opinion, good luck in what ever you decide!!
Luke.
im interested to hear what terryw has to say, regarding non deductible debt etc.
agree with luke regarding funding a want with equity, but im on the fence somewhat simply because its important to enjoy also!
my investor in me says no, my plasma tv watching, tropical island resort lover in me says yes!
Hi
I would suggest you do the sums on 3 options:
1. sell none
2. sell 1
3. sell 2.And just see how it will leave you before and after. Then you have to weigh up the difference and see if it is worth the costs and hassle of selling.
There are also other options.
1. Sell one and immediately buy another. This will hurt with CGT and Stamp duty but will save you a heap of tax in the long run by shifting the debt from non deductible to deductible.
2. Sell your half of one to your spouse or vice versa. Depending on the State you may be exempt from stamp duty, but will still have CGT – but on a smaller amount. This will free up a bit of cash to pay down the PPOR loan.
3. Sell to a trust. This may end up costing more in the short term but may have longer term benefits. Would also help if you are self employed as you can divert income into the trust to offset any losses.
Generally I think it is worth while considering selling to pay down non-deductible debt as it will save tax and propel you to greater income in the long run.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi BDM,
The tone of your post says it all.
If you sell and pay down your debts the birds will chirp and the sun will shine. Over the next 20 years you may a little worse off financially, but I think you should realise the goal and take the cash. Then feel the sun on your back for the fantastic achievement you have accomplished.
The market is not going to make any significant movement in the next few years so you're not going to be missing significant growth.
Just remember – You've done it before, so you can do it again. Enjoy the next few years with your kids before they hit puberty and stop wanting to spend time with you.
Such fantastic suggestions and constructive opinions by the wonderful community that is here ! Thankyou !.
Wise words from TerryW (and Ben, Luke, Dean and Doogs too).
(Ben – I agree, the investor in me says "Never Sell", but watching a thumping big TV on a tropical island does have a certain appeal….)
Crunching the individual numbers on each of my IPs has been done. The idea of selling two and keeping one is a possibility.
Simple arithmetic suggests the possibility of selling one IP now, then maybe another in the next financial year, thus minimising the pain of CGT.
My other plan is to possibly bulldoze our existing PPOR house, and build a new shiny one. Then I'll contact the bank and suggest that because the original house is gone, so too should the original loan. I'm sure the bank will see my point of view !!!!
Thanks heaps
BDM
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