Hey
I’m sorry but this is going to be kinda long… but I am really confused, and you guys really seem to know your stuff).
My wife and I (24 and 26) bought a townhouse in Redlands (next to Brisbane) just over two years ago as our PPOR. We paid $269k for it and borrowed $254k. We now owe $337k as we pay extra off each fortnight. Our plan was to sell our townhouse (TH) and buy a proper house after we got married. We started looking at houses, but the ones we liked were just a tad over what we were comfortable paying at the moment. During this process we had our townhouse evaluated (only by one agent) and she said she could sell it for $280k worst case, which was inline with what other units in the complex had sold for recently.
Anyway, we decided not to sell just yet and save more money for a little while. But lately we have been talking about getting an investment property. In addition to the equity we have in our house we have about $10k cash at the moment. I’m not sure how this works, but would we be able to use the equity in our house and this cash to use as a deposit for an investment property? The plan was to just get a P&I loan and have one loan for our PPOR and one for the IP, however, after doing a bit of reading an interest only loan may be an option… but I am still not 100% sure how to maximize these if we plan on keeping the house after the term of the IO loan.
The thing I didn’t realise is that stamp duty is a LOT more for IP over owner occupier properties. For the price range we are looking at ($350k ish) the ST tax is more then double. However, I have been reading up a bit have read about the “6 year rule” where you can earn an income for a house that used to be your PPOR for up to 6 years and not have to pay capital gains tax if you move back in or sell it before the end of the 6th year. So I was wondering if the following is legal/doable?
We purchase a new house that will be our IP, but purchase it as our PPOR and live in it for 6 months, thereby considerably reducing the ST tax we pay on it and rent our current townhouse for 6 months. Then after this six month period is up we move back into our townhouse and rent out the new IP, which means we don’t have to pay CGT if/when we sell the townhouse as we were earning income on it for less then 6 months (also, if I am reading correctly, we can negative gear any expenses on the townhouse during that six months).Am I heading in the right direction with my research? I am really confused at the moment. I have thought about going to an accountant and our bank, but to be honest I wouldn’t even know what questions to ask.
Are there any books or internet articles or anything that I can read that will help me out?
Thanks for your help guys… and go easy on me… it’s my first post and I’m just a guy trying to make a better future for my new family
Loose Nut wrote:Hey I'm sorry but this is going to be kinda long… but I am really confused, and you guys really seem to know your stuff). My wife and I (24 and 26) bought a townhouse in Redlands (next to Brisbane) just over two years ago as our PPOR. We paid $269k for it and borrowed $254k. We now owe $337k as we pay extra off each fortnight. Our plan was to sell our townhouse (TH) and buy a proper house after we got married.Hi Loose Nut,
Firstly, I assume you owe $237k, not 337k? Is that correct?
In regards to the 6 year rule: You can only have one main residence at a time, so if you purchase a new PPOR, the original PPOR would be up for capital gains tax when you sell, for the period it was not your PPOR.
So in your example, the time the Townhouse was not your PPOR is 6 months, so if you hold that property for 10 years, you would pay CGT on 1/20th of the gain (6 months / 120 months). Then you would get a further 50% discount on the capital gain for holding the asset for longer than 12 months.
If I was you, I would go and see an accountant, so they can explain the 6 year rule to you in detail, as well as other deductions that you would be entitled to an investment property. I wouldn't bother seeing a bank., instead see a mortgage broker who can structure things correctly for your circumstances.
All the best,
Dan
Hi Loose Nut,
My brother has moved out of his PPOR and is living with me at the moment as he has moved back from Perth to VIC and renting out the property. His Accountant has advised him of something similar to the 6 year rule, but it all depends on how long you have resided in the PPOR before changing it to IP believe and he can sell within 2 years and no CGT is applicable.
I suggest you see an Accountant as i have heard about it.
Kind Regards,
AM
Thanks guys. Is what I am thinking about doing to reduce stamp duty alright… aside from the hassle of having to move twice in 6 months.
Also, would I have enough equity in my house to get a loan for an investment property?
And yes, I meant we owe $237k not $337
Loose Nut,
Discuss with your Accountant is the best bet. In QLD possibly!
Kind Regards,
AM
Hi Loosenut,
In response to your question regarding books to read, head to your local library and see what they have on the shelf. I have found that Australian authors are better to read as the information that they provide is relevant to Australia as opposed to the US or UK. I personally like Margaret Lomas as she writes things in a clear and concise way and addresses the various ways of structuring loans as well as providing information regarding calculating borrowing costs, depreciation allowances, tax deductions and so on. Good luck,
cheers
Sonya
Thanks guys!
Can anyone explain to me how using the equity in your current house to buy a new house works? How much do the banks let you borrow against your original house generally?
Varies from lenner to lender but rule of thumb would be the LOC / interest only loan would take the total lvr to 80% and then you use this as deposit on the new property.
Richard Taylor | Australia's leading private lender
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