Can't sell house, bought new one, advise on renting

[EastOz]

I'm after some financial advice, we've bought a new house and are having trouble selling the existing house. The houses are close in area.

I like the idea of an investment, I understand that ideally we'd sell the existing house and buy an investment but don't want to take too much of a loss on current house so we are contemplating renting it.

* New house $560k - settlement date end of July
* Existing House for sale @ $470k (Combank valued at $490k)
* $310k left on existing mortgage
* We need lenders mortgage insurance ($10k) if existing house is not exchanged before end of July. So I figure we might as well rent if we have to pay this

Wage wise our household is on around $160k.

So the way I see it our options are:

• Take a price cut and sell the existing house cheaper (how much to drop?)
• Rent the existing house for $450 a week
• Rent the new house for $550 a week
• If renting do we keep the existing house forever or sell when we can get what we want and use that money elsewhere
• Rent the new house @ $550, live in old one until it sells and live with family until rent period's over

We do want to live in the new house, but would consider not living there for a bit if this proved itself $ wise.

How much in $ terms do these separate options effect us?

 

[jenni_nextplace]

Buy to keep if you can. Rent the existing house and move into the new house. I couldn't see where you are from, but I think it makes a difference on stamp duty and capital gains tax both on the positive side if you move into the new one.

 

[EastOz]

Yep, good point, we would save stamp duty. That said, I am worried that our new home will have a mortgage $150k more than it would be if we sold the existing. And we can only claim tax on the $310k left, not the $470k it's worth.

In addition we're about $30k ahead on this current loan, my understanding is we can't redraw and move this to the new home to claim more on tax of the investment? It's a good home to rent, would be low maintenance, just I thought it'd be geared wrong?

I'm interested to see what you experienced investors and accounting minded people think of my scenario. Would you be keen to move the current house to get something 100% taxable or keep it as an investment and not worry about the extra on PPOR?

 

[Peter_Tersteeg]

From an immediate tax perspective, you're going to be better off by selling.

Over a 20 year timeframe, you'd probably be better to hold the property as an investment.

A better overall scenario if you do want to invest, would be to sell your house and use the proceeds to buy a new home with a smaller loan. You could then use the equity to invest in other property.

In this case you'd be behind in the stamp duty and sales costs, but the tax deductions may outweigh this after a few years. More details very specific to your financial circumstances would be required to accurately assess this.

 

[Qlds007]

Always look at selling in Vendor Terms.

Cheers


Yours in Finance

 

[EastOz]

Thanks PT_Bear, great info here, this was the info I was after.

Thanks for the reply Qlds007, by 'Always look at selling in Vendor Terms.' I suspect you mean to negotiate the price and time frame to suit us?. We'll be doing this.

 

[neK]

I don't see why you can't see the house.
Maybe your prices are unrealistic?
A house at the right price normally sells quite quick (well in this current sydney market it will... don't know if its any different in newcastle).

 

[AXXO]

From an immediate tax perspective, you're going to be better off by selling.

Over a 20 year timeframe, you'd probably be better to hold the property as an investment.

A better overall scenario if you do want to invest, would be to sell your house and use the proceeds to buy a new home with a smaller loan. You could then use the equity to invest in other property.

In this case you'd be behind in the stamp duty and sales costs, but the tax deductions may outweigh this after a few years. More details very specific to your financial circumstances would be required to accurately assess this.

I agree it's the best option if you take a long term view.

From estimates I've done for clients, and it depends on a lot of variables - loan amount, marginal tax rate, transfer (stamp) duty level, it takes anywhere between 3-7 years to recoup the but/sell costs with the tax benefits.

 

[mattnz]

Thanks for the reply Qlds007, by 'Always look at selling in Vendor Terms.' I suspect you mean to negotiate the price and time frame to suit us?. We'll be doing this.

No, he means to sell to someone who can't get their own finance, often at a higher price and receive a margin above the standard variable rate with your bank. You then become the bank and receive positive cashflow from the property.

 

[esh]

Have you thought of fixing it up abit? does it need minor reno to sell as a profit?