Sell IP's to pay off PPOR?

Decissions, decissions?

The situation:
Mid 30's married 3 kids, building investmensts to fund retirement. Serviceability is an issue, PPOR is in great location don't want to move / sell / rent it, do want to get rid of mortgage. What to do, cash bonds? or sell pay off debt buy more? Would like to stop having to work in 5 years or so, eg work when I want to doing what I want.

Bank values
PPOR - 550k value | 230k debt
IP 1 - 250k value | 135k debt | 190wk | joint names
IP 2 - 250k value | 170k debt | 310wk | joint names
IP 3 - 250k value | 245k debt | 320wk | joint names
IP 4 - 350k value | 330k debt | 500wk | family trust

I've thought about cash bond and use that to service loans to buy more IP's but not sure if this is the best way to go, gut feels is selling IP 1 & 2 pay out PPOR mortgage and then use salary to service more IP loans. IP 2 is a 3b/room house and 2b/room unit 500m from beach should be able to sell at 300k so the cash from sale of 1 and 2 will almost pay out the PPOR mortgage.

Umm, what to do?
I've been scratching the head for a couple of months wondering what to do so I thought I might ask for a different opion.

Don't forget to factor in capital gains tax on the ip sales.

Yields on ip1 & 2 aren't too bad considering todays market. Are you sure that after selling them and paying out your ppor loan that you will be able to find another few bargains?

I do get your meaning tho, the market is cooling and sales aren't so prevalent now. You feel maybe you don't want to be caught with rising interest rates and perhaps not be able to get a quick sale to get you out of trouble.

After all the stampduty etc is paid and all the trouble you went to to finance the ips are you certain you want to part with them?
Only you can tell.:)

I don't really want to sell any but I do want to get rid of mortgage on PPOR. The first 2 IP's were bought to help pay the mortgage on PPOR but then we worked out we could fund retirement through investments and decided property is using more leverage than shares so we bought some more IP's.

Still want to pay out PPOR mortgage but how without selling?

If you could fund enough cf+ properties you could take the 2-3k and use that to pay out mortgage, so if you had 20 IP's each giving 3k, that 60k per year and in 4 years no more mortgage. BUT we can't service the debt on 20 IP's cause I can't find 20 that are + in todays market, maybe in 3-4 years things will have change.

Any creative legit options?

Hi quoll

You haven't said whether you are using Interest only or Principal & Interest loans on the investment properties.

If you haven't already, why not simply convert all the investment loans to Interest Only for up to 10 years, and divert those principal payments to your PPOR?

This is a quick, cheap option which won't muddy the tax waters and is quite legitimate.


Been there, did this..

Hi Quoll

I was in the same situation recently with 120k debt on PPOR and 200k equity in IP.

At the risk of being shunned by the "buy and hold" disciplines, I did my figures, weighed it up and decided to sell and wear the capital gains. Why? Here are my reasons:

1. Saved $850 a month so over $10k a year in essentially interest on PPOR. Now remember this is $10k after tax so almost $20k before tax income I can now allocate elsewhere to NG or such. Went and got a $500k LOC for such opportunities.

2. Sold on 5th July 2003 which means, I understand, I get until January 2005 to hand over the CG of around $45K. Have invested all profit, after paying off home so even more $$$ to use.

3. Worked out that is market dropped 5% my costs were recouped if I bought back in. Since July market has stalled and in units dropped. Talking IP worth $570k.

4. Peace of mind and saving in NG losses. Again I am in the “property correction coming” camp here and like you this IP was to kill PPOR debt so I took the money over the box and finalized my plan.

5. Rising Costs. Interest rates go up = values go down. Consider this seriously. When I sold many were dumbfounded as they had recently bought. But it cannot boom forever. I remember property passed in at auction in 1991 being offered for 25% less in 1992.

5. Tenant paying great rent, but was about to hit problems and I didn’t want to sell with lower/no rent or accept lower rent.

6. Liability. 95% mine 5% wife. Being a company director this asset could be attacked in present structure. If transfer to wife then up for stamp duty and CG anyhow.

7. Defer income for 2003/4. Wife earns good $$ and I can defer my company income to next fin year 2004/5. So CG hit comes in a year when I will pay myself $0.

8. At 37 I am young enough to buy again.


Consider sell it to your trust or sell a half to wife. I think you can do this. There are lots of threads in Forum re trusts and some even say you can pay out the CG to a beneficiary without selling via loan. Suggest you check this one.

Hopefully my comments help to put the other side. Yes it hurts to sell and hand over tax but some times the best path is the safest path. Remember you only pay tax from a profit! You originally bought IP/s to kill personal debt. Don’t let greed confuse the plan.

To emphasis my final comment I found this gem in an old post from the archives:

It should not surprise you that Alan Faulkston went bankrupt.
Many newer investors, who have not held property through a downturn, and one comes every 7 to 10 years, do not realise that some /many property investors and speculators go broke.
This is a lesson that the new "gurus"don't teach.
In the early 90's it tended to happen to investors who negatively geared and counted on continuing capital growth, which did not occur for a few years.
Others lost money in property development because they didn't know what they didn't know and lost their pants.
There are some very famous names and one or 2 of the current gurus who went broke. I won't name them because it doesn't really matter; most have learned the lesson of the need for strong cashflow.
Most investors who held property in the early 90's saw the capital value of their properties fall by up to 40%. I know I did and if I did not have strong cashflows, I could easily have been one of the statistics.
Michael Yardney
Metropole Properties"

I now await the slings and arrows.

Peter 147.

PS Original credit to Michael Yardney
Peter makes some good points....

If the properties are good, and it's only servicability / debt reduction you're after, keeping them would be cheaper. The last two look like recent buys, but the other two you've had a while. You probably cant get them again at this price.

You didn't say who earns money - you, wife or both.

Beauty is, joint names, buy the other out, or sell to trust (but you'll get CGT on the trust one).

Instant paydown.

You'll need to get conveyancer to transfer names etc, but cheaper than paying RE fees for selling......

Cashbond could also be used as you've said.

Servicability indicates you want to go again. Is all the balance of PPOR belong to that, none to the properties?

Any NG losses can be paid from PPOR 'balance', with any CF+ can feed PPOR, but that takes time.......

The IP's are all Interest Only for the next couple of years. I'm putting everything into the LOC that is against the PPOR.

Peter 147
It's tempting to sell, realise goal of purchases, I'm letting emotions get in the way, the tenants are good, don't want to make people have to move if they get sold to owner occupier. I'll have to think about it, play with some numbers in spreadsheet. Didn't realise the time difference between incuring CGT and paying CGT, makes the excercise a bit more interesting.

If I sell, payout PPOR and buy more IP's in the long run how much cheaper is it? I'm not paying tax on payments, I can use the money to service good debt.
I'll have a chat with Conveyancer about buying out the wife, though that sound good!

I'll get stuck into the spreadsheet and play with numbers. as well


i'm with Peter...why not sell to family trust..allowing you to keep the properties (and good tennats) in your portfolio, refinance at above market value and put the proceeds inot PPOR loan.

i did this and now have four ip's in FT and no non deductible debt!!

I thought it was not possible to sell to a family trust. I heard something aon the Chris Batten (not sure of spelling) about "poisening" properties by buying in personal name first and then not being able to sell to a trust. Anyone who can clarify this including rich ando (because you've done it!) please help because I want to do it too.

I hate my PPOR debt and want to loose it as quickly as possible!!!!


this is news to me....i am not aware of the constraints to selling property in individuals name to a family trust so i am unable to comment...i would be very interetsed if anyone else can clarify this ?

I think you may be confusing requirements for transfer of assets into Superannuation Funds. These transactions must all be kept at arm's length so you can't transfer existing properties to Super Fund but haven't heard of this for Family Trusts. We have just taken a new tack which involves only holding units for 5-7 years, stripping out depreciation then selling, use capital gains to pay down home loan and borrow straight out again for new property with full depreciation again. This way, we don't have to worry about the home loan, we pay it off in 50-100k chunks and pay the absolute minimum in P & I over 30 years in the meantime. So we have holding stock and trading stock, the former being properties with higher land value. Not left with aging unit stock and body corporate controlled maintenance issues (shudder).

I would look very carefully at existing IPs but would only sell one at this stage, the one likely to give the least in CG and return through depreciation etc. Not sure I would be selling anything 500 mtr from a beach though. The increased serviceability resulting from dumping P & I loan may more than compensate for short-term losses to CG and agent fees in terms of increased borrowing power.
What's wrong with having some PPOR debt anyway?

Sure it's not tax-deductible, but 'bad' debt isn't 'fatal' debt :)


Originally posted by Aceyducey
What's wrong with having some PPOR debt anyway?

Sure it's not tax-deductible, ...

BUT IT IS CGT FREE WHEN YOU SELL - the average family sells every 7 years.

A close friend of mine just sold his PPOR and made $825K tax free in 3.5 years. If it was an IP, he would be up for $206,250 or thereabouts in CGT. Bloody hell- lucky it was his PPOR.
Hi Quoll

You have got some good feedback now and it is a credit to the forum. Interested in your spread sheet calcs when down if you wish to post?

Peter 147

I'm happy with the PPOR and the debt was needed to get into it. Has been the best decission we ever made. But if I can have the same level of debt but be able to claim more expenses by having the debt on a income earning asset that would be better.

I would like more disposable income. If it comes through paying less tax that is good, if it comes from a pay rise that is good and if it comes from more investments in general that is also good.

I've got a few phone calls to make. I'll see what Dale my conveyancer has to say and post later.

I have enjoyed reading this post, it is a subject that my wife and myself have discussed quite a few times lately.
My plan is to probably sell off one of my SE QLD IP's off in about 10 - 12 months. Its just a matter of which one - both same age but latest aquisition has excellent depreciation compared to the one we purchased 10 years ago in joint names.
This we feel comfortable with.
We both feel that it would be nice to have no mortgage on PPOR - at moment what equity we have is only on paper (i.e not realised)....and what if there is a downturn of 10 to 20% in the next several years....who knows. SE QLD had some 8 years of negative growth before it went crazy :)
Not sure if this would suit your situation but what we are doing is only paying the interest on the loan from our cash and paying all other expenses (rates, management fee's, repairs, accountants,etc) out of our LOC loan, which is tax deductable. So all the extra cash goes straight into our PPOR loan. In our case it's $20K per year off our loan.

All it's doing is transfering your debt (slowly) to be tax deductable debt, but this is the option we chose as we didn't want to sell any of our properties.


no doubt this subject was discussed at length in other threads but I thought the ATO ruled against the practise you refer to after split loans first took off.

what do you mean "only paying the interest on the loan from our cash".

I understood the ATO stopped people capitalising their interest - I can't remember if they stopped people capitalising their expenses.

Need an accountant (again) - Dale, NickM, others??

The ATO ruled against capitalizing interest as Kieran suggests and that is what I mean by "only paying the interest out of our cash" but I am of the understanding that you can capitalize all other expenses. And that is what we are doing.

This is what my accountant advised and I have no reason to doubt him as he is usually ULTRA CONSERVATIVE.

Dale's expert opinion would be welcome though.