G'day and what would you do in this situation?

G’day folks,

Thought I’d give a quick introduction, a bit of background and some information on my current situation before I begin to ask some questions. Also wanted to say how glad I am that I stumbled upon this fantastic site, it looks to be a great resource for all those interested in property investing!

So my name’s Rob and I’m a 26 year old from Melbourne. I’m a Park Ranger and currently make around $49,000 per annum with the potential to earn an extra couple of thousand dollars depending on the fire season. By early next year I should have gone up a salary classification level or two and should be earning around $59,000 per annum. I am considering a career change and am looking at possible applying for the Melbourne Fire Brigade at some stage next year, if I am successful in that I should be making a little more money.

The only debt that I currently possess is my HECS debt or whatever it’s called these days, which is around $20,000. I own Land Cruiser, motorcycle and boat, which are probably worth $30,000 combined and I owe nothing on these. I also have $5,000 term deposit and approximately $14,000 owed to me by a family member; I should have access to this in the next month or so.

Unfortunately my aunty, who I was very close to, passed away last September. Fortunately for my sister and I though, she left her St Kilda East two bedroom apartment to us. I currently live in it and over the last couple of months have put down new floating floors in the living areas, carpet in the bedrooms, vinyl in the kitchen and have repainted the whole place. We recently had the apartment valued at $480-500,000 in its current condition and plan to get a few more valuations in the next couple of weeks.

My Father recently subdivided his property and is giving my sister and I a block to share. This block was valued at between $340-$360,000 earlier in the year. The original plan was that my Father would sell this block, after his other three blocks sold, pay the CGT and then just give us the remaining money. That way he wouldn’t CGT upon gifting us the block and we wouldn’t have to also pay CGT upon sale of the block. Now my sister and I are also considering the possibility of building a nice house on the property and then selling it...

My sister and I have a very good relationship and like the idea of investing together. Obviously we’d have to discuss this further to work out the future implications for the both of us if we follow this joint investment strategy and also work out a suitable exit strategy for any place we own together. My sister is currently in her final year of a PhD, works part time and also owns a two bedroom apartment in Essendon. I am yet to own a property so would still be eligible for the first home buyers grant, however I don’t believe I would be eligible for this if I was to buy with my sister? So anyway my sister and I now have to work out what we want to do and what our plans are for the future...

We had thought to sell the St Kilda East apartment and then upgrade to a property in the low to high $700,000 range somewhere in the inner city region. The plan was I’d live in it and get someone in to rent the other bedroom/s. However I believe we will no longer do this. We both feel that we may be better off holding off this type of purchase until both of us are more settled and know what we plan to do in the next five to ten years. Now we’re leaning towards holding onto the apartment, I’d still continue to live in it and get someone to rent the other room to pay my sister, and using the equity to get a loan or loans to purchase a joint investment property or even investment properties.

I’m still very much an investment newbie; I’m currently reading some of Steve McKnight's books and plan to purchase a few others soon and also plan to take out a subscription to the Australian Property Investment magazine. I will continue to read up and trawl this site and others to try and obtain some knowledge and build an understanding of property investing and all that goes with it. I guess you could say my aim in this is allow myself to make a start in property investment which would hopefully lead me to some financial security later in life…

So for now, if you wouldn’t mind, I’d like to hear some of your thoughts and opinions and would like to know what you’d do if you were in my situation?
Your assistance would be greatly appreciated and I look forward to spending a fair bit of time on this forum and learning all that I can from it…

Cheers and kind regards,
Rob
 
Rob

Its hard to know what to do at your age.
I don't like the idea of selling and buying again because of the costs involved so if it was me I wouldn't sell.

IMO in most case its best to leverage against existing assets and expand your property portfolio that way.
However, at your age you have plenty of time and his isn't the time to take too many risks.

I also feel that Melbourne property prices have gone up significantly and interest rates are likely to go up a little as well so there will be downwards pressure on property prices.

This doesn't mean that there will be price falls but you shouldn't expect price rises either so IMO take a step back and think about what you want to do, create an investment plan but don't rush into buying anything and particularly anything really expensive.

I hope this helps
 
Thanks a lot for your reply and thoughts BV.

My sister and I were also thinking against selling and buying again due to the costs involved and had been thinking it would be better to hold onto the property and then as you suggested, leverage against it to expand our portfolio that way..

I've still got a lot of researching and thinking ahead of me to decide what I want to do and to create a plan for my future strategies and investments. I'll take all your info on board thanks mate and will continue to peruse this site and other resources, taking in all I can.

I'm also considering I might be best getting my first place on my own so I can make use of the FHOG. After that I could then once again consider joinly investing with my sister...

Cheers and thanks again,
Rob
 
Has the unit you inherited been put into your and your sister's names?

If so, as the part owner of a property in which you reside you will no longer be eligible for the FHOG. On the plus side, you won't be liable for CGT on your half as you reside there.
Marg
 
CGT exempt on inheritance property?

I'll let one of the more knowledgables around here confirm this but I believe you are capital gains exempt when selling an inherited property as I believe you inherit the owner occupiers status as owner occupier for at least a year or so.

So if they are wanting to sell now may be the time to benefit from this?

Personally I'm a buy and hold type as I dislike the government picking my pocket in addition to the molesting I take on income tax.

But as I said this is fuzzy based on a conversation had awhile back now.

Also be aware in a joint venture accessing your equity seperatly is a difficult task and has many complications - their are threads on here put joint into the search function and I'm sure you'll find many threads.

All the best :)
 
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Another option may be for you and your sister to split the assets - one gets the unit and the other the block of land, with an appropriate cash adjustment from the unit owner (borrowing a comparatively small amount should not be difficult). This way you each have an independent asset base.
Marg
 
So if they are wanting to sell now may be the time to benefit from this?

This is not an issue, they just need to get a valuation done before they start renting it out.

The valuation will be proof of the property value so and capital gains tax will only be applicable to future growth.
 
I'll let one of the more knowledgables around here confirm this but I believe you are capital gains exempt when selling an inherited property as I believe you inherit the owner occupiers status as owner occupier for at least a year or so.

So if they are wanting to sell now may be the time to benefit from this?

Personally I'm a buy and hold type as I dislike the government picking my pocket in addition to the molesting I take on income tax.

But as I said this is fuzzy based on a conversation had awhile back now.

Also be aware in a joint venture accessing your equity seperatly is a difficult task and has many complications - their are threads on here put joint into the search function and I'm sure you'll find many threads.

All the best :)


It depends on the situation. If one inherits a property that was 100% owner occupied by the previous owner (owner occupied the whole time that it was owned or satifies owner occupied status for whole time) then yes, if the person who inherits the property sells it within 2 years of date of death then its CGT exempt.
 
Rob - For 26 yrs of age you certainly are thinking on the right track. The FHOG is not the be all as the Grant is small relative to your investment potential, likewise with CGT, it is worthy of thought but should not necessarily influence your investment strategies. Future capital growth with cash flow control is paramount in your case whilst you are building up income levels to service future debt.
So.......a thought. I would hold onto St Kilda as this property is very well located to give growth in the future and can be used later to use equity to buy many properties in the future. Rent out a room to cover some rates and insurance. This is your diamond for the future.
Second...On the land....perhaps you and your sister could borrow $200k against the land and build the house you spoke of and rent that out. Your LVR would be 40% ($220k - with cost - plus land $340k = $$560k..........$220k/$560k = 40%) Your repayments to the Bank (Interest only 7% = $1300 month approx and the rent should be $2000 per month with a surplus of $700 per month.

You now own over a $1m of assets and a debt of $220k with a cash surplus of $700 per month. Now you can grow your assets using both properties as equity increasing your wealth each year faster than you can save money. You should be retired by 50.

Good luck Rob.
 
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Second...On the land....perhaps you and your sister could borrow $200k against the land and build the house you spoke of and rent that out. Your LVR would be 40% ($220k - with cost - plus land $340k = $$560k..........$220k/$560k = 40%) Your repayments to the Bank (Interest only 7% = $1300 month approx and the rent should be $2000 per month with a surplus of $700 per month.
I'll second that approach ... Putting a house on the land will put money in your pocket rather than cost you every year - rates etc ...

You should consider where you and your sister want to be in 5, 10, 15 years time. This will dictate what you should do now. Holding 2 properties mith minimal debt and positive cashflow is a solid foundation.
 
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Thanks a lot for your replies everyone, you've given me a lot to think about!

I've done a search on joint ventures and I now see there are some serious issues relating to them. I'll continue reading up on them, but it would appear that my sister and I would be better off doing things on our own. I'd still be leaning towards keeping St Kilda together but then going our seperate ways from there.

Marg the apartment is now in my and my sisters names. I haven't done anything about declaring it as my PPOR or having my mail redirected to there however. I was led to believe by our solicitor that I would still be eligible for the FHOG as the property was inherited. They may have been confused with the CGT excemption however. I'll check with the SRO to confirm either way..

As pickle pickle stated we are exempt from CGT from two years of my aunties death as she was the sole owner occupier for the many years she owned the apartment. I'm definitely leaning towards holding onto the property now though.

BPB and Will, thanks for the great advice re the block, building and then holding and renting. I will definitely look into this option as it does sound good thanks mate. I do realise I am very lucky to be in my current situation and definitely plan to make the most of it..

Thanks again everyone and back to reading, researching and trolling this and other resources for me:)

Cheers and all the best,
Rob
 
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