Forums / Property Investing / Creative Investing / Selling my existing PPOR and move into my new PPOR or keep it as an investment?

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  • Profile photo of new2investnew2invest
    Participant
    @new2invest
    Join Date: 2010
    Post Count: 36

    Hi

    I am currently building a new PPOR (a bigger house than the current PPOR) and was wondering what would be the best options. Whether to sell or rent out the house.

    The new house I am building is $800k. (400k house and 400k land)
    And the current PPOR is valued at $600k.(prop is 8yrs old) still owe 100k on it

    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

    What would a smart property investor do in my case
    – Sell and pay off the new house and use the equity to buy another property
    – Keep it and rent it out as an investment and use the +ve cash to pay down the mortgage

    Thoughts anyone? What would you do?

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,325

    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

    Profile photo of JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    mate this is really simple and If what you stated is true, which I find hard to belive $900 per week return on a 600k property>???

    I would advise, keep it!!! its the financial best move,

    1. restructure the loan on the current place to 20% so you can move all the equity into PPOR
    2. have it sitting in offset/redraw till then on current place
    3. simply set that new loan up at 20% and put cash into that new loan offset.

    Done!

    I really disagree with Benny under most cirumstances, but maybe you do fit one of those. but Financially this would be really unwise to sell. If you want to chat further feel free to call or message me on 0431376130, more than happy to answer any questions mate.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,325

    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 ;)

    Profile photo of JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    haha we do think alike a lot, just this specific circumstance I meant there are a few situations were you are right, but in my opinion I prefer not selling. (but maybe what I think dosnt fit New2invest strategy.

    Benny I respect we have different views, that property is returning 8%, its positively geared, that beats tax incentives! its better to make a dollar than save 30 cents, isnt it?

    I ran the numbers and its more profitable doing what I suggested, your talking about saving money I am talking about expanding the portfolio and getting a income from the property every week at 20/80 LVR

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,325

    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

    Profile photo of JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    Good Points benny, very diplomatic and level headed.

    I agree, you have good points that yeild value!
    and I feel I understand and see value in what I stated.

    Thank you.

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    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.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    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?

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    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.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    please correct me if im wrong, but

    your forcing the current owned IP to go up in value (purchase by a trust/etc and a bank will approve the loan providing you have 20% to reput into that trust loan, even if the trust strcture has no income? or how does that work)
    is there any document or courses that provide this information? this is right down things I want to understand

    you free the equity to put in PPOR and have the trust yeild the debt, you artifically created an inflated asset price and stil have control over the trust (the IP), and your PPOR and also have more options moving forward as part of the stratergy over what I stated as an option?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    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.

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    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.

    ^saves me explaining it more. ;)

    Just to tidy up your questions a bit further:

    Re; borrowing in a trust with ‘no income’ – the lenders don’t lend solely to the trust – they look at your personal financial situation and infer the income from that just the same as if you were purchasing in your personal name. (but looking at the tax treatment based on how the entity is held)

    And there is NO inflated asset value – it’s based purely on what the asset is actually worth and lent again as per the original posters estimated value of the investment property.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

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

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

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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