Forums / Property Investing / Creative Investing / Increase Property portfolio

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  • Profile photo of limumenglimumeng
    Participant
    @limumeng
    Join Date: 2010
    Post Count: 10

    I have a PPPOR which does not have any mortgage on it.
    Market appraisal is around $750k. I have 5 other IP which I took out max loans on it.
    The IPS are generally breaking even or 2% negative geared on it.
    Is it a good idea to sell my PPOR and put into each IP some cash to offload the loans.
    So that I can get positive income from the IPS?

    Meanwhile, I read that, I can find a rental property to move in.
    That gives me, passive income from the IPs, to cover my rental.

    Does this make sense to anyone or this is not a good strategy ?

    Regards

    Yew

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Yew,

    Sounds like you are doing well – good for you. Certainly, it sounds like there is a tonne of “lazy Equity” in your PPOR. And yes, it certainly is worth looking at “How best to proceed moving forward”.

    The major question in MY mind for you, is “What IS the way forward FOR YOU?” Like, are you looking to consolidate now or are you still accumulating properties? Are you looking to replace an Income that has disappeared? Or do you want to work just 3 days a week instead of 5, so you need more Income and less Tax relief? Is your plan to change your investing slant (e.g. from property to shares)? Has something CHANGED in your life to have you looking at this option?

    The title mentions “Increase Property portfolio” – so using the PPOR equity as Deposit/Costs for more IP’s, if that is the way you are wanting to go, makes sense too.

    Summarised, what you propose CAN make sense, but only if it is appropriate in bringing you closer to your goals. This is such a big move – I would suggest you spend some time discussing/thinking/projecting the best way forward for YOU before embarking on that journey.

    Benny

    • This reply was modified 2 years, 8 months ago by Profile photo of Benny Benny.
    Profile photo of Tony FlemingTony Fleming
    Participant
    @the-dark-knight
    Join Date: 2008
    Post Count: 396

    Before you do anything I’d chat to a broker and a accountant. No point using equity from your house if you have no serviceability to keep moving forward and a accountant will help with bitty gritty tax issues that will arise.

    There are other options if you want to make your IP’s positive and keep buying. Are the properties in the best condition they can be? Any minor improvements to boost rent? Are you allowing pets? Utilizing offset accounts? Are your rents at market value?

    As Benny said I would have a good think about your options and talk to some professionals about your goals and the best way to proceed.

    Tony Fleming | Triumphant Property Group
    http://www.triumphantpropertygroup.com.au
    Email Me | Phone Me

    NSW Buyer's Agent specialising in Western Sydney-Blue Mountains-Orange-Albury

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    No, it is probably not a good idea to sell a main residence to pay down investment loans. You will be giving up your only tax free investment and you will be paying tax on the increased income. Plus you will need to find somewhere to live and if you are paying renting you will have to pay that with post tax income.

    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 limumenglimumeng
    Participant
    @limumeng
    Join Date: 2010
    Post Count: 10

    Hi Terry, Tony & Benny

    Thanks for your valuable advice.
    You guys are awesome in giving me a fresh look into how best I can redirect my funds and creating equity.

    No – I do not need to change my life style for the moment as I still have a full time job. and drawing good pay.

    I am fully aware that PPOR is not subjected to CGT.
    The reason I have been keeping my properties thus far although they are mostly negative geared is becos I am in the 37% Tax bracket.
    So that helps me to get back good tax refunds.

    I am happy with current structure, although 4 of my IP are in Perth which is experiencing a low rental.
    I am basically biting the bullet and hopefully weather through the storm and the market picks up again.

    Cheers

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    A PPOR can be subject to CGT – it will depend on the circumstances.
    You may have a job, but can you get finance is the important question. Serviceability has tightened up conisderably and this will get worse in the near future I believe.

    Sounds like a risky investment to me.

    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 limumenglimumeng
    Participant
    @limumeng
    Join Date: 2010
    Post Count: 10

    Hi Terry,

    I thought if I hold the PPOR for 12 months, I am not subjected to CGT.
    Am I wrong ?

    Thanks

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Yew,

    No – I do not need to change my life style for the moment as I still have a full time job. and drawing good pay.

    OK, cool !! Then, since Terry has warned about some “gotchas” re selling a PPOR to pay down debt on IP’s, that is an area where you should talk seriously with a Broker around the financing issues. Maybe Terry himself !!

    Other options (if wanting to increase your portfolio) might be to BORROW against your PPOR to provide Deposits/Costs for more IPs – but maybe look for POSITIVE geared investments such that your Income is supplemented from the extra rents and your OVERALL portfolio becomes LESS negative geared. The borrowings against the PPOR should be Tax deductible, even as you increase your income via the new IP(s).

    Of course, this will all come down to your serviceability – can you borrow more? As Terry mentioned, lending is tighter right now – will you be able to “move on”? These are all good questions to put to a finance broker.

    With some of my original questions behind us, maybe look to answering the other questions – or simply turn your thoughts toward them, and even expand on them, so that you proceed in the way that is most beneficial for YOU.

    Good luck with your Mortgage Broker/financier and your next steps,

    Benny

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    Hi Terry,
    I thought if I hold the PPOR for 12 months, I am not subjected to CGT.Am I wrong ?
    Thanks

    This statement could be true, but it is not always correct.

    A main residence could be exempt from CGT provided certain requirements are met such as:
    – not income producing and not able to claim the interest
    – moved in as soon as practical after completion
    – not claiming another main residence
    etc

    there is no 12 months rule. You are probably confusing the 50% CGT discount which applies after 12 months.

    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 limumenglimumeng
    Participant
    @limumeng
    Join Date: 2010
    Post Count: 10

    Hi Terry

    Thanks for that.

    If for example, I just bought a new property and declare it as a PPOR.
    I have no other PPOR.
    I comply with all ATO rules like changing address, utilities, mails, my personal stuff etc.

    Is there a minimum stay on on my PPOR before I moved out to activate the the 6 year rule?
    ATO website says, no minumum length, but many advices( from accountants) says, anything less than 6 months will be not be right.

    Thanks for your response

    Cheers

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    No minimum stay, but you need to establish the place as your main residence. So you must reside their exclusively for that period.

    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 limumenglimumeng
    Participant
    @limumeng
    Join Date: 2010
    Post Count: 10

    Thanks Terry ,

    If I used it for 3 months only, will ATO be concerned ?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    It will depend on the circumstances. Just using the property is not enough. It must become the 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/

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