What would you do...to sell or not to sell?

[Lynchy]

Hey everyone,

I'm thinking of selling my IP. It's a 2 bed townhouse in Mosman Park, WA. Brought in Feb 09 for $340,000. Bank valuation came in at $425,000 not long ago but I am confident I'd be able to get $440,000+.

I had the IP as my PPOR for 12 months and have now rented it out. Currently being rented at $400 a week, loan is a touch over $300,000 so not costing me a lot at all to hold if anything at all.

I am considering selling it and pocketing the profit. As it was my PPOR I am of the understanding I dont pay any tax? IMO Perth property prices wont move a whole lot over the next few years so im considering using the profits if I sell my IP for a different investment, either something with development potential or to dip my hand in shares.

I've just turned 23 so having $100,000 to invest is very appealing. I have a few ideas with what I would do with the money.

Buy 2 cheaper townhouses @ $300,000each
Buy 1 house on a big block of land with development potential
Purchase shares
Buy in my partners fathers development in Osborne Park, Perth

What would you do??!?

 

[AndrewT]

Because it was your PPOR for 12 months means that you won't be fully exempt from the capital gains tax - I believe it is only after a period of 6 years of it being your PPOR that you will become fully exempt from paying any. This means that you $100,000 profit will be chewed up by the tax, but obviously you will still make a nice sum.

How about, instead of putting that place up for sale - use the equity to purchase another IP or shares. With a revaluation of 425k, you will be able to draw out around 40k in equity to bring your LVR back up to 80%. This might give you some more options without selling what seems to be a decent investment property. Even if you pull money out of the IP, it will still be getting a yield of 6.1%!

If it were me, I would keep it and invest into another IP. Alot of well seasoned investors on this forum will tell you that they regret selling some of their investment properties!

 

[Ausprop]

not sure but you have done well in this market!

 

[Lynchy]

How about, instead of putting that place up for sale - use the equity to purchase another IP or shares. With a revaluation of 425k, you will be able to draw out around 40k in equity to bring your LVR back up to 80%. This might give you some more options without selling what seems to be a decent investment property. Even if you pull money out of the IP, it will still be getting a yield of 6.1%!

I have inquired about this but my Lender, HSBC, only allows 75% leverage at the moment unless I pay mortgage insurance which is quite hefty.

 

[wylie]

I have inquired about this but my Lender, HSBC, only allows 75% leverage at the moment unless I pay mortgage insurance which is quite hefty.

Why would you need to stick to HSBC?

And hefty might not be as "hefty" compared to what you will lose in commission and costs to buy again.

I would hold it, but that's just me. I wish I had held the ones we sold. Even though we sold them for good reason and to enable us to move forward, it still hurts to know what they are worth now .

 

[Ski-bum]

As it was my PPOR I am of the understanding I dont pay any tax?

correct. you can claim as your main residence (hence sell without CGT) for upto 6 years after you move out,
http://ato.gov.au/individuals/content.asp?doc=/content/36887.htm

Because it was your PPOR for 12 months means that you won't be fully exempt from the capital gains tax - I believe it is only after a period of 6 years of it being your PPOR that you will become fully exempt from paying any.

incorrect. see above link.

IMO I would hold. Well done on the capital gains.

 

[Intrinsic_Value]

Hey everyone,

I'm thinking of selling my IP. It's a 2 bed townhouse in Mosman Park, WA. Brought in Feb 09 for $340,000. Bank valuation came in at $425,000 not long ago but I am confident I'd be able to get $440,000+.

I had the IP as my PPOR for 12 months and have now rented it out. Currently being rented at $400 a week, loan is a touch over $300,000 so not costing me a lot at all to hold if anything at all.

I am considering selling it and pocketing the profit. As it was my PPOR I am of the understanding I dont pay any tax? IMO Perth property prices wont move a whole lot over the next few years so im considering using the profits if I sell my IP for a different investment, either something with development potential or to dip my hand in shares.

I've just turned 23 so having $100,000 to invest is very appealing. I have a few ideas with what I would do with the money.

Buy 2 cheaper townhouses @ $300,000each
Buy 1 house on a big block of land with development potential
Purchase shares
Buy in my partners fathers development in Osborne Park, Perth

What would you do??!?

wow this is just the same as the stockmarket.

The answer uniquivocally depends on whether you are an investor or a trader.
The answer to your question maybe deeper than you think.

 

[AndrewT]

correct. you can claim as your main residence (hence sell without CGT) for upto 6 years after you move out,
http://ato.gov.au/individuals/content.asp?doc=/content/36887.htm



incorrect. see above link.

IMO I would hold. Well done on the capital gains.

Probably didn't write it properly.

If it was to be sold right now, only being a PPOR for 12 Months, then CGT would still be paid. The tax would be discounted (50%?) but it would still be payable. Yes, if it was held then rented for 6 years without changing PPOR's then the property would be totally exempt from the CGT.

 

[JamesGG]

If it was to be sold right now, only being a PPOR for 12 Months, then CGT would still be paid. The tax would be discounted (50%?) but it would still be payable. Yes, if it was held then rented for 6 years without changing PPOR's then the property would be totally exempt from the CGT.

Just clarifying the scenario; this property was purchased in Feb 2009 as a PPOR, remained as such for twelve months, and has then been leased for the last five months or so?

If so, then ski-bum is correct and no CGT would be payable on this sale, assuming the OP has not purchased another home that they would prefer the exemption to apply to instead.

There is no specific minimum timeframe for holding a PPOR before it becomes completely exempt from CGT. The six-year rule of absence is a maximum, not a minimum, for that exemption to continue applying after moving out of a PPOR.