how to extract equity ?

L

long88

hi all,

seeking some advice on how is the best way to approach/recycle the equity.

PPOR is paid off (no loan, i know rookie mistake, no offset etc).
1 ip, have offset, about $90k in offset, and loan of $307k (property valued at $450k)

now i am thinking to buy another ppor, and turn current ppor into IP.

how is the best way to extract the equity out of the current ppor, given that i cant claim the interest on any of the loan if it is used as ppor purchase.

do I stuck with this ? and just have to pay the nontax deductable interests ?

thx
 
There is no way you can load up your now, fully paid off PPOR with tax deductible debt unless you use that debt for other investments.
 
Its a great problem to have. Once your in the new place, consider getting another investment property and increasing your tax deductable debt.
 
Dont think of it as stuck. You are in a great position to start investing.

You have a paid off house!

I guess you could always sell your existing property and use the cash for the new one, but that involves transaction costs.

Are you sure your existing property will make a great rental?
 
long88 said:
thx all for the quick response.

i am stuck then.
Click to expand...

maybe not

Look at Jamie's idea in more detail.

Combine that with some forms of debt recycle and you can become unstuck quite quickly

else if all that doesnt work, do the maths, you might find selling without CGT to be ok

ta
rolf
 
I think the very first thought people have is "How do i go about fixing the principal I have paid so I can claim the full interest deductions?". Whilst this is no doubt very important, I personally believe a much more important question needs to be asked first and that is whether or not their PPOR will even make a good investment?

The key thing you need to ask yourself is "Can I get a better return elsewhere" then if so, is your decision to want to turn it into an IP an emotional one? Do you "think it will make a good investment because its a great suburb" perhaps. I think you need to put emotion totally to the side and look at it as a business in which investing is. If you have performed due diligence and believe it has strong capital growth prospects or good yield then yes it is time to maybe think about it becoming an IP and what that means regarding the tax deductions.

If not though and you are confident you can get a better return then why not sell it. It is your PPOR and given you qualify then you will be exempt from any capital gains (I am not an accounting though so you will need specific advice). You will just have to pay the agent fees which I am unsure of your property value but are going to be around 1-2% plus some minor advertising costs.

By selling it you also free up more equity (Basing this on LVR and not requiring LMI, correct me if I am wrong brokers) so it would give you further investment opportunities.
 
albanga said:
If not though and you are confident you can get a better return then why not sell it. It is your PPOR and given you qualify then you will be exempt from any capital gains (I am not an accounting though so you will need specific advice). You will just have to pay the agent fees which I am unsure of your property value but are going to be around 1-2% plus some minor advertising costs.

By selling it you also free up more equity (Basing this on LVR and not requiring LMI, correct me if I am wrong brokers) so it would give you further investment opportunities.
Click to expand...

To give a true comparison you would also need to consider buying costs wouldn't you?
 
buying costs will eat in a lot as well, especially if you are buy 800k upwards property

i am at a stage where i am pretty much ready to buy another property, but thinking why not kill 2 bird at once, by turning current house into ip and buying something newer and bigger (doesnt mean it is in better suburb though). at the current melbourne median price.


ppor is always a hard one, but i dont mind any suburb, as long as it close to public transport.

thx for the feedback so far.



serendip said:
To give a true comparison you would also need to consider buying costs wouldn't you?
Click to expand...
 
One strategy could be to sell to a trust. Its triggers CGT sure (exempt) but it refreshes the cost base and it could also be financed 80% with no drama. Its like starting all over. Then you use the 80% financed to buy your new PPOR. And stamp duty may be worth the cost. No agent fees, etc.

Debt is now deductible, PPOR has no/minimal debt and yet use of funds is ultimately to fund your new home. Cant get better can it ?
 
Paul@PFI said:
Debt is now deductible, PPOR has no/minimal debt and yet use of funds is ultimately to fund your new home. Cant get better can it ?
Click to expand...

may be : )

if the one spouse owns the PPOR and sells to the other, and all the other bits remain equal re gearing potential etc, some Victorian transfers appear to have been getting through without stamps.

ta
rolf
 
serendip said:
To give a true comparison you would also need to consider buying costs wouldn't you?
Click to expand...

Absolutely you need to consider this in your due diligence, only exception being if you wanted to rent (many investors do rent, not my cup of tea but has merit).

Something to also consider is your investment strategy and end goal. For example let us say this PPOR is a new home on a small block with no value add propositions. This would mean they are reliant on capital growth, but what happens if there goal is to retire in the next 10 years? Does holding this property fit into that strategy?

Maybe instead of holding you sell and use the funds to purchase a development site and aim for manufactured growth and lump sum gains. Obviously this is a lot more work but if the goal is to retire in 10 years then this strategy may fit better than a buy and hold.

I do not think there is a wrong or right answer, it is what your investment goals are. I just see many people make emotional decisions which they later regret.
 
Consider this. Sell at full market value to your spouse who borrows 100% to purchase. Should be exempt from stamp duty in VIC and probably exempt from CGT also. Cheap to do and could save you thousands.
 
Rolf Latham said:
may be : )

if the one spouse owns the PPOR and sells to the other, and all the other bits remain equal re gearing potential etc, some Victorian transfers appear to have been getting through without stamps.

ta
rolf
Click to expand...

All transfers between spouses in VIC should be exempt - s44 Duties Act Vic from memory.
 
thx all for the advice.

it looks like i will do the spouse transfer thing.

have emailed mike and will be waiting for his reply.
 
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