Forums / Property Investing / Help Needed! / Sell or Hold ??? Equity or CGT ??? Help !!!

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  • Profile photo of chetnik73chetnik73
    Join Date: 2007
    Post Count: 47

    Hi all

    I have a quick question in regards to an investment property I have. I have bought a block in Tapping WA for 180k. We are building a house on it for another 180k in total. The land was valued recently at 280k. From our research similar houses in the area are selling for 500K plus.

    So basically we are sitting on a reasonable amount of equity (I think).

    After speaking to my accountant, he has advised to hold on to the property and negatively gear it. Based on a $300 rental it should only cost a max of $100 a week to hold (but with all depreciation allowances who knows ???).

    He has advised us to use the equity so that we can buy our own house (as we do not yet own our own house). Houses in the Wollongong area (where we would like to live) are currently approx 400-500k.

    My question is, do we sell our investment property and get a good deposit for our own house or hold it and try to service both loans. Everybody tells me never to sell a decent property but I am concerned that I wouldn’t be able to service another 500k loan? I know though that it is a good chance to really kick start my property portfolio.

    Any thoughts or ideas would be appreciated (apologies in advance as I am a newbie)

    Profile photo of L.A AussieL.A Aussie
    Join Date: 2006
    Post Count: 1,488

    Most of us on this site would normally say to keep a good investment property and use the equity to keep buying more of same.

    However, your PPoR is a different situation. The interest on your PPoR loan is non-tax deductible, so you should try to minimise the mortgage balance on it as much as you can.

    If you use your equity from your I.P to help buy the PPoR, you cannot claim the interest, so you may be better off to sell the current I.P, use the cash left over from the sale as a deposit on your PPoR.

    You will then have a decent amount of equity in the PPoR that you can use to help fund the purchase of another I.P.

    The problem is you will lose a good part of the profit from the sale of your current I.P in buying (the PPoR) and selling costs (the I.P) and cap gains tax.

    Another option would be to find a nice place to rent for yourself in Woolongong, then use the equity in your current I.P to buy another I.P in Woolongong. Your tenants will help pay down the loan for you, and after a while and when the loan is paid down you could move in. But not many people like this strategy as there are lots of emotional ties to a PPoR.

    You would also need to run the figures to see whether you could service the loans on two I.P’s and pay rent on a place for yourself.

    [email protected]

    “we get sent lemons; it’s up to us to make lemonade”

    Profile photo of kellylockkellylock
    Join Date: 2007
    Post Count: 60

    Get a quantity surveyor to work out the depreciation schedule so that you know how much your $100 possible outlay will be reduced by. Then work out how long it will take you to positively gear it, if that is at all possible…

    Is servicing the two loans now too much of a stretch for you?

    Its a hard decision. I would be inclined to rent and buy another IP, myself.


    Profile photo of AUSPROPAUSPROP
    Join Date: 2003
    Post Count: 953

    renting your home in Wollongong would be the best possible outcome. you dont lose any of your asset base to taxation and you get to rent for next to nothing  (compared to the cost of ownerhsip) on what would otherwise be a non-deductoble expense.

    Profile photo of Steve McKnightSteve McKnight
    Join Date: 2001
    Post Count: 1,750


    There are some very good posts made here – particularly by LA Aussie.

    Some further comments I would add:

    1. Your accountant should be advising you on the financial consequences of various decisions rather than telling you how to invest. It is wise to get a second opinion, but be careful that you drive the outcome you desire.

    2. Watch out for the GST considerations of selling your new dwelling. You may find that 10% of your profit gets swallowed up!

    3. To really know what to do you need some kind of investing plan or vision. In truth, what you do here needs to be looked at from a global goal achievement perspective (macro) as well as a deal-by-deal (micro) perspective. The question to ask is: what course of action pushes me closer to my goals the quickest.


    Steve McKnight | Pty Ltd | CEO

    Success comes from doing things differently

    Profile photo of jewalkjewalk
    Join Date: 2007
    Post Count: 2

    My husband and I and our 2 children are currently renting and desperate to get into the market and hopefully start building some form of protfolio.  sorry to put a question up here, don't know if this is the right spot, but am I reading this correctly in that it may be a better option to purchase an IP firstly and continue to rent?  Beeing in QLDit would mean missing the first home buyers grant, but is this something that you would suggest for first timers like us?

    Profile photo of Richard TaylorRichard Taylor
    Join Date: 2003
    Post Count: 12,018

    Hi there

    No in Qld you are still entitled to receive the FHOG if you have purchased a property as investment and never resided in that property and then purchase a property for your own occupation. I am assuming all other FHOG criteria will be met.

    Only thing to consider in doing this is that you will miss out on the Stamp duty concession so will need to come up with a deposit and acquisition costs from your own funds.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

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