Sell IP to pay off PPOR - now or later..

[Lawry]

So we're in the position where if we sell one of our IPs, after costs and CG tax, it will more than pay out our non deductible PPOR loan.

And that was the reason we bought the IP, to help pay off PPOR quicker, not necessarily as a longer term hold.

.. but now the IP is roughly cashflow neutral, heading towards CF+, and has some decent prospects of further CG, although its in an area that's gone through high growth and next year or two could pull back (or could keep going up, who knows)

So how do I answer the question to myself: do we sell the IP now? - and forever enjoy the benefits of no more non deductible loan repayments and interest, plus increased cash in our pocket (the kids are getting older and more expensive all the time..) - or do we hold on for a bit longer, and take the risk that the CF and CG on the IP increase further.

decisions, decisions... thoughts welcome

 

[Edmond Dantes]

Hi Lawry.

....
And that was the reason we bought the IP, to help pay off PPOR quicker

I think this was the main objective when you bought your IP in the first place. You have achieved this.

........
So how do I answer the question to myself: do we sell the IP now? - and forever enjoy the benefits of no more non deductible loan repayments and interest, plus increased cash in our pocket (the kids are getting older and more expensive all the time..)

Based on what you said in bold, yep, sell it

........
- or do we hold on for a bit longer, and take the risk that the CF and CG on the IP increase further.

Adjusting your objective here. Nothing wrong. I would personally hold it and perhaps leverage buying another quality IP, or another asset (shares, gold/silver, etc). Perhaps in 5 years you will have the same dilemma, but with 2 IPs or any other asset class that has appreaciated?

Good luck

 

[Terry_w]

If the IP is jointly owned with spouse and is in VIC then one of you may be able to buy out the other and do so with only nominal stamp duty. This could release some equity to pay down the non deductible debt. You might be able to plan so as to reduce CGT especially with the end of financial year coming up.

Otherwise it may pay to sell outright and pay down debt and then buy another. Just do the sums.

 

[Pa1nter]

You are in the same position I was in many years ago,
I sold an IP and fully paid my PPOR,

This resulted in a journey that is much smoother as you purchase new IPs later as all loans will be deductible.

One thing that you must consider is,are you still able to borrow for another IP,
if you aren't,then I wouldn't sell.

 

[Lawry]

thanks for all the feedback, it really helps, especially from those who've gone trough the same or can provide new viewpoints.

Terry - interesting idea, one I will keep in mind for future IPs/ financing arrangements, but unfortunately wont work in my current case (sole ownership, different state).

Edmond - thanks, good feedback and something to think about (ie holding on) In our current situation cash flow is more the priority issue than equity, so it would prob be better to sell and reinvest as the cash flow we are servicing the PPOR loan with would be able to 'buy' more deductible debt.

Painter - very good comment, definitely have to think about it. IPS have helped get us to our current financial position, and while a paid off PPOR is (very) nice, it doesn't pay the everyday bills. However we are also looking into buying property with borrowing via our SMSF, so that could be a way to 'replace' the IP without impacting our every day cash flow.

thanks again for your responses.