Hi All,
I'm seeking some advice for my mum. She is a nurse on an average income.
Her repayments for her PPOR are very high. Her aunt has now offered to have her stay with her, without charge. Mum needs to decide whether to sell her PPOR or rent it out and continue to pay it off. She needs to retire soon (seven years max). She has spoken with several accountants in Hobart but no one has been helpful (they haven't been property savvy).
Here's a break down of the current figures:
Bought 2bd unit (Kingston Beach, TAS): $200,000.
Property now valued at $250,000
Mortgage remaining: $185,000
Mortgage Repayments: $876 per fortnight (inc. roof repairs of $200 p/f til Dec 11)
Estimated rent: $520-$590 p/f (before agent fee/expenses)Any advice would be greatly appreciated. If you are a financial adviser/mortgage broker I'd be happy to speak with you or put you in touch with her directly.
Thank you!
*Edited original post for clarity.
Hi Haratio,
Based on the information you supplied, it doesn’t make sense for your mum to rent out the property. The fortnightly bank repayment you said is $676; but the realistic net fortnightly income would be just $468.00 ($260 x 2 less 10% agent’s fee). Where would she find the shortfall?
The shortfall gets worse when you also consider all other out-goings like repairs. On top of finding a rental for herself, unless she can move in with someone for free.
Unless you can find a creative solution, I’m afraid the idea of selling, if she finds it hard to hold on to it, is a much better option. This is just a thought, please don’t take this as advice. I don’t really know enough about your circumstances to offer any suggestions.
Take care.
Angel
Angel,
If you look at the start of Haratio's post it states she could stay with an elderly aunt for free indefinitely. So this negates any rent required for housing herself.
I have a similar situation myself where my grandmother is tossing up the option of living with one of my aunts and renting her place out (5 bedroom house in Five Dock, Sydney). There is no mortgage on the place, it is just mainly because there is no need for her to be in such a large house by herself, and the extra income generated would make living a lot easier for her rather than relying on the pension where she seems to struggle to make ends meet. Couldn't imagine her selling the place either with decades of memories in there as well.
From my grandmother's experience I do not think you would want to rely living on the pension and it would be a great benefit to have some extra money lying around. That being said, just doing some sums, if you could access some super now and get the principal down to $120,000. You should be able to pay off the rest of the mortgage between now and when she retires, that is assuming it is rented out. Then you could sell the property or simply continue renting it out with some weekly cash flow. This is just an idea, there are probably a lot of better ones out there, I am definitely not the best regarding financial planning and there are many tax loopholes/benefits and funny things you can do with money that I do not know about.
There are a lot of options here, hopefully a financial adviser picks up on this and offers you some sound advice.
All the best
James
The indefinite rent free period would come to an end if the elderly aunt were to pass away, or if your mum and elderly aunt found that they living together thing wasn't working as well as they thought it would (aka a falling out). I'd be cautious about making such big decisions based on the assumption that I could get free rent forever.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Yes, i think she should hold onto the place in case she doesn't like sharing. Or if she doesn't like the new town she will be moving to in order to live with her aunt.
Great idea about drawing on super early to get the principal down. I will recommend she look into that. I imagine living on a pension would be tough, especially if you have to pay rent. That's why I want her to hold onto the house, if she pays it off before retiring, her life will be so much easier.
The other option is to sell the property now, and buy a cheaper one in north Tasmania (sell current house $250k and buy new house for $150k). But Kingston/Hobart are better growth areas so I think she should hold for a while, test the waters up north before making any big decisions.
I'm only guessing really, which is why I'm seeking some advice.
Thanks for the discussion so far.
Hi Haratio,
Instead of moving out, is it possible for her to get fee-paying house mates? She has some cash flow problem, maybe this will solve it?
Maybe she doesn’t have to look too far away for a solution. I hope everything falls into place for her.
Angel
hi haratio,
your mum also needs to consider the pension income which may be affected by centrelinks income test and asset test,She has had international students in before but found it too much work (they required meals as part of board and mum tends to stretch the hospitality too far to make it worthwhile financially). She has had a bad run with sharing so is looking forward to living with her aunt, they have a long close relationship and I think it will be good for both of them to have the company.
Yes, I didn't think about assets for the pension. I'll look into that. Thanks for the heads up.
Hi Haratio,
You have a few things to consider.
I believe she can access her super money now as she is over 60, but check with your accountantI don’t recommend renting the property out yourself, unless you are an expert in property management. It’s a big head ache and becomes personal for the smallest of issues.
Should you rent it or stay? depends on other rental properties in the area, by the sounds of your post she may be worse off to rent another home.
From the Age today
http://www.theage.com.au/money/investing/you-need-to-show-true-grit-20110326-1cas0.html
4. Ride the tax breaksThere are tax deductions for depreciation, capital allowance, running costs and let's not forget the 50 per cent concession on capital gains tax for personal investors who have owned the property for a minimum of 12 months. There is no shortage of places to go for information on these. But negative gearing is often assumed rather than relished. It's not all it used to be, when marginal rates were sky high, but it ain't bad, either.
…
How it would workScott is looking at buying an apartment as an investment. The price is $450,000 and he will borrow $360,000 (80 per cent). He hopes to live on the rent income at some point. Immediately, however, he knows that if he negatively gears the investment it will reduce his overall tax.
Income: $70,000 (salary) + $20,800 (rent)
= $90,800
Scott's accountant estimates there will be annual depreciation of $5000. He anticipates the interest component of his loan repayment will be $25,884 over 12 months. Here is Scott's ''back of the envelope'' tally of deductions:
Depreciation $5000
Loan interest $25,884
Insurance $550
Rates and levies $6000
Agent's commission on rent $1602
Total deductions and allowances $39,036
Income – deductions: $90,800 – $39,036
= $51,764Scott's taxable income is now lower than his salary. He will pay $9226 in tax rather than the $15,600 he would have paid on his salary alone.
if mum can do something like that, it might help out. I hope she can change the unit from a PPOR to an IP. Does anyone have experience doing that?
Thanks Kane. I've suggested she have a look into accessing some of her super now.
Yes, I think she's best keeping the house. It seems like a great opportunity to rent it out while living with her aunt for a few years. It could save her from endless renting and moving.
You should feel very privaleged, this is my first post on this forum, and it is just for you.
To my mind there are two things you need to consider, the financial and emotional.
The Financial;
I am asuming your mum already pays some income tax, and that there will be a gap between the income (rent) and expenses (interest, council rates, management expenses) for the home. So she will be out of pocket for the difference between the income and expenses, lets say $100/fortnight.This means her taxible income from her other job will be reduced by $100/fortnight, so she will pay less tax. I assume she isn't a corportate high flyer, so lets assume she is only paying 15% tax. The Tax department will pay $15 of her expenses, and she will pay $85, the rent is paying the rest of the expenses. So financially it seems good, but not ideal as a pure investment, because she has nothing to depreciate, so it isn't cash flow positive. Her only real gain is the capital growth over the period of time she rents it out.
Be aware, as soon as she isn't living in the house, it becomes 'an asset' for all governement tests, so any pensions/benefits she might be receiving will be affected. There is a limit on how long she is allowed to not live in the house, before she must move back in or it will forever be counted as an Asset for pensions etc. ~check with an accountant for details~
The Emotional;
Your mum is going to be living with her Aunt, and all the emotional stuff that happens there, and, someone is going to be living in her house… what if they don't mow the lawns right, or leave the outside light on when she wouldn't. I know all these little things would upset my mum, because she is all kinda crazy
. Also, you need to consider both the emotional and financial issues that will arise from any damage.The positive emotional side is that, aside from the notice period, if things don't work out with her Aunt, she still has her own place to go… I bet she looked for quite a time before selecting the house, and it was her home, and it is a bit distressing to sell it… this is opposed by the stress of the paperwork, bills to pay, complications at tax time.
I would suggest that this is a reasonable short term strategy, because it is convenient. You wouldn't do it as an investment strategy, because she isn't maximising the tax advantages, and she needs to be sure about the implications on any future government benefits…
Cheers,
Darryl.Darryl, thanks for making the effort to reply!
I have edited my initial post for clarity.
. Also, you need to consider both the emotional and financial issues that will arise from any damage.You must be logged in to reply to this topic. If you don't have an account, you can register here.
