Viewing 13 posts - 1 through 13 (of 13 total)
  • Profile photo of lesley225lesley225
    Member
    @lesley225
    Join Date: 2011
    Post Count: 16

    Looking at selling PPOR and reinvesting approx $400K cash in property investments and maintaining long term rental option for family to live in.  What are your thoughts pros and cons?

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    cons: high transaction cost – selling costs & possible new purchases, loss of security of ppor vs renting, relocation costs.

    Why can’t you redraw the $400k equity for investment without selling?

    Profile photo of bm17bm17
    Participant
    @bm17
    Join Date: 2010
    Post Count: 47

    Hi Lesley,
    I posted a similar question recently on the forum. a few people got back to me and similar to scott no mates words, it really comes down to what your lifestyle needs are. if you are happy renting (with the possiblitlity of being kicked out because the landlord sell etc.) then this is fine.
    if you would selling up and renting would make better sense financially then this should be the path you go down.
    have a look at the thread and you will see more details of the pros and cons
    hope this helps
    https://www.propertyinvesting.com/forums/property-investing/help-needed/4335319?highlight=rent%2Cvs%2Cbuy

    Profile photo of lesley225lesley225
    Member
    @lesley225
    Join Date: 2011
    Post Count: 16
    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    What happens when you have invested this money and then decide to buy another place to live in? You could end up with a high non deductible loan.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of steve1234steve1234
    Member
    @steve1234
    Join Date: 2011
    Post Count: 1

    sounds very good to me…… best of luck with it

    Profile photo of Anthony KAnthony K
    Participant
    @anthony-k
    Join Date: 2010
    Post Count: 56

    Hi Lesley & All
    Just remember you can leave your PPOR for up to six years and rent it out without loss of CGT freedom, then your loan interest becomes deductible and you have other tax offsets.
    Basic weekly cash flow will be similar as your rent in equals rent out if both properties are similar You can make application for PAYG tax variation to reduce outlay monthly and use those tax benefits to reduce your loan faster.
    AFter you do the cash flow numbers it comes down to personal lifestyle prefs.
    Happy planning :-)

    Anthony @ A4Companies

    Profile photo of DHCPDHCP
    Member
    @dhcp
    Join Date: 2010
    Post Count: 190

    Why not do the following:

    • Let your PPOR since costs linked to servicesiblity of the loan are tax deductable
    • Go back to renting
    • Use your PPOR equity to form a deposit for another IP.
    • Hold on to these IPs after 18 months (at max), if sufficient growth in their equities, duplicate.

    Cheers Leo

    Profile photo of geofftokgeofftok
    Member
    @geofftok
    Join Date: 2011
    Post Count: 2

    Hi Lesley
    I had the same idea today also. was thinking of selling and freeing up the capital and having no loan repayment. Sure there would be a cost in selling but i figure if i put the money into a term deposit at 6 or 7 percent it would pay for my rent at the new place. I'm looking into getting a long term lease, i know it happens in europe but its not that common in OZ.
    so im thinking my whole wage and my wifes would be money we bank each week and not have to pay towards a motgage!
    would be able to save up very quickly for a deposit on our first propery investment.
    can anyone confirm that steve knight rented while he was buying his 130 properties ??????
    Geoff

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 992

    I guess it depends on what phase of wealth creation you're in, like acquisition or whatever.

    I liquidated and rented, while seeking the right motel property to buy (which returns me 20%+, ) so for me renting frees up the bulk of my capital for a better use of that capital than buying a PPOR. 

    Also, if I did buy a PPOR and use it as security for buying a commercial property, the bank will undervalue the PPOR and I lose about 20% of that equity's buying power, whereas cash is valued at 100%, not 80%.

    After I buy a motel,  I can continue renting and stockpile cash or invest the motel proceeds in a PPOR.
    It just depends if I want to reinvest the proceeds in another motel or quit trying to grow fast and buy a PPOR.

    Hope that makes sense.
    Cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
    Email Me | Phone Me

    selling motels in NSW

    Profile photo of luke86luke86
    Participant
    @luke86
    Join Date: 2010
    Post Count: 470
    thecrest wrote:
    Also, if I did buy a PPOR and use it as security for buying a commercial property, the bank will undervalue the PPOR and I lose about 20% of that equity's buying power, whereas cash is valued at 100%, not 80%.

    You can use a LOC to redraw up to 90% of the properties value (provided you are with the right lender of course). This will cost you LMI which I think you would be able to capitlize. Selling would cost you about 5% of the properties sale price, so really you would only be able to get an extra 5% from selling the property. This of course is ognoring the effect of CGT which if you were liable for would mean you woul be getting access to a lot less than 90% of the properties value.

    I personally see the only reason in selling your PPOR while renting somewhere else is is the PPOR is in a very underperforming area and you would be able to get much better growth elsewhere, or if you had another venture that you needed the money for such as the Motel investment that Crest pursued. I dont see any point in selling if you are just going to buy a similar property as an IP.

    Cheers,
    Luke.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    hi Luke

    I used to be against selling, but now can see the value in it – especially with the greater difficulty in now getting loans.

    A good reason to sell would be to pay off personal debt. So selling an IP with a lot of equity in it while you have a high non-deductible loan would be an example.

    If we are talking about selling a PPOR to use the proceeds to invest, then this isn't a good idea. Firstly the CGT free status will be lost and would be wasted if you are not claiming another place as your main residence. CGT is a very big issue. Imagine you had a $500,000 gain = $125,000 in possible tax payable.

    Also by tying up your cash in investments you won't be able to buy a place to live in in the future – or you will end up borrowing more which means higher non deductible debt, while possibly having to pay tax on your positive geared proeprties.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of thecrestthecrest
    Participant
    @thecrest
    Join Date: 2004
    Post Count: 992

    Nice to have so many ways to skin the cat, options are a pleasure to have, Rent vs Buy works out the same either way for us.
    We prefer to rent, optimise the capital for investment, max the income and then enjoy options on what to do with it.
    Cash is 100% king, whereas leveraged equity cops LVR discount and begging at the bank again.
    Good to crunch the numbers though.
    Cheers
    thecrest

    thecrest | Tony Neale - Statewide Motel Brokers
    http://www.statewidemotelbrokers.com.au
    Email Me | Phone Me

    selling motels in NSW

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