PPOR turned IP - To sell or not ?

[MSK]

Hello everyone ! I am currently reading books/forums to build my knowledge in property investment. This forum (ie you guys) is AWESOME !! I am learning sooo much. I work part time in IT and earn well but am very disillusioned with my job (and the corporate life in general) and looking to get out and start something from home (so I can spend more time around my young kids aged 5 and 2).
Hubby and I built our first PPOR in 2002, lived there for 4 years, then made it our IP and have rented it out for the last 6 years. We rented elsewhere for 2 years, and then bought our current PPOR in 2008. I am now pondering selling our IP, considering it will be CGT free up to the 6 year point, and put the gains into current PPOR offset account before embarking on journey to purchase a number of IPs that meet our longer term goal of financial independence. I am not sure if this is the right step, considering hubby is of the view to buy and hold forever.

I just think it is the "right time" to sell because:
1. We have held it for 10 years, the value has doubled and I feel we should release this CG now whilst it is tax free
2. house is still in "immaculate as new condition" as we have had all superb tenants over the years so will get good $$.
3. Land is only 450sqm so no further dev potential
4. Generally steady market at the moment (stock is reasonably priced), so can easily re-enter the IP game with a number of properties over the next 12 months
5. It gives us the ability to reduce non ded debt to 0
6. The 'feel good' factor of having no debt on PPOR

Reasons to not sell:
1. good gross rental yield approx 7.5% with scope to increase rent by atleast $20
2. Only been vacant for 1 week in the last 6 years
3. good CG area (Castle Hill NSW)
4. heaps of equity in current ppor, so dont really need to sell to access funds for new IPs

Here are my numbers:

IP on IO loan: owing $500k (333k tax deductible, 167 non-ded split added when we bought current PPOR), market value approx. $830k, rented for $750/week
PPOR on P/I loan: owing $325k, market value approx. $800k

Offset balance $50k

Income $10k/month (will drop to $6.5k IF I can convince hubby to let me be a SAHM/WAHM).

So if we can get close to market value, it would sufficiently cover our PPOR mortgage (minus sell costs).

Hubby has been made redundant twice in the past 6 years and hence is very stressed about financial security (which is why he wants me to keep working). I feel that selling the IP and paying down loan would put him at some ease and give him confidence to start actively pursuing IPs this year.

I think we will be making current PPOR into IP for a few years before moving back in and doing major reno. So will keep funds in offset.

Sorry for the long post. I just need some further input of reasons to sell/not sell.

 

[Terry_w]

The first thing you should do is to work out all the costs associated with selling.

And then costs saved by paying off non deductible debt.

Then work out the costs associated with buying another property.

See how long it will take to recoup the costs incurred with the savings.

You may also want to consider having the husband buy out your share of the property now and borrow to do so. This way you get to keep the property yet release a sizeable chunk of cash and for only half the costs.

 

[MSK]

The first thing you should do is to work out all the costs associated with selling.

And then costs saved by paying off non deductible debt.

Then work out the costs associated with buying another property.

See how long it will take to recoup the costs incurred with the savings.

You may also want to consider having the husband buy out your share of the property now and borrow to do so. This way you get to keep the property yet release a sizeable chunk of cash and for only half the costs.

Yes the sell costs (REA commission) and subsequent buy costs esp. SD add up to a fair bit. Your third suggestion (hubby buys out my share) is something I might look further into. What are downsides of this option ? I ask because at face value, it seems too good an idea -ie we get to have our cake and eat it too

 

[Terry_w]

Yes the sell costs (REA commission) and subsequent buy costs esp. SD add up to a fair bit. Your third suggestion (hubby buys out my share) is something I might look further into. What are downsides of this option ? I ask because at face value, it seems too good an idea -ie we get to have our cake and eat it too

Many downsides
- you lose legal control
- him mortgaging it further without your knowledge
- him going bankrupt
- you dying and succession issues - new spouse etc
- stamp duty
- land tax
- income tax
- CGT

Many of these issues will arise anyway, but with perhaps different consequences.

 

[westminster]

Forgive me if I'm wrong but isn't house #1 only CGT free up until 2008 when you bought another PPOR? You can only have one PPOR so it would have been CGT free when you were living in it and when you were renting but when you bought your house #2 and moved in it will attract CGT from then onwards

 

[MSK]

Forgive me if I'm wrong but isn't house #1 only CGT free up until 2008 when you bought another PPOR? You can only have one PPOR so it would have been CGT free when you were living in it and when you were renting but when you bought your house #2 and moved in it will attract CGT from then onwards

You are likely correct. My understanding was that at the time of sale (say June 2013), I can nominate the IP as my PPOR. But I would lose PPOR status between 2008 and Jun 2013 for my current PPOR if I was ever to sell it.

Can anyone please clarify ?

 

[Terry_w]

Yes, only 1 can be your main residence at the one time. But it is possible to treat the former one as the main residence while absent for up to 6 years.