Lifestyle lottery winner - sell or keep the prize

R

Raddles

Hi there
a relative of mine is in the situation where they won a lifestyle lottery prize which happens to be situated in QLD near one of the beaches there.
They are Sydney based and have kept the property for 12 months whilst there are no outgoings and rates to be paid.
They are now having to pay the outgoings on the property (which has a substantial body corporate due to a security lift in the building) and are considering their options whether to sell the property or keep it.

It is obviously cash flow positive as it is currently being used as a holiday rental.
What would you do - sell the property, pay off other debts and use the balance to buy some more investment properties closer to you.
Or would you keep the property, use the equity to buy more investment properties that would help you pay those outgoings for the lottery property and also pay off other debts.

I note that they did try to get some investment planning advice from various sources at the time of their win - but none of it seemed particularly relevant to their situation.

What would you do?
 
If it is cash flow +ive even after the hefty body corps and holding costs, in my opinion, I would never sell it..use it as equity against other IP's. Also if they have taxation issues then even look at getting some IP's that will run neutral or neg' to offset cash income of the prize home, obviousley this is general information as I am not aware of their financial / income status.

Cheers.
 
Sounds like their reasons for selling are not purely financial?

Do they have any home debt or other personal debt? They could be directing all of the rent into killing that or sell the IP and pay out home loan etc.

Or they can keep it and leverage against it for other properties.

Ask them this: "Would you have bought this property for an investment today?"
 
Hi again
just in relation to your comments Simon - I would have to say the property is a lovely place to have a holiday but would not be a property they would buy as an investment today. It would be more suitable for an owner occupier who wants to live in a $1.2 million dollar property.
Debts are definately an issue as the family have one breadwinner while the lottery owner is a stay at home Mum. They do have a principal home (negative cashflow) and another investment property (close to cash flow neutral) but seem to concentrate on the cash flow aspect when considering the property.
I have raised the issue of using equity and trying to purchase cash flow positive properties - but to no avail.
You may be interested to know that lottery winners either live in the property themselves or they sell - very few keep them as investment properties.
 
assuming this property is cashflow positive, even after expenses, i cannot see why they would sell it. pour all the cashflow into their other debt and keep the property to increase in equity.

i understand that they have debt on their family home, and only one income, but even at a miserly $200/wk positve cashflow from the property would put them $200/pw, plus cg growth, in front of where they were, surviving happily, before they made the win. (i don't know what the positive $$ are - just making an example).

10% cg pa (average) on $1.3mil property is another $130,000pa, compounding, in their pockets they wouldn't have had. so - if they held it 10 years:

year 1 = 1.3mil = 130k growth
year 2 = 1.43mil = 143k growth
year 3 = 1.57mil = 157k growth

now - i know that cg doesn't occur at a steady 10%. but at a 10% average, by the time their 10 years of holding is up the property would be worth around $3.1mil, and they would have made an additional $2mil on their win.

not bad income for a stay at home mum that - $200k per year tax free (because it's cg not taxable income) on top of the rental income.
 
Hi again
just in relation to your comments Lizzie
the property is currently rented as a holiday rental from $1100 per week to high season rentals of $2200 aprox. The property manager is very good at negotiating with people to keep it occupied a majority of the time - and will accept below the advertised price to keep it occupied.

Wouldn't you love to have this problem?
 
Ausprop

They have apparently owned the property 12 months or more - sorry, they'll have to pay CGT (assuming it has increased in value).

Cheers
LynnH
 
yes but it is only on the gain in that time - and that can be reduced by the agents fees, various expenses etc. Would still get rid of it... make those dollars work harder and if yu have to park it somewhere lazy make sure it is being tax effective i.e. has an unpaid tax component locked away as part of your asset base
 
LynnH said:
They have apparently owned the property 12 months or more - sorry, they'll have to pay CGT (assuming it has increased in value).
Click to expand...
I'm not sure on this. As it was a prize, would they only pay CGT on the increase in value since they acquired it? Even then they only pay CGT on 50% of that value. That would have some effect on the equation.

The rent they receive will be taxable. They are probably quite positively geared, so will only have depreciation to offset it. (Though depreciation would probably be quite substantial).
 
Geoff. Ausprop

Didn't express myself very clearly - I meant CGT on the gain in value, of course, with all the usual deductions for agents' fees and other selling expenses incurred etc. Sorry about the confusion - head cold has addled my brain! :(

Cheers,
LynnH
 
If I could financially hold it, I would keep it indefinitely. The capital growth should be excellent and proximity to airport makes it a winner for interstaters wishing to holiday there. Never sell, not that one. :)
 
LynnH said:
Geoff. Ausprop

Didn't express myself very clearly - I meant CGT on the gain in value, of course, with all the usual deductions for agents' fees and other selling expenses incurred etc. Sorry about the confusion - head cold has addled my brain! :(
Click to expand...
Lynn and/or Raddles

People who have been doing this for a while are familiar with many of the coomon probelms and advantages.

This position is something which is quite different. It's almost an "out of left field" thing.

So a lot of things which may apply to somebody who purchased a property don't apply.

I suggested a couple of things to clarify the situation.

I'd be now suggesting that the owner look at the alternatives, based on the numbers.

Alternative 1. Sell the place.

Tax will only be CGT on the gain since it was acquired. Sweet. Probably just about everything left over is in the owner's pocket.

Whatever the amount is. What could that sum be invested in? How much could it earn? How much SANF (Sleep at night factor)?

Alternative 2. Keep the place.

Tax will be on all the rent, less outgoings (including depreciation).

How much income could be expected to be generated (after tax)?

And how much could that property expect to appreciate in the future?


You would have to crunch the numbers to see what would be the best alternative- as a property investor.

But, perhaps we're not talking about a property investor. Or perhaps we're just talking about somebody who has short term financial needs. Or long term. I don't know. They may need cash sooner rather than later.

I don't think anybody here can tell you what path to go down. But perhaps we're able to help with some signposts to find the right path.
 
Hi again all
thanks for all your comments
my brother and sister in law are not in a hurry to sell but yes they do need to crunch the numbers and see what works best
they have been given a boost which represents 30 years of paid work - and do need to see how best to benefit from such a blessing
thanks
 
Hi again
just coming back to this thread as there has been a related question concerning depreciation.
If you don't pay for the property you have won - can you still claim depreciation on the building, the furniture in your property and also part of the common property such as lifts, pools etc?
Would love to hear any comments from our depreciation specialists.
thanks
 
HI there
they still have the property - but their accountant initially wasn't claiming anything for depreciation given they won the prize - he has only been claiming replacements.
I didn't think that was right and suggested my SIL get another opinion. She has been advised

You can still claim the 2.5% allowance relating to the original cost of the property
You can NOT claim any depreciation of common plant because depreciation is a way of claiming over a period of time your cost. As you didn’t pay anything then x% depreciation of your cost of $nil is nil.

I am still not sure that is right because depreciation represents a loss in value of the items you own which you set off against your rental income. You do own a portion of the common property and should be able to claim a proportion of the depreciation for lifts, pools etc.
My SIL made the point she could have taken some of the items from the unit and replaced them with items she had bought - she would definately have been able to depreciate them.
Just wondering if any of the quantity surveyors have any views on whether she should take the matter further.

http://www.realholidays.com.au/cgi-...&fmt=&t=hol&s=qld&c=68262152&p=10&header=&ty=
please see the link for the items to be depreciated
thanks
 
Last edited:
Raddles said:
HI there
they still have the property - but their accountant initially wasn't claiming anything for depreciation given they won the prize - he has only been claiming replacements.
I didn't think that was right and suggested my SIL get another opinion. She has been advised

You can still claim the 2.5% allowance relating to the original cost of the property
You can NOT claim any depreciation of common plant because depreciation is a way of claiming over a period of time your cost. As you didn’t pay anything then x% depreciation of your cost of $nil is nil.

I am still not sure that is right because depreciation represents a loss in value of the items you own which you set off against your rental income. You do own a portion of the common property and should be able to claim a proportion of the depreciation for lifts, pools etc.
My SIL made the point she could have taken some of the items from the unit and replaced them with items she had bought - she would definately have been able to depreciate them.
Just wondering if any of the quantity surveyors have any views on whether she should take the matter further.

http://www.realholidays.com.au/cgi-...&fmt=&t=hol&s=qld&c=68262152&p=10&header=&ty=
please see the link for the items to be depreciated
thanks
Click to expand...

Hi Raddles,
Im not an expert, but the advice your SIL does not quite sound right...
Depreciation accounts for the loss of value over the item's useful life, even though your SIL did not physically pay for the items, they have still got a value, which is decreasing.
I agree, seek the advice of a QS on this one...
 
Lucky people, that is beautiful. At my age I would be selling up the big house and moving right along in!

They should probably contact the organisers of the Lottery, they must surely have come across this question before and can at least give some pointer as to what the ATO allows.
 
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