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Sell 2 properties to purchase a larger one?

Discussion in 'Real Estate' started by Matman, 25th Apr, 2010.

  1. Matman

    Matman New Member

    25th Apr, 2010
    Hi all,

    Just a quick scenario for you. A couple own 2 townhouses, $200k left on both mortgages, and both have $100k equity in them.

    Want to move to larger house-more bedrooms, yard, pool etc..
    Selling both to have big deposit and borrow less makes sense and is easier to manage. However, they have made some good money on the townhouses and might stand to make more. Both properties 15 years old, and would possibly need to be refurbed in coming years to keep value.
    Rent would cover 90% of mortgage repayments for both

    1st Advisors have told the couple to sell both properties, buy the bigger house, than look to invest in brand new property.

    2nd advisors have told the couple to keep both original properties and rent them, then pay off interest only. Use the equity in both of these to purchase larger house and then just pool everything in an offset account. this sounds good but, only interest is paid off-no actual owing of home, budgeting needs to be very strict, and relies on no prinicipal being paid off rather relying on a big increase in property value when selling to make money.

    3rd advisor says to sell 1 to make decent deposit on bigger house and rent other one, and then follow above plan.

    Do others have experience in these situations and any potential drawbacks or advantages?
  2. GregR

    GregR Well-Known Member

    13th Jul, 2009
    Berwick Vic
    The first question should be - what are their long term goals?
    The do the numbers.

    Is CGT an issue on sale of the townhouses?

    Each scenario can work, what is the best approach for them depends on their goals and risk tolerance.

    Another option will be to keep the townhouses and simply rent a better/larger property.

    As a view, I would not be keen on refinancing their IP's to fund 105% owner occupier debt even using a debt recycling strategy. It can work but it is a relatively high cost with non deductible interest. Depending on their long term view and goals, you could buy the new property via a trust and rent from the trust. Using a discretionary trust means not using the tax losses immediately but if their goals include further property purchases, it may be worth considering as well.

    Good luck