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PPOR to IP - Help?

Discussion in 'Real Estate' started by Aquila, 25th Apr, 2007.

  1. Aquila

    Aquila New Member

    Joined:
    25th Apr, 2007
    Posts:
    4
    Location:
    Cairns, Qld
    Hi All,

    This may have been asked before but I haven't been able to locate the thread.

    We have bought a townhouse in Cairns specifically for future use as a rental property. It is our first property and is currently our PPOR. We did claim the first home owners grant and stamp duty exemption (Don't you love how the gov. claims brownie points for giving you some of your money back or relaxes a stupid fee?). We intend to travel around Aus. soon (in 6 months) and would like to make this property into an IP never to return. I am getting a funny feeling we have done this the wrong way (by living in it). Apparently the gov. doesn't take kindly to turning PPOR's into IP's? Also we are worried about paying CGT on increase of value while we were living in the property if and when we sell it down the track.

    Please help if anyone knows the go?


    Current facts:

    We have a large amount of $ we paid extra into the loan that can be redrawn.
    We bought the property in Feb '06.
    We will be living in our 4wd so don't need a PPOR.
    The property has risen in value by at least 15% - maybe 20%.
    We both have have good jobs and could easily get finance on another 2 IP's before we go on our trip but are worried about servicing the loans etc. but this could be done with $ redrawn from PPOR.

    Any input would be greatly appreciated.
     
  2. Jacque

    Jacque Team InvestEd

    Joined:
    16th Jun, 2005
    Posts:
    1,885
    Location:
    Sydney
    Hi Aquila

    I wouldn't say you've done things the wrong way around- quite the contrary, actually. If you live in the PPOR for at least 6 mths, then it's fine to then turn it into an IP and secure it for up to 7yrs free of capital gains, as long as you don't have another PPOR elsewhere.

    Check out your local Qld OSR site for more detailed info:

    First Home Owner Grant
     
  3. Bricks & Mortar

    Bricks & Mortar Member

    Joined:
    4th Dec, 2006
    Posts:
    7
    Location:
    Melbourne, Vic
    Hi Aquila

    If your intention is to sell it down the track and not return to it as a PPOR it might be a good idea to get it valued as it turns into a IP. Save any arguements on it's value in future years.

    I would get a quantity surveyors report to claim depreciation.

    If it finacially viable to invest in two other properties, perhaps you can settle getting one as the redraw will comfortably cover IP expenses and leave enough in reserve, just in case... leaving you at ease to enjoy the trip without thinking about IP issues.
    I suppose its boils down to SANF.


    Enjoy the trip!
     
  4. Aquila

    Aquila New Member

    Joined:
    25th Apr, 2007
    Posts:
    4
    Location:
    Cairns, Qld
    Thanks Jacque and Bricks & Mortar.

    We do intend on selling the property later so we will get a valuation when we leave. It is interesting to know about the 7 years. I think we will have a new PPOR within that time so we will have to make an assesment at the time as to sell the Cairns one or not.

    I am now considering a margin loan for shares as opposed to getting another IP. This way we have access to our $ a little quicker if there is a major incident on our trip. I can also prepay the interest and not have to worry about any surprises (other than a margin call of course). This also arrises from advice I was given.... invest in something that interests you. My interest is in shares more than IP's so I will probably go that way until settling into another full time job after the trip.

    Thanks again for your help.
     
  5. Simon

    Simon Well-Known Member

    Joined:
    17th Sep, 2005
    Posts:
    520
    Location:
    Newcastle
    Don't redraw for private expenses or you will contaminate the loan. Redrawing to fund margin lending is OK though. Or any other investment reason - ie a deposit on another IP.

    It is a real shame you paid extra into the loan. Next time you buy a PPOR you should use an offset account so that the money can be virtually redrawn without contaminating the loan for taxation purposes.

    Also Jaque is a little bit wrong - the CGT exemption is only 6 years - first time she has ever been wrong I think .....
     
  6. Aquila

    Aquila New Member

    Joined:
    25th Apr, 2007
    Posts:
    4
    Location:
    Cairns, Qld
    Thanks Simon,

    I will have to get some advice on the contamination of the loan that you have mentioned. I am currently directly depositing extra money from my pay into the PPOR loan (thus paying twice the minimum repayments). Do you think this is a bad idea? I think I need to track down a good financial advisor but don't know where to look as I expect them all to have alterior motives for my $$. ie. their pockets.

    cheers
     
  7. DaveA

    DaveA Well-Known Member

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    19th Feb, 2007
    Posts:
    617
    Location:
    Sydney, NSW
    you wont find many financial advisors wanting to help... there is no trailing commission in it for them....

    a real niche market avaiable i would say... i personally would suggest a good accountant would be more helpful in this situation , maybe even a good MB could give you some advice here as well... however i would love to hear if you able to clean it up, apart from selling the assets (easy with shares but not with property) i havent really heard much else how to clean it up..
     
  8. Simon

    Simon Well-Known Member

    Joined:
    17th Sep, 2005
    Posts:
    520
    Location:
    Newcastle
    In general I do.

    Consider opening an offset account and making the repayments into that.

    Call me or email me if I can explain it to you further. It can be tough to grasp first time around.

    0425 228 985