please help, I'm out of my depth!

New member here, all ready had some great advice in my first thread & hoping for the same here.

2 years ago I bought my first investment property for 560k (old 3x1 house on 460m2 in Como W.A), complete with good paying tenants.

I was/am still paying off our PPOR, but have 50% equity.

What I am thinking of doing is selling our PPOR, and using that cash to pretty much pay off the IP and get a new loan for a brand new house on the IP land to be our new PPOR.

or should/can I keep paying the IP mortgage & use the cash to demolish/build a new house on the IP land.

* I have never lived in the IP ( i dont know if that matters)

*what about CGT in this scenario?? :confused:


thanks!
 
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So if I understand you correctly, you have 1 PPOR and 1 IP. You want to sell the PPOR and buy a different PPOR, is that right?

Firstly there's no CGT for PPOR sales, doesn't matter what you use the proceeds for, even if paying off IP.

Secondly, don't pay off IP with the proceeds. The end result of that is that you'll have a monster loan (not tax deductible, and wrecks future IP borrowing serviceability) on new PPOR and no loan on IP.

Here's what I'd do instead in your scenario:
1) Sell PPOR
2) Use proceeds of PPOR + any spare cash you have as deposit on new PPOR
3) New PPOR's LVR would be fairly low because of the above
4) Top up the equity on PPOR (Get this as a separate loan account)
5) Use that equity to then either be A) deposit on 2nd IP or B) reno/rebuild with IP1.

How well that plays out depends on the numbers. Hope this makes more sense for you.


Edit - Sorry, I completely missed the part where you said the rebuild would become your new PPOR. That changes things a fair bit :)
 
hi Dave,
I really appreciate your very comprehensive reply! But I will have to wait until I'm at work tomorrow with a coffee to try and understand it all!


Edit - Sorry, I completely missed the part where you said the rebuild would become your new PPOR. That changes things a fair bit :)

yes, you have hit the nail on the head, there - how does it change things - that I want to take over the IP (with a demo/build) as my new PPOR??? :p

cheers!
Andy
 
Which parts didn't you understand and I'll try to elaborate?

If you don't mind sharing the current IP and PPOR market values and loan totals, that'd be really handy in order to answer the 2nd part.
 
its ok Dave, I need to get to bed, so I will go over what you kindly wrote tomorrow.

PPOR, worth 900k, I owe 400k

IP, worth 580/600k, i owe 580k (interest only loan) land value is 550k, maybe a bit more.

thanks again!
Andy
 
Based on the figures provided, your lender has cross collateralised your IP loan. You will be required to reduce the IP loan when you sell the PPOR. This means you're unlikely to have as much cash as you anticipate from the sale.

It still all probably works though. You'll no doubt have enough funds for your new PPOR and most likely an IP deposit after that.

I'd suggest using a 20% deposit for the new PPOR and putting the cash into an offset account. It's still available and can be structured into a tax deductible equity loan when you want to purchase the next IP.

This will give you more flexibility and tax deductions should you decide to make the new PPOR and IP at some future date.
 
Thanks , Peter, that gives me a good idea of what the situation is.

One thing I will say, is that job security in my industry is not what it used to be, so I'm not too concerned about having another IP if I go ahead with this plan.
cheers
 
The value of the IP will be key in knowing how much the bank will take from the sale proceeds of your PPOR.

It would pay to get a valuation done prior to selling your PPOR so you know what to expect (hopefully no nasty surprises! ) and can budget for your new build effectively.
 
Hi, it might help for you to clarify your end result.

So at the end of this exercise, you'll have a brand new house for PPOR and about 300 thousand PPOR debt.

Is that an advantage over your current situation?

What about if you sell your current PPOR, use the proceeds to build a new house and you live in a rental for a while?

Any advantages in that?

KY
 
The value of the IP will be key in knowing how much the bank will take from the sale proceeds of your PPOR.

It would pay to get a valuation done prior to selling your PPOR so you know what to expect (hopefully no nasty surprises! ) and can budget for your new build effectively.

i know what I could easily sell the IP for - 580 to 600k, the block value alone would be 550k, but the house is very average - very livable & comfortable, but very average.
cheers
 
Hi, it might help for you to clarify your end result.

So at the end of this exercise, you'll have a brand new house for PPOR and about 300 thousand PPOR debt.

Is that an advantage over your current situation?

What about if you sell your current PPOR, use the proceeds to build a new house and you live in a rental for a while?

Any advantages in that?

KY
advantage would be to be able to design a layout we really like & have room for outdoor activities and a pool.

Also, my industry is not as stable as it was, so having less overall debt is starting to be appealing.

I'm not sure what you mean by your last question - we dont want to move from Como & love the location/land of the IP.

Vacant small blocks here are like 600k, so using the one I have is good - also no stamp duty to pay - i think.
cheers
 
BTW when it comes time to sell the new PPOR (formerly IP) the 2-3 years it was rented out will be liable for CGT and the time it is PPOR will be tax free. To determine values for each period you need to get a proper valuation done when it finishes being an IP (before building) so that the value is set for that time.
 
advantage would be to be able to design a layout we really like & have room for outdoor activities and a pool.

Also, my industry is not as stable as it was, so having less overall debt is starting to be appealing.

I'm not sure what you mean by your last question - we dont want to move from Como & love the location/land of the IP.

Vacant small blocks here are like 600k, so using the one I have is good - also no stamp duty to pay - i think.
cheers


You have mentioned twice now that your industry is not very stable, should you be knocking down and rebuilding at a time when you don't know if you'll have a job in a few months?

Seems to be a pretty risky move.
 
You have mentioned twice now that your industry is not very stable, should you be knocking down and rebuilding at a time when you don't know if you'll have a job in a few months?

Seems to be a pretty risky move.
its not that bad for me at the moment, I was made redundant from an engineering company last year after 5 years, was out of work for 4 months & now for the last 6+ months I've been FIFO contracting to one of the biggest WA iron ore mines - so I should be fine for quite a while.
hoping to get some long term indications from them in the near future - so no I wont be doing anything until I know more on the subject.
cheers
 
BTW when it comes time to sell the new PPOR (formerly IP) the 2-3 years it was rented out will be liable for CGT and the time it is PPOR will be tax free. To determine values for each period you need to get a proper valuation done when it finishes being an IP (before building) so that the value is set for that time.

I know to never say never, but what if I never sell the new PPOR (former IP)?

If i do all this I wouldnt plan to move, just pay it off & enjoy it.

cheers
 
I know to never say never, but what if I never sell the new PPOR (former IP)?

If i do all this I wouldnt plan to move, just pay it off & enjoy it.

cheers

Then don't worry. The CGT on the 2-3yrs is very little in any case if there hasn't been a lot of growth.

But do remember to get a licensed valuation done just in case because you want it clear that during it's IP time it gained on xx value not the big gain you will get when you rebuild
 
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