Advice and help required

From: Chris Jones


Hello, I require some advice on a financial issue...

Salary:$80,000 net
1. I have 1/2 ownership of a house valued at $300,000 and I have a loan of
$56,000 on this house with a friend.
We are going our own separate ways and I am trying to work out whether it
is best for me to buy this friend out or sell the property and use the
cash to buy a cheaper home and then use that equity to buy an investment
home, thus giving me an owner occupied home and an investment home...
e.g (Would I be best to buy a 170,000 owner occupied home and a $150,000
investment home or vice versa or go about it in a completely different way)

Thankyou
Chris
 
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Reply: 1
From: Rolf Latham


Hi Chris

With 100 k cash/equity after paying out the other party you are in a strong position to actually do 3 to 4 if not more of the properties you are talking about in that sort of price range

Ta

Rolf
 
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Attention Rolf .(Re advice and help required)

Reply: 1.1
From: Chris Jones


Hello , Thankyou for that advice, But is it far better for me to sell the $300,000 house or try and buy the other partner out. I understand (I think) buy your response that it is better to sell the house and then buy something as an Owner Occupied and then an investment property.
Is it also better to pay more for the owner occupied house than the investment house or vice versa (Tax reasons)....

Thankyou for your advice..

Chris
 
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Attention Rolf .(Re advice and help required)

Reply: 1.1.1
From: Rolf Latham


Hi Chris

Much has to do with emotional rather than financial issues. Is the place suitable as your Principal Place of Residence. Can you buy the other party out at a good price, if youre in Victoria the stamp duty to replace the property will be big etc etc,

There are too many "how long is a piece of string" questions around this one to say which is "better" - we have a rather incomplete picture - more data required please !

The only generalisation I could apply would be that the lesss personal debt you carry against your home the faster you can accumulate other properties

Ta

Rolf

Rolf
 
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Attention Rolf .(Re advice and help required)

Reply: 1.1.1.1
From: Glenn Mott


Chris,

Have you thought about your selling and buying costs to replace your PPOR.

Selling - Agents fees, advertising, fixing all the "little" things, security release, early repayment fees (maybe), legal and conveyancing.

Buying - Time and money spent looking, stamp duty, loan application fees (maybe), conveyancing, stamp duty on mortgage (maybe).

At best, these fees will add up to around $25,000 for a $300,000 house bought and sold. You mentioned that you nett $80,000 per year..I congratulate you! Therefore, to get the 25k you must earn 50k.

If the emotional reasons for you staying in the house are too overwhelming I can see your point in wanting a move. However, if this is not the case, why make the real estate agents, banks, conveyancers and government 50k richer and tie you to your job just a little bit more?

Good luck

Glenn
 
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Attention Rolf .(Re advice and help required)

Reply: 1.1.2
From: Chris Jones


Scenario:
Value of house $300,000
Rent received $260.00 per wk
Money owed to bank $56,000

I own 1/2 of this property.
Property is in Qld, Gold Coast , Burleigh Heads. There are no early out fees and we have owned the property for 6 years, Lived in it for 1 Year, rented for remaining 5 years.

There are no emotional attachments to this house I just want to do whats best finacially.

Thankyou once again...

Chris
 
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Attention Rolf .(Re advice and help required)

Reply: 1.1.2.1
From: Les .



G'day Chris,

Let me add a little that may help you to decide. Bearing in mind that others have mentioned the costs involved in selling, you MIGHT be able to sell this one WITHOUT paying Capital Gains Tax - that would save you and your friend some amount between $20,000 and $40,000. This all depends on the price you PAID 6 years ago.

Note - that is NOT "Cut and dried" - it depends if either you or your friend have taken on ANOTHER PPOR since leaving this house!!! Get advice (Accountant, Solicitor...)

My point being that if you preferred to sell, then the gain in NOT paying CGT would offset any other costs (IF the exempt status still applies) - you have up to 6 years AFTER LEAVING the property to decide whether it is still your PPOR or not.


Making a few assumptions, let's see if we can focus on a few points that could help...

1. I assume that $56000 is the TOTAL amount owing (not $56k each)

2. I assume you are WANTING to buy an own home for yourself.

3. I assume your friend is wanting to be "cashed out".

So, equity in the common property is $300k - $56k = $244k (or $122k each). Correct?

Now, following on from Rolf's comment, if you sold, with $122k (less selling costs) and you're income, you would be able to buy more than two properties if you wished.

If you held this one, and simply re-financed to pay out your friend, then you HAVE your IP. There would be conveyancing costs (minimal) and Stamp Duty (on half the current value of the property) to get it into your name. Would you want to do this? i.e. is it a GOOD rental? Sited well? With good tenants? Managing agents? Prospect for growth? Structurally sound? etc. etc. Would you WANT one like this as a rental?

I would expect that Burleigh Heads prices might also be on an upward move - is this correct?

You mentioned Tax benefits - if you are endeavouring to maximise Tax benefits, then a more expensive IP (or IP's - plural) will benefit you more. Given that, would you be happy to live in a $120k property? Or rent a unit for yourself? Thus putting MOST of your equity into IP's!!!

As an opinion, I would tend toward KEEPING the current property so long as it has been showing to be worthy of keeping LONG-TERM. The costs to re-finance it (to pay out your friend, and to arrange equity loans for your own other purchases), would likely be far less than the costs involved in selling.

Regards,

Les


- "Eschew Obfuscation" - ;^)
 
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