Does this sound feasible to you?

Hi guys

I'm on looking at developing IP2, which is on a 950m2 block near the city, in a few years time. The plan is to subdivide and build a small single storey on one side, and possibly a larger double storey home on the other side. I will rent the single storey out as an investment property indefinitely, however want to sell the home in the future to fund a future PPOR in Melbourne 10 years down the track. Of course I will be liable for CGT if I sell.

I am currently in Japan, and my job allows me to work from anywhere pretty much via the internet. I am thinking of moving back into the larger home after it has been completed and living there for 1 year - 1 1/2 years making it my PPOR during that time. After that, I will probably rent it out for 5 or 6 years and sell it before I am liable for CGT (given the 6 year period you can sell an IP if it was formerly a PPOR).

Does this sound feasible? I would rather move back to Perth for a year and keep any profits myself than give the government almost $100k in CGT (how selfish of me huh).

I am currently renting in Japan, but looking at building a house here in mid 2011 which will be my PPOR here. While I move back to Perth, I guess I will have to rent it out as you can't have two PPORs at the same time?

I have discussed this with my accountant and everything seems above board, just thought I'd get some advice from experts here who have done something similar. I know the place next to my parent's house was subdivided/developed, and the owner/builder moved into one side for a year before selling it, so I guess it will be a similar situation.

Thanks in advance.

J.
 
Hi, the main issue that I can see there is that the new home may not be CGT-free even if you move in there immediately upon completion. It has a history under your ownership of being the land attached to an investment property.
 
Hi, the main issue that I can see there is that the new home may not be CGT-free even if you move in there immediately upon completion. It has a history under your ownership of being the land attached to an investment property.

Thanks for the reply. This is is the first I have heard of it, my accountant hasn't mentioned that. Any idea of how long I need to live there to make it a PPOR after it has been an IP for the 3 - 4 years? I bought it in July last year, and looking at completing development in 2012.
 
Hi, once you move in, it will become a ppor as it should. From that time on, it should be exempt from CGT assuming you don't use the main residence exemption elsewhere.

The issue is around whether that land is worth more at the time that it becomes your ppor compared to when you first purchased it.
 
Hi, once you move in, it will become a ppor as it should. From that time on, it should be exempt from CGT assuming you don't use the main residence exemption elsewhere.

The issue is around whether that land is worth more at the time that it becomes your ppor compared to when you first purchased it.

Thanks for the confirmation.

Well, I assume the land itself does go up in value, that's what capital gains is? The house on the land is garbage at the moment. But then there is the subdivision which splits the value of the land in half.

Let's assume I bought the property for 400k
Subdivide so the land is worth 200k each side? Build a 200k house on one side (both sides in reality, but not selling one half), and the new property itself should be worth 6-700k in 5 or 6 years time. So I have made 2-300k in CG? the land portion itself may be worth 250k or 300k in this simple example by the time development is complete.

So what happens here when I go to sell the property about 5 years after living in it and moving back to Japan?
 
How do you build a house in Perth for 200k? I thought building costs there were much higher?

Easy. I even factored in demolition and subdivision costs (spread over two properties) in that rough example. It will only be a cheap build because I'm not planning to live there long term...more for investment.
 
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