Home Issues

W

WebBoard

Guest
From: Mike .


Keep or cash out?
From: Owen
Date: 02 Nov 2000
Time: 14:00:22

Here's one for the thinkers out there.

Say I have a $400K owner occupied house freehold and I'm looking at selling up and moving. Do I -

a) Buy say a $200K unit freehold and live in it and invest the other $200K in a small number of IP's? Later down the timeline when I want to move into a nice place for myself I can sell up my home and have a large CGT free deposit with the income from the IP's paying the small mortgage.

b) Invest the whole $400K in large number of IP's and rent something myself? Later down the timeline when I want to move into a nice place for myself I can use a small deposit with income from lots of IP's paying the large mortgage.

The way I see it if I do a) I end up paying costs like strata fees and buying costs myself on my place but I get the growth on the property CGT free. If I do b) I can ensure that the IP's pay for my rent so I have no personal costs but I lose out on the outright equity of a freehold property. However further down the timeline the income from all the IP's can be used to pay the mortgage on the nice place I buy for myself.

Obviously CGT is only an issue if I sell an IP (no plans too) and the equity remains the same no matter what scenario I follow so that doesn't come into the question.

I guess what remains then is should I cash out my own home and rent for a few years before buying back in for my own use or is that freehold property to good to give up? Own home or lots of IP's? What to do, what to do????
 
Last edited by a moderator:
W

WebBoard

Guest
Les

Reply: 1
From: Mike .


Re: Keep or cash out?
From: Les
Date: 02 Nov 2000
Time: 20:13:14

G'day Owen,

When considering the value of "CGT-free", keep in mind that the property with the LARGEST projected capital growth is the one to call "your home".

My initial reaction to your question would be to say "keep the house" - BUT, the house might be in a low Capital Growth area, while the Unit you buy might be one with Harbour views (can you get one for $200k in Sydney??). My thoughts here are back to John Fitzgerald - the LAND appreciates, and buildings depreciate.

How about keeping the house, borrowing the $200k that allows you to buy your "small number of IP's", thus any borrowings against the house are Tax Deductible. (Nice to have a freehold home... well done!! - just don't be afraid to borrow against it to build your future wealth).

Probably one of major points is:- Are you happy in your freehold house, and is it's likely Capital Growth at a level that will be significantly beneficial into the future. If this two-part question demands a "Yes" on both counts, then look at borrowing up to 80% (or whatever feels comfortable) to purchase IP's.

This would give you the opportunity to purchase a SIGNIFICANT number of IP's - and create a cashflow either immediately, or into the future (depending on whether you are a Positive Cashflow or Negative Gearing fanatic) - while you keep your house.

A further thought - do you really want to invoke the usual costs (RE fees, solicitor's costs, Stamp Duty on your new "home" Unit, etc.) if you're still happy in your freehold home. Any change of home does not have any Tax benefits - just costs - so choose your path carefully.

Was this a theoretical question? ;^)

Regards, Les
 
Last edited by a moderator:
W

WebBoard

Guest
Owen

Reply: 1.1
From: Mike .


Re: Keep or cash out? - Les
From: Owen
Date: 03 Nov 2000
Time: 10:52:56

Lets have a go at your reply too...

>>When considering the value of "CGT-free", keep in mind that the property with the LARGEST projected capital growth is the one to call "your home". [Do you suggest refinancing your portfolio and moving into this property to effect this?]

My initial reaction to your question would be to say "keep the house" - BUT, the house might be in a low Capital Growth area, while the Unit you buy might be one with Harbour views (can you get one for $200k in Sydney??) [Bwaahaahhaaahaa LMAO!!!]. My thoughts here are back to John Fitzgerald - the LAND appreciates, and buildings depreciate. [Say both are growing about the same for this example but good point]

How about keeping the house, borrowing the $200k that allows you to buy your "small number of IP's", thus any borrowings against the house are Tax Deductible. (Nice to have a freehold home... well done!! - just don't be afraid to borrow against it to build your future wealth).

[No problems with that but I can only go to 80% LVR (say $320K) and it would mean that the IP's will probably not be +ve as I would still be borrowing everything. I get large cash deposits if I sell the house ($400K worth) and can still borrow against the IP's for the balances which rent will cover]

Probably one of the major points is:- Are you happy in your freehold house, [willing to leave it to get ahead...delayed gratification and all that] and is it's likely Capital Growth at a level that will be significantly beneficial into the future. [but would it outstrip a large portfolio of separate IP's?] If this two-part question demands a "Yes" on both counts, then look at borrowing up to 80% (or whatever feels comfortable) to purchase IP's. [cashflow prevents this because of a small number of +ve IP's vs a large number]

This would give you the opportunity to purchase a SIGNIFICANT number of IP's [Yup] - and create a cashflow either immediately [Yup], or into the future (depending on whether you are a Positive Cashflow or Negative Gearing fanatic) [individual situations] - while you keep your house. [But not in the same way has having $400K in cash would]

A further thought - do you really want to invoke the usual costs (RE fees, solicitor's costs, Stamp Duty on your new "home" Unit, etc.) if you're still happy in your freehold home. [That is the downside but only if we buy immediately, not if we rent until it doesn't matter anymore] Any change of home does not have any Tax benefits - just costs - so choose your path carefully.

Was this a theoretical question?

[Yes and no. We do own our home but have borrowed against it already. Current LVR is only 49% over 3 properties and nearly clear of cross-collateralisation. Cashflow is the problem that stops more borrowing. Big deposits would alleviate this and get the passive income happening straight away allowing continued investment. I see it as keep the house and buy 1 IP every 6 months while paying off the deposit necessary to go +ve or neutral vs selling up and buying 8-10 +ve IP's straight away. It just gives the whole process a kick in the pants.

I can then qualify for more loans based on the greater income while quickly saving deposits for the same reason. I would still have loads of equity in the IP's due to the deposits and growth while having no personal costs. I could build a significant repeatable passive income in a short period of time. Then bye, bye, rat race]

What do you think?
 
Last edited by a moderator:
W

WebBoard

Guest
Robert

Reply: 1.1.1
From: Mike .


Re: Keep or cash out? - Owen
From: Robert
Date: 03 Nov 2000
Time: 11:11:46

Um Owen you can buy in Sydney for under $200k and positively geared... And with good capital growth into the future. You just need to know where.

Email me at robert_forward@optusnet.com.au and we can talk a bit more.

Robert :^)
 
Last edited by a moderator:
W

WebBoard

Guest
Owen

Reply: 1.1.1.1
From: Mike .


Not with harbour views...(nt)
From: Owen
Remote Name: 140.168.16.251
Date: 03 Nov 2000
Time: 11:14:47

Not with harbour views...(nt)
 
Last edited by a moderator:
Top