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Sell the land or sell the house ?

Discussion in 'Real Estate' started by dehgam, 28th Apr, 2010.

  1. dehgam

    dehgam New Member

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    Location:
    melbourne
    We really need some help in deciding whether to sell the land or the house.

    May 2008 - Bought a home to live in (PPOR) for $180 K

    Sept 2008 - Bought a land $130 K

    With both the purchases, we opted for a loan which has unlimited redraw and repayments but no offset.

    Also, both loans are under me and my wife's name.

    We did not know the tax deduction implications at that time and hence to save on interest our salaries, bonus,
    etc went directly in both loans.

    At one stage, the outstanding amounts on home was about 65K and on land it was about 60K.

    Now we have bought an established home and settling in late June. This will be our new PPOR.

    We need to choose between the following two options:

    - Convert the existing PPOR in investment property and sell the land

    - Sell the existing PPOR and within 2-3 years build a house on the land and convert it to the investment property.

    Which strategy is better from the investment and tax perspective?

    Any thoughts and advice will be much appreciated.
     
  2. Billv

    Billv Getting there

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    dehgam

    It's not clear what you've done here.
    To work out your best option I'll need some information.

    What were the loan sizes before purchasing the new PPOR
    What were the loan sizes after purchasing the new PPOR
    What was the purchase price?
    How much was the new loan?
    What deposit did you put down?
    What amount of your own money you used?

    Did you use equity from your 1st property as the deposit for your new house or did you simply redraw money from the loan? (there is a difference)
    If you didn't use own money, did you redraw money from the above loans and if so from which 1 and what amount?
     
  3. dehgam

    dehgam New Member

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    Location:
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    sell house or land

    Hi Bill,

    Thank you for your response. The answers to the questions you have raised are as follows:

    What were the loan sizes *before *purchasing the new PPOR

    Home Loan - 90K outstanding + 47K Redraw
    Land Loan - 48K outstandin + 64K Redraw
    Bank Savings account (not linked to any loans) - 0

    What were the loan sizes *after* purchasing the new PPOR

    This is the current situation after i have moved money from redraw accounts to bank savings account to
    pay for the deposit for new house:

    Home Loan - 136K outstanding + 1K Redraw
    Land Loan - 103K outstandin + 9K Redraw
    Bank Savings account (not linked to any loans) - 70K


    What was the purchase price?

    360K

    How much was the new loan?

    269K

    What deposit did you put down?

    25%

    What amount of your own money you used?

    108 K including stamp duty and government charges etc. This money is redrawn from both loans.

    Did you use equity from your 1st property as the deposit for your new house or did you simply redraw money from the loan? (there is a difference)

    I redraw money from both loans to pay for the deposit

    If you didn't use own money, did you redraw money from the above loans and if so from which 1 and what amount?

    From Home Loan - 48K
    From Land Loan - 55K
     
  4. Billv

    Billv Getting there

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    Thanks, and how much is the current value of
    the old house?
    the land?
     
  5. dehgam

    dehgam New Member

    Joined:
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    Location:
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    sell house or land

    Hi Bill

    The current value of the old house is : 245K
    The current value of land is: 190K

    thanks
     
  6. Billv

    Billv Getting there

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    I'd sell the land because it's not producing an income.
    This will give you approx $90K cash.
    and I would probably also sell the house because only $90K of the loan is tax deductible.

    Is the house in Melbourne?
    If you liked the old house and wanted to keep it, I'd look at ways to increase the size of the tax deductible portion of the loan.

    For example, you could buy your wife's 50% share for half of $245K=$122.5K
    Your tax deductible loan then becomes $90K +$122.5K =$212.5K
    But then the bank won't have enough security in the house so they'll probably ask you to put in $49K from the $90K you had left over from the sale of the land. After all this you'll have approx $40K cash left to put into your new house Plus the $122K you gave to you wife. You would have also made the majority of your old loan tax deductible.

    Ofcourse you'll have to pay tax on the capital gains from the land
    but it's a small price to pay IMO.

    I hope this helps.
     
  7. dehgam

    dehgam New Member

    Joined:
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    Location:
    melbourne
    Thanks Bill. Your advice is much appreciated.

    I am in Melbourne.

    Would i have to pay any government charges if i wish to buy my
    wife's share of the house?

    Also, are there any other strategies available to increase the
    tax deductable portion of the existing home loan?
     
  8. Billv

    Billv Getting there

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    In VIC I believe you're exempt from stamp duty as long as it is your PPOR.
    That means transfering the title before you move to your new place.

    I also found the following info but I don't know how up to date it is.

    Section 43 of the Victorian Duties Act (2000) contains the relevant exemption
    43. Marriage and domestic relationships

    (3) No duty is chargeable under this Chapter [Chapter 2, transfers of dutiable land] in respect of a transfer of
    dutiable property from one person to another person, or from two people to one
    of them, or from one person to themselves and another person if-

    (a) the people are spouses or domestic partners of each other; and

    (b) no other person takes or is entitled to take an interest in the
    property under the transfer.

    When you complete the T1 transfer of land form (in Vic) you can simply put down a 1$. I think it's called love and devotion or something along those lines?

    I don't know is if you can put down the $125K which you are going to borrow from your lender and still gain this exemption? I would presume so, but ask your solicitor or the SRO

    Stamp duty & land tax (Victoria Online)
     
  9. Billv

    Billv Getting there

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    Remember that the stamp duty is a state issue
    and the tx deductibility of the loan is an ATO issue, so don't mix the 2 up.