If this was in your portfolio, would you keep it?

E

Elke

The CG figure calc was based on a value of 370k which is very conservative; the next door unit sold for 390, and one across the road similar size etc sold for 395, which takes the CG to about 6% if we said value is 390k.

CG
The calculation is:
(370 - 290)/290/(2013 - 2007)*100% = 4.59% pa

Compounded it looks worse:

=(370000/290000)^(1/6)-1 = 4.14%

RENTAL YIELD
Value is say 390K.
Bought in 2007 for 390K. Spent 20K on reno.
Currently renting for $400 pw.

It's very low maintenance, excellent condition, have had 3 lots of excellent tenants who've looked after it, no vacancies, in a lovely block of 4, ticks all the boxes for an IP: walk to PT, schools, cafes, town centre etc. It's in the Illawarra so I imagine slower CG than Sydney or another large city.

So it's had a good SANF factor and has attracted quality tenants. Neither DH or I are handy men, so that's another plus...with this, we don't need to be.

BUT - is it making us anything????
 
That is the growth in the past - what does your crystal ball say about the future.

And, if you sold this could you make more money elsewhere?
 
Hey,
A few thoughts that come to mind.

How old is it?

What's the depreciation?

What are the future prospects for the area?

Sounds quite negatively geared, what are your options? What is the purpose of this exercise?
 
nhg said:
Hey,
A few thoughts that come to mind.

How old is it?

What's the depreciation?

What are the future prospects for the area?

Sounds quite negatively geared, what are your options? What is the purpose of this exercise?
Click to expand...


Old - 20 years
Dep - unsure
Future - strong, mix of units and houses, it's near employment and its in demand
Options - sell it and plough funds into purchase of a PPOR, pay down that non deductible debt asap, get our family established and once have some equity in a family home, then lift up our heads again to buy a new IP.
Purpose: enforced savings, theoretically it was to have good CG, I am a PAYG employee so I wanted to find a way to tax deduct some earnings. It has good rental yield which helps in the day to day getting started and saving for a pPOR.
 
Terry_w said:
That is the growth in the past - what does your crystal ball say about the future.

And, if you sold this could you make more money elsewhere?
Click to expand...

Hi Terry
Yes that's the key decision: what's the better use of funds, to
1. Keep it
2. Sell it and use funds to pay down PPOR
3. Sell it and buy an IP in 2770 (Mt Druitt area)

Future growth: hoping some of Western Sydney's enthusiasm and growth rubs off up there in Wollongong where this IP is located!!!
 
If you sold you would be up for selling costs and buyiing costs again on a new purchase.CGT maybe

But, if you sold and paid down the PPOR loan an reborrowed this could save you non deductible interest for years to come.

How much would be left over if you sold?
 
Don't know Illawarra but since central coast and Newcastle have increased activity, your area should soon too?

I would be concerned selling and missing further growth if it comes your way.

Did you purchase for 290k, post is confusing. 6.% returns in growth in a quiet market aren't too shabby, and the growth doesn't happen every year....

Recently purchased a property that owners had since 2005 and I paid 22k over their original price. I think they did not realise the market was moving and they had a lazy agent.

You need to assess your market so you don't regret the sale, and remember the transaction costs ......

I would hold it
 
Last edited:
Terry_w said:
If you sold you would be up for selling costs and buyiing costs again on a new purchase.CGT maybe

But, if you sold and paid down the PPOR loan an reborrowed this could save you non deductible interest for years to come.

How much would be left over if you sold?
Click to expand...

I think about $150000.
Ta
 
Elke said:
I think about $150000.
Ta
Click to expand...

5% of $150k is $7500. So by selling and restructuing things with a new purchase you could save $7500 in non deductible interest each year. If you bought a new IP that is $7500 in extra deductions.

So if you were on the top tax rate you would save around $3000 pa in tax. Pay this each year into your PPOR home loan and you could shave x years off the life of your loan.
 
Terry_w said:
5% of $150k is $7500. So by selling and restructuing things with a new purchase you could save $7500 in non deductible interest each year. If you bought a new IP that is $7500 in extra deductions.

So if you were on the top tax rate you would save around $3000 pa in tax. Pay this each year into your PPOR home loan and you could shave x years off the life of your loan.
Click to expand...

Hi Terry, I'm a beginner. I don't quite understand: of the options you mentioned, are you saying we save more $$ by selling and putting the $150 towards our PPOR loan?

What about cap growth on an IP, is it not good to hang onto it for rental income and CG ?
Ta
 
Elke said:
Hi Terry, I'm a beginner. I don't quite understand: of the options you mentioned, are you saying we save more $$ by selling and putting the $150 towards our PPOR loan?

What about cap growth on an IP, is it not good to hang onto it for rental income and CG ?
Ta
Click to expand...

Ok,

By having the IP you are tying up cash which could be used to pay down your non deductible debt.

Imaging if you sold your IP and purchased the same IP next door.
This would
1. Free up $150,000
2. Which could be used to pay down your PPOR loan and save you $150,000 x 5% interest per annum

But, selling costs money:
1. CGT
2. selling agent fees
3. Legals
4. Loan exits
5. Entry costs on the new one - such as stamp duty, legals etc

The new IP would be more tax effective as you will restructure and borrow 105%.

Really with the above you are just converting your non deductible PPOR loan into deductible.

So generally you have to add up all the costs and then the savings and you may find it could cost you $30,000 but it could save you $5,000 pa. So it would take 6 years before you are ahead.

then you consider - is it worth it.

There may be other non financial benefits such as:
1. Getting rid of a dud investment and buying something that is a better performer (this may be a financial benefit, but maybe not immediate)
2. Estate planning improvements (joint tenants to Tenants in common so the house can pass to a trust on death of one owner)
3. Asset protection benefits such as selling house in risky spouse name and buying in the safer spouse name or a trust
4. etc

Hope that helps
 
You must log in or register to reply here.
Back
Top