Hi All,
Having recently built two brand new homes (one PPOR, the other an IP), we are now at the stage where we’re deciding whether to sell the IP or rent it out. When we initially started this project, the market was in a better shape and if we had a property to sell then, we could’ve made more money then than what we’re likely to make now.
We’ve spoken to two real estate agents, both of whom have quoted us a price about $30-$50K less than what we’d hoped to get for the IP. This changes our whole investment structure and reason for building (sell the IP and be debt-free). I realise there are tax benefits for holding on to a newly built IP, and realise the pros and cons of both selling now or renting it out, however, I do need someone else’s opinion on this – perhaps a fresh outlook/different perspective on the situation.
I’ve read horror stories about what the market is likely to do in the next 2-3 years, so if I trust that, then I may as well sell now, while still paying off $40-$50K on the PPOR mortgage (based on the offer we receive). If not, then we can hold on to the IP, rent it out, and receive the tax benefits. If newspaper articles are to be believed, though, we’ll have a property worth half what it’s worth today in 2-3 years time, while still paying off a mortgage based on today’s values.
So… crunch time! Sell now and get what we get? Or hold on and deal with the hassles of tenants, maintenance costs, etc. and the possibility of lower house values in due course?
Any advice would be greatly appreciated, including input based on your own experience.
Thank you!
As a rule thumb I would not be adverse to selling the IP even if it means realising ~$45K less.
But before I preovide some more thoughts I just need to clarify – are you saying if you sell the IP you'll only be left with a mortgage on your home of ~$40K? If not some more numbers would be helpful.
While waiting for a response – have you factored CGT, GST etc into your calculations?
Hi Derek,
Yes, that’s what I was saying – sell the IP and be left with approx. $40K on the PPOR mortgage. This is after CGT, etc.
The issue I have with making a solid decision is whether to wait and put up with renting it out (I know the hassles of tenants, and being a new property it’ll be hard restoring it to its original condition when someone’s already lived in it – should any damage occur, and it’s likely it will) or be satisfied with what I can get now as a lump sum (while still significantly helping us out).
Any thoughts on what the market is likely to do? That’s another thing that’s impacting on my decision-making ability at the moment.
Don't know the whole picture so some of my comments may be off the mark.
While you will have a mortgage of approx $40K left on your existing home loan I would think that would be very manageable. While your initial aim was to clear the debt entirely getting all but $40K is a bloody good effort I would think.
Who knows what the market will be doing in 6 months, 12 months or beyond. Sure, selling now may mean you do not realise the maximum sale price but markets seem to come off the top pretty much in many parts of Australia so I wouldn't be crest-fallen by what you look like achieving.
I reckon you are confusing the business side of what you are doing with the emotional side of things. To me its a no brainer – sell & re-use funds to pay down the home and consider re-investing the increased equity in your home elsewhere.
I will be seeing a real estate lawyer for transactions. … Get a home inspection from a tough inspector and then decide
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