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What should i do?

Discussion in 'Introductions' started by house, 19th Mar, 2008.

  1. house

    house Member

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    Hi there new member here.
    I need some advise on my situation.
    I currently live at home still and have 2 investment properties, both with sizeable equity around 300k total.
    My partner and i, who also still lives at home, want to buy a house together to live in, we are looking to spend around 470k.
    My question is should i sell these properties to pay off most of the non tax deductable loan, ie-PPR, or should i keep them and just pay off the PPR loan as i would if i didnt have the investment houses.
    It has been drummed into me to never sell a investment property, but im thinking if i did pay off the PPR loan i would then be able to borrow off the equity of my own home and buy more investments, just start all over again i suppose....
    It is hard but because they are such great little investment properties.
    Please help
    Cheers
    house
     
  2. DaveA

    DaveA Well-Known Member

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    selling wouldnt really achieve anything in my opinion. You might achieve 300k of non deductible interest but you will have to pay 2x agents fees and then solicitor fees and stamp duty for the new investment properties you own.\

    Potentially down the track (if the assets are held sepertly now), you could see both houses to your spouse which would reset the prices. This would make more interest deductible and you shouldnt be liable for Stamp duty but probably liable for CGT, loan break costs....

    So 300k at 9% is 27k in interest. If it was non deductible that could be a rough saving of 9k a year. How many years will it take to recoup the expenses (stamp duty and cgt if payable etc). Also if one of your investment properties currently is utalising the 6 year PPOR rule, you can still make the property your buying liable for less tax but adding the non deductible interest to the cost base... So effectively you might be able to have 2 property with out paying cgt on either...
     
  3. house

    house Member

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    Thanks DaveA

    I did forget to mention with my first investment i am able to utilise the 6 year PPR no CGT rule.
    I didnt quite understand your last bit on how i might be able to have 2 properties with no CGT.

    I still cant get my head around why i would be paying all that non taxdeductable interest on my 450k PPR loan when i have 300k sitting there to wipe more than half of it off.....
     
  4. house

    house Member

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    Sorry DaveA

    After reading your post again i do understand why i would keep them.
    Do you know what stamp duty is payable if you were to sell to a family member.
    at the moment my partner would not be able to service the loan, but if i was able to sell one or both properties to my dad to reset the price and then buy it back from him would i have to pay stamp duty? or is it less stamp duty?

    Is there any other way of reseting the prices of these investments without paying stamp duty??

    and if so would i be able to put what ever i like onto my PPR loan or just ontop of what i already owe on the existing loans?

    Cheers
    House
     
  5. DaveA

    DaveA Well-Known Member

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    Grab a copy of the latest Australia Property Investor. It has an article from Julia who describes how to count non deductible interest on top of the cost base. Otherwise check with your accountant.

    Stamp duty is only to sell from spouse to spouse, you cant use any other family members. The govt wants there money so im not aware of any other ways around it. Im unsure of QLD laws, it may be potential to sell it to a trust but losses will be trapped...

    Changing the interest type of 300k of debt will save you 9k a year in interest costs. But if you sell ur IPs to fund ur PPOR, you also only have one asset going up for u instead of 2.... When you talk about 2 properties worth 300k each (estimate), you only need capital growth of 3% pa each to offset this cost. Not worth paying less interest if you reduce your asset balance.....

    Otherwise you can keep your 2 IPs and go and Rent a new place... This way you wont have and non deductible interest and youll still have a large asset base...

    please discuss with your accountant and ensure these fit into your personal situation...
     
  6. house

    house Member

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    Thanks DaveA

    Thanks very much DaveA
    You have been a great help
     
  7. Billv

    Billv Getting there

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    House,

    Another way would be to sell a % of the IP's equal to $300K to your partner.
    However, if he doesn't have the ability to fully support the loan someone else could go as guarantor? (not you).

    Then you can use the proceeds from the sale as a deposit for the PPOR
    which I am guessing it will have to be in your name?
    Have you got Legal advise on the issue?
    The situation is complicated because your partner does not have an income.
    Can you fix this problem first?

    This could be the ideal time to look at your financial situation
    and if you do decide the IP's perhaps you could sell into a trust
    so at least you will save on the agent's selling charges?

    NickM is the ideal person to talk to regarding this.
    You can send him a PM or visit his website
    Strategic Wealth Management

    Cheers
     
  8. The Stig

    The Stig Well-Known Member

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    Central Coast NSW
    This is what I would do if I was in your position.

    Keep both the investment properties. Buy a smaller house if you have too to keep them.

    I look at property this way. If it gives me money it is an asset. If it costs me money it is a liability.

    Why do I look at property this way?? Because my goal was financial freedom. With out assets that pay me money every month, I wouldn't be able to achieve financial freedom.

    By selling your 2 properties you will have no assets that pay you any money. It's a step backwards if you want to be financially free one day.

    Cheers
    The Stig