Looking at selling PPOR and reinvesting approx $400K cash in property investments and maintaining long term rental option for family to live in. What are your thoughts pros and cons?
cons: high transaction cost – selling costs & possible new purchases, loss of security of ppor vs renting, relocation costs.
Why can’t you redraw the $400k equity for investment without selling?
Hi Lesley,
I posted a similar question recently on the forum. a few people got back to me and similar to scott no mates words, it really comes down to what your lifestyle needs are. if you are happy renting (with the possiblitlity of being kicked out because the landlord sell etc.) then this is fine.
if you would selling up and renting would make better sense financially then this should be the path you go down.
have a look at the thread and you will see more details of the pros and cons
hope this helps
https://www.propertyinvesting.com/forums/property-investing/help-needed/4335319?highlight=rent%2Cvs%2Cbuyfabulous thanks
What happens when you have invested this money and then decide to buy another place to live in? You could end up with a high non deductible loan.
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
sounds very good to me…… best of luck with it
Hi Lesley & All
Just remember you can leave your PPOR for up to six years and rent it out without loss of CGT freedom, then your loan interest becomes deductible and you have other tax offsets.
Basic weekly cash flow will be similar as your rent in equals rent out if both properties are similar You can make application for PAYG tax variation to reduce outlay monthly and use those tax benefits to reduce your loan faster.
AFter you do the cash flow numbers it comes down to personal lifestyle prefs.
Happy planning
Anthony @ A4Companies
Why not do the following:
- Let your PPOR since costs linked to servicesiblity of the loan are tax deductable
- Go back to renting
- Use your PPOR equity to form a deposit for another IP.
- Hold on to these IPs after 18 months (at max), if sufficient growth in their equities, duplicate.
Cheers Leo
Hi Lesley
I had the same idea today also. was thinking of selling and freeing up the capital and having no loan repayment. Sure there would be a cost in selling but i figure if i put the money into a term deposit at 6 or 7 percent it would pay for my rent at the new place. I'm looking into getting a long term lease, i know it happens in europe but its not that common in OZ.
so im thinking my whole wage and my wifes would be money we bank each week and not have to pay towards a motgage!
would be able to save up very quickly for a deposit on our first propery investment.
can anyone confirm that steve knight rented while he was buying his 130 properties ??????
GeoffI guess it depends on what phase of wealth creation you're in, like acquisition or whatever.
I liquidated and rented, while seeking the right motel property to buy (which returns me 20%+, ) so for me renting frees up the bulk of my capital for a better use of that capital than buying a PPOR.
Also, if I did buy a PPOR and use it as security for buying a commercial property, the bank will undervalue the PPOR and I lose about 20% of that equity's buying power, whereas cash is valued at 100%, not 80%.
After I buy a motel, I can continue renting and stockpile cash or invest the motel proceeds in a PPOR.
It just depends if I want to reinvest the proceeds in another motel or quit trying to grow fast and buy a PPOR.Hope that makes sense.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
thecrest wrote:Also, if I did buy a PPOR and use it as security for buying a commercial property, the bank will undervalue the PPOR and I lose about 20% of that equity's buying power, whereas cash is valued at 100%, not 80%.You can use a LOC to redraw up to 90% of the properties value (provided you are with the right lender of course). This will cost you LMI which I think you would be able to capitlize. Selling would cost you about 5% of the properties sale price, so really you would only be able to get an extra 5% from selling the property. This of course is ognoring the effect of CGT which if you were liable for would mean you woul be getting access to a lot less than 90% of the properties value.
I personally see the only reason in selling your PPOR while renting somewhere else is is the PPOR is in a very underperforming area and you would be able to get much better growth elsewhere, or if you had another venture that you needed the money for such as the Motel investment that Crest pursued. I dont see any point in selling if you are just going to buy a similar property as an IP.
Cheers,
Luke.hi Luke
I used to be against selling, but now can see the value in it – especially with the greater difficulty in now getting loans.
A good reason to sell would be to pay off personal debt. So selling an IP with a lot of equity in it while you have a high non-deductible loan would be an example.
If we are talking about selling a PPOR to use the proceeds to invest, then this isn't a good idea. Firstly the CGT free status will be lost and would be wasted if you are not claiming another place as your main residence. CGT is a very big issue. Imagine you had a $500,000 gain = $125,000 in possible tax payable.
Also by tying up your cash in investments you won't be able to buy a place to live in in the future – or you will end up borrowing more which means higher non deductible debt, while possibly having to pay tax on your positive geared proeprties.
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
Nice to have so many ways to skin the cat, options are a pleasure to have, Rent vs Buy works out the same either way for us.
We prefer to rent, optimise the capital for investment, max the income and then enjoy options on what to do with it.
Cash is 100% king, whereas leveraged equity cops LVR discount and begging at the bank again.
Good to crunch the numbers though.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
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