Selling my existing PPOR and move into my new PPOR or keep it as an investment?

hi N2I,

If I sell, I can use the sales $$$ to pay down the mortgage on the new PPOR and start a family.
If I rent it out as an investment, it will be a positively geared property giving me about $900

Since you have paid so much off the old PPOR, it might be financially wiser to sell (with NO CGT to pay), and use the funds to pay down the new PPOR. THEN, if you wished, you could borrow against all the Equity in the new PPOR to purchase a new IP, with ALL funds borrowed thus being Tax Deductible.

Whatever you DO do, do set up an Offset Account (which would have made making your old PPOR into an IP much more easily workable). To read more about Offsets, check here:-
https://www.propertyinvesting.com/topic/4410491-the-big-picture-for-new-readers-especially/#post-4697973

And do keep in mind – as well as financial reasons to do anything, there are those emotional reasons too (like “starting a family” and this is every bit as valid and important as investing!!).

Good luck with the choices,

Benny

Hi Jaxon,

I really disagree with Benny under most cirumstances,

Hmm, I thought we thought alike….??? Maybe there was a typo there ! :p

Yes, either way can work, Jaxon – but with what I think you are saying, any new mortgage on the old PPOR is not a Tax deduction, thus N2I will be paying full Tax on any Income derived from renting the old PPOR (because the purpose of that new loan against it is for PERSONAL reasons – buying his new PPOR). Only the original $100k mortgage would be deductible.

Is that cause for alarm? Maybe not, but it would be smart for N2I to “run the numbers” prior to making his choice. Of course, if he did go the way you suggest, then there are ways to allow the expenses to grow (slowly) against the new IP by borrowing to pay rates, insurance, etc.

But if he were wanting to capitalise Interest, I’d suggest he get an ATO private ruling before going ahead.

“Careful” Benny ;)

Hi Jaxon,

Benny I respect we have different views, that property is returning 8%, its positively geared, that beats tax incentives!

What I like about a forum is that even opposing ideas can add value. I haven’t run the numbers as you appear to have done. Your effort is therefore a big help to N2I straight off.

My thoughts on the other hand were not directing him either way, but simply bringing things to his attention that he should be considering. I think we both helped.

As well as helping N2I, we also provided a useful background of ideas for the next reader of this thread who is also considering “changing his PPOR – does he keep or sell the old one?”

Benny

Why not have your cake and eat it?

You could otherwise sell the investment property into another structure (ie a trust), which would allow you to make use of the profit funds to pay down your PPOR.

More effective debt scenario in terms of balancing non-deductible vs deductible debt in your favour.

You will pay stamp duty on the purchase, but if its a great purchase and the fact you can releverage the investment debt whilst reducing the non-deductible debt it will likely pay off.

Jaxon wrote:

Corey I am intrigued by your idea, but can you actually break down how this is financially and strategically smart?
you do not “need” a trust to pay down the PPOR
also the new purchase is PPOR so stamp duty wont be IP amounts either way?
So because of trust taxation law your stating their are more options for the trust operations stacked against named holder ofthe asset.
am I missing anything mate?

I don’t think you quite got where I was going.

What could be done is:

*sell IP to trust – this would allow the poster to then reborrow for the property covering effectively the full purchase price and costs (ie lets pretend 630k – 105% of purchase price)
*OP then pays out existing loan and is left with 500k – these funds can be used to pay down the PPOR loan (and in reality would need to reborrow out the 20% + costs for the deposit component of the resale of the asset into the trust

A trust (or another entity) would be required to sell the IP to something.

Not an overly complex strategy but one which slips a lot of peoples minds. It’s a strategy used by a lot of professionals in the property space to re-gear IP’s which are otherwise highly paid off, whilst having large amounts of owner occupied debt. (not a desirable outcome)

Likewise it allows the OP to keep their investment property if they believe it’s a good investment.

In the end its best the poster get specific advice on their situation by the relevant professionals so they can get something which fits their exact needs.

I have covered the sale to a trust in this thread with 2 or 3 variations:
https://www.propertyinvesting.com/topic/5037824-13-strategies-for-when-you-move-out-of-the-ppor-and-want-to-keep-it/

Listed is a link to a private binding ruling that I obtained for a client. You can click on that link and read how the strategy works and the ATO’s response – saying the interest was deductible and why.
My clients were able to transfer a fully paid off property worth $1.2mil to a unit trust and they personally were able to claim the full interest on the loan of $1.25mil even thought the proceeds, indirectly, ended up paying for their new main residence.

Corey, i didn’t know you were licenced in tax?