Turning PPOR to IP..negative or positive geared?

I had a quick look at your numbers, and I suppose you made a mistake when you wrote Body Corporate fee : $420/wk? Perhaps you meant 420 per quarter?

For positive cash flow property investing, you need to make sure that your weekly rental income is higher that weekly expenses. It's really as simple as that

Based on your figures the property is likely to be returning positive income before taking into account depreciation and other non cash expenses. These are depreciation of building, depreciation of fittings, borrowing costs, travel etc.

I would suggest you get a depreciation schedule done.

Buying and selling in the same market is not such a bad thing.

Sure you'll probably end up selling for less than you wanted but if you do your research and due diligence the person selling the property you move into will probably be doing the same thing.

When the whole market moves in either direction your dollars will still buy you a similar property.

To give you an example of what I mean we paid $49K for a 3 bedroom house in the Perth suburb of Warwick (nothing special about the suburb – just your typical suburb) in 1986 and sold it for $143K in 1998. People have commented on tripling (approx) of profit we made – but if we turned around and used the money to buy another house without additional borrowings we would have ended up with a similar house.

Sure the situation can be accelerated through some form of renovation etc but without this you are buying and selling same same.

Is your intent to add additional borrowings to your existing loan to help the step up in property type, move slightly further out of Melbourne or ???????????????? – the answers to these questions will also determine what the right course of action for you is.

my two cents worth would be to hang on to the IP for as long as possible…

Back of knapkin calc.

Currently the property would gross around $140/wk … $7200/yr. Doesn’t appear to be any chance of capital gain and possibly a loss in value over coming years.

If you sold you would net around $200k. Invested at current fixed rates of 6% that would put $12k/yr in your pocket.

A $450k property that returns around 4.8%pa and no CG is a loss making situation. You need to be getting around 8%pa CG every year just for your dollars to hold their value after entry/hold/exit/taxes/inflation.

Net rental return of $140/wk on net invested monies of $270k is only 2.7%

Seems pretty simple to me. It’s a dog of an investment option. My gut feeling is that in 5 years you would have less dollers than you have now and they would have less spending power through inflation.

The Freckle

Invest is myanmar real estate! Watch it take off.

hornbill,

There are lots of parts to say about your current invest.

First .. you do realise you have 6 years to be away from your PPOR and still claim it as a PPOR and receive all the capital gains from that? At the end of that 6 years you can either return to the property or sell it. Thats gotta be worth a cracker to you .. you can have someone paying half your PPOR bill for you and you reduce your exposure to the debt by half or more ! FULL CGT exemption .. but no depreciation allowances or interest deductions. Sucks on one account  .. but profit on the other.

Transferring between person to company .. or family member to family member is not a great way to save on tax unless you started with that as the main reason for the deal. Unless you are dealing with larger folios or multiple properties .. bundling into separate names attracts transfer duties and is an expensive way to solve an issue that should have been straightened out in the first place. In other words .. if you are going to run a large company structure or a small one to minimise on tax .. start that way from the outset. Re-arranging assets once title has been exchanged can be a ludicrously expensive procudure to minimise any tax you receive. And on that .. there is always the chance the tax department will change the rules on you. Think trusts .. as they used to be.

Presented with a deal where you have a bad egg (because you are dealing with building defects and legal issues) to take to the market, you'll reduce your chance of effecting the best sale price. Wait until all builders defects and warranty issues are off the table to assure potential purchasers of a solid deal. I make money purchasing bad eggs, and waiting for that .. so I know what I'm on about. The difference between a bad egg and a solid deal can be up to 20% of final sale price .. so its worth that security.

By the way .. you can still run better deals in the current market. Mashing together a couple of properties and splitting a block into strata title .. i revalued it and borrowed against a couple of the properties without need to sell. Gearing with OPM on the rest of the deal .. i am getting 22.7% Gross on the deal .. coupling to 18.3% net after expenses. Its all about gearing and how you work the deals .. NOT how the deal exists on the market.

As far as working in overseas or interstate markets .. it requires you to be on top of the legal requirements .. obligations and permissions 100% of the time. Read a couple of posts in the overseas section to recognise what sort of requirements you need to be fully aware of the dangers posed by investing overseas. Become your area expert .. or .. roll the dice.