No CG tax for next 4 years – Hold, sell or duplex

[devank]

Hello,
I hope to get few expert advices on what to do with one of my property.

We bought this house back in 2006 to live in for $495K. The street is regarded as the best street for this suburb.
It ticked all my boxes (land component) and my wife’s (nice kitchen & bath).

Here are some property details:
Property value ~= 600K (Median price for this surburb = 430K)
Frontage = 18m
Lot size = 734 sqm
30-40 years old house.
Sloping to the street.
10 mins walk to a western line station
Renting for $470 pw.

We moved out of this property back in late 2009 and living with parents. Hence we have the 6 year no capital gain period.

Here are the options which I can think of and associated issues.
1. Keep it for longer period (move in for 6 months before 6 year dead line) – It has lower yield which limits future investments

2. Sell before 2015 (before 6 year rule) – Would the price pick up by then?

3. Add a granny flat for 100K and get extra $300pw – Am I injecting too much capital into this land and stoping any development opportunity?

4. Get a duplex DA and sell it – Is spending about 25K worth it? A dwelling in a duplex is going for about 600K now.

5. Build a duplex – Negative gearing & increased rents can be added to the cash flow but it would cost me about 450K to build it. There will be no rental income for a year.

What do you think I should do with this property?

regards,
devank

 

[Rixter]

What do you think I should do with this property?

What did you plan to do with it before you purchased it?

 

[devank]

What did you plan to do with it before you purchased it?

We were going to live in it. May be build a house down the track.
Then circumstances (not financial) changed so we built a house in parents land and rented out this property in question.

 

[devank]

One more option . As I don’t have enough already!
I have attached a possible simple modification shown in red.

This would increase the room size of two smallest ones. I tried to keep the modifications to minimum.

Any feed back is appreciated.

 

[devank]

I think my question is a bit too specific based on the response

Anyway, after going through 'forecasting' exercise I decided to go with the granny flat option.

I had a look at few granny flat but I don't like anything other than the brick ones.
Apparently bricks would cost about 5-10K more.

Given the fact that the current property value is almost 600K and it is brick, do you think the granny flat should be brick too?

 

[Melbournian]

renovate it and sell it.

again all these really depends on your financial and personal goals

i would sell it coz i would be able to start clean and there are many other opportunities to reap unless the rental is super great or high

 

[devank]

Thanks Melbournian. Few reasons to keep.
1. 6 year rule of no CGT.
2. Great potential for price increase. It is located only 5 min train or 10 mins drive from Parramatta CBD.

Somebody asked me the following question.

Whats this 6 year rule?
Does it mean i rent my friends property and he rents mine for say 5.5 years and then I move in again, so no CGT). wow that would be perfect

I don’t think ATO will leave that big loop hole! It has to be a genuine reason such as moving overseas or staying with sick parents.

Please check the site:
http://www.ato.gov.au/corporate/content.aspx?doc=/content/86191.htm

Having said that, exchanging with your friend may work if the negative gearing is more than the CGT you will be paying.

 

[Belu]

did you say you built on your parents land? Who owns the property you live in now? This may have CG impacts.

can you cut the back off rather than tear the house down?

 

[devank]

did you say you built on your parents land? Who owns the property you live in now? This may have CG impacts.

They own the property.

can you cut the back off rather than tear the house down?

What do you mean?

 

[Terryw]

Thanks Melbournian. Few reasons to keep.
1. 6 year rule of no CGT.
2. Great potential for price increase. It is located only 5 min train or 10 mins drive from Parramatta CBD.

Somebody asked me the following question.

I don’t think ATO will leave that big loop hole! It has to be a genuine reason such as moving overseas or staying with sick parents.

Please check the site:
http://www.ato.gov.au/corporate/content.aspx?doc=/content/86191.htm

Having said that, exchanging with your friend may work if the negative gearing is more than the CGT you will be paying.

see s 118-145 ITAA 1997. Reasons for being absent don't matter.
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.html

 

[NSWinvester]

Wow! very interesting read, I maybe eligible for this exemption. I've rented out my property for 4 years now, you learn something new everyday.

I might just have to move back to continue this excemption, any reference as to how long you have to live in it again for me to be entitled again?

 

[Terryw]

The legislation doesn't specify a minimum time to live in the property only that it must be your 'main residence'.

 

[devank]

renovate it and sell it.

Would you renovate a $600K property where the median is about $430K?