When to sell?

[big_head]

Hi, i am about to purchase my first property, my PPOR, in the new year. Planning on purchasing an investment property soon after. Currently own a block of land at Golden Beach, Victoria.

We want to sell this land, as we aren't making any income from it, and we feel that we can make more from the repayments by reinvesting in other property. The original purchase of this land was purely emotional, with the thoughts 'its near water and cheap, so it has to go up in value! No research was done, a good lesson learnt.

We probably have about 5k equity in the land, is it best to just put it on the market, or should we wait until we have our first home loan for our PPOR??

Also would we be liable for CGT?

Thanks.

BH

 

[mary&mat]

Hi big head,

I read something recently about being able to claim some sort of 'expense' for vacant land...can't remember quite what it was but something to do with the intent of eventaully building on it within a certain time frame.

Sorry if that's not too helpful but maybe someone on here can enlighten us more.

 

[Steve Basin]

If you sell the land, you need to factor in;
a. solicitors costs
b. agents fees/commission if using one?
c. If selling on your own then; marketing costs.

If it only has grown $5000, since you purchased, after you factor in the selling costs, you may not make any money, possibly may even cost you more.
Since its not a big gain, I don't think you'll be up for capital gains though.

However, holding onto it, without getting any rental income, paying interest may be a little tough, I understand...

Possible Options:
a. Sell, even consider making a loss, but at least your not paying interest - so it may benefit you
b. Check out the capital growth of the suburb? Look into residex, see what the prediction is like in the future for your suburb. May be worth holding, to wait for more capital growth....
c. Thinking laterally, renting out the land? I have a large yard at the back of one of my properties, and I rented it out to a car yard. They store cars there... (maybe think of putting a fence to make it attractive to renters? Promote it as a storage? Or boat parking, as you say its close to the beach

A few things to think about. I hope I given some ideas to ponder. All the best

 

[big_head]

Thanks for the replies.
I am inclined to sell the land, even for a small loss/no gain because i think that we can invest the repayments much more effectively. We have learnt a lot from the experience.
We can't rent out the land for any of the above reasons. Golden beach is mainly a holiday spot for people. It is close to the beach, however you can't really swim there because of the tides etc.

I think its best to cut our losses, and move on to bigger and better things. My main concern though, do we hold onto the land until we settle with our PPOR? Would the application for a home loan be strengthened having this land, even with the tiny amount of equity it has? Or wouldn't it matter either way?

Thanks

BH

 

[mary&mat]

Hmmm, difficult question.

I would think that owning the land would strengthen your position as technically it's an asset (even though it's really not b/c it's costing you money at present).

This is a bit of a stretch but...can you offer the land as a campsite & therefore claim some sort of deduction?

 

[big_head]

Yeah, there is no chance/ability to make any income through campsites etc (free campsites provided in town). Ill just sort the mortgage first early next year, and then put it on the market.

Thanks for the help!

BH

 

[BV]

I think its best to cut our losses, and move on to bigger and better things. My main concern though, do we hold onto the land until we settle with our PPOR? Would the application for a home loan be strengthened having this land, even with the tiny amount of equity it has? Or wouldn't it matter either way?
BH

BH
How big is the loan? If there aren't prospects for price appreciation then I'd consider getting rid of it.
Since you have a loan on it, your borrowing capacity is reduced and if you have a large loan it could stop you from buying your PPOR.

My suggestion would be to contact your lender or a mortgage broker and get a loan preapproval for your PPOR.
That way they would have assessed your situation and you will know what PPOR you can afford.

They'll also be able to tell you how much your borrowing capacity is reduced by owning the block of land.

 

[big_head]

Hi BV,
Borrowing capacity down the track is my main concern with holding the loan. Loan only has 45k left on it, we have strong incomes and are only looking at the low 400's for our PPOR, so servicing the initial loan shouldn't be a problem (fingers crossed!). Ill speak to my mortgage broker on monday, and see what he suggests!

Thanks

BH

 

[RumpledElf]

Sell it if its an issue. Work out all your buying, selling and holding costs though - you are definitely going to make a loss on this one. But if the mortgage is small, you get lots of cash in hand. I'm doing exactly the same thing at the moment - paper loss, but very small mortgage so lots of tax-free money to ... er ... look at for a few weeks/days and then spend the lot. Easy come, easy go.