Where to go from here?

[CCC]

We own our home, have two IP's worth approx $400,000 with $200,000 debt (rent covers the interest), and also own a vacant block with plans currently being drawn for two units.
Husband a builder. Wife a law clerk (conveyancing).
We are contemplating selling our home, to recoup tax free funds and move into the smaller of the two rental properties (under 11 sq) and do an extension, put up a shed and a carport. It is in a very good area, so we believe it is worth the upgrade.
We are also contemplating building the back unit on the vacant land first and moving into it and making it our home. We then intend to build the front unit and sell it.
Any suggestions/alternatives appreciated.

 

[Aceyducey]

Why sell?

Refinance.

Unless there is a very good case for selling the property, keeping it will greatly improve your future position.

Trading a house for two units isn't really a good deal IMHO and won't realise the same capital gains in the long-run.

If your properties are via a trust or other arms-length structure you have the possibility of renting that smaller property to yourself while changing your PPOR into a rental property - it may advantage you, but seek professional advice.

As you've already got two key skills to make building property cheap - you should look seriously into more of it. Australia still has a net property deficit and the situation is currently worsening.

Cheers,

Aceyducey

 

[Les]

G'day CCC,

Well done - sounds like you are doing well with property. If it sounds like the following is teaching you how to suck eggs, I don't intend it that way. But, with a new poster (even with your obvious success) I feel it would be remiss to NOT mention this:-

Whatever move you make, check it out ahead of time. e.g. you are talking of releasing funds by selling (fair enough), occupying one of your IP's (also fair enough).... but what then?

If your future plans are likely to include moving OUT AGAIN, and re-renting the IP, be sure you've planned the move. As an example, check out this post (and all of the associated posts) http://www.somersoft.com/forums/showpost.php?p=75039&postcount=10

In short, don't simply pay off the loans on IP's unless you're SURE that is the best path for you. It could cost if you change your mind later

Welcome aboard, CCC,

Regards,

 

[bicko]

Why SELL???

maybe serviceability issues could be the reason.

 

[CCC]

Thanks for your responses. There are a few reasons why we are thinking about selling our PPOR. Of course no capital gains tax for a start. Also, we are about to get serious about investing in real estate and thought the sale of PPOR would free up funds.....I heard that groan!! I can hear you say....borrow against it, maybe move into the IP and rent out PPOR. Rental return on PPOR would not be high enough in our country town. The house is bigger and better than we actually need - empty nesters! The IP we are thinking of moving into needs to be extended to enhance appeal to tenants. Also, we need a base and it has a good position, so we may even stay in it.
Cash flow is a problem. Another idea for our PPOR is we are about to build two units, and may make the back unit suitable for our own PPOR. We have so many questions to ask, but will have to try not to bombard you all!

 

[Les]

G'day CCC,

There are a few reasons why we are thinking about selling our PPOR. Of course no capital gains tax for a start. Also, we are about to get serious about investing in real estate and thought the sale of PPOR would free up funds.....I heard that groan!! I can hear you say....borrow against it, maybe move into the IP and rent out PPOR.

Rental return on PPOR would not be high enough in our country town. The house is bigger and better than we actually need - empty nesters! The IP we are thinking of moving into needs to be extended to enhance appeal to tenants. Also, we need a base and it has a good position, so we may even stay in it.
Cash flow is a problem.

Well, fair enough, CCC. There are sometimes GOOD reasons to "sell up" - this could well be one of those.

Because of the value of a PPOR in providing "CGT exempt" sales, it is worthwhile to consider making another place your PPOR (especially if it is of a higher value, or in an area with better growth, etc.) So don't feel bad about doing it your way - in the end, ALL of the moves you make will be "your way" - but if we can help to identify problems, or better strategies, then that's what we're here for.

With this move, though, probably the main point is to retain flexibility (i.e. look at Offset Accounts) so that future moves are not too difficult (if your plans change down the track....)

But let's see what others have to say too,

Regards,

 

[kph]

We are also contemplating building the back unit on the vacant land first and moving into it and making it our home. We then intend to build the front unit and sell it.
Any suggestions/alternatives appreciated.[/QUOTE]

Just be aware of the tax implications of building and selling especially as your husband is a builder.
Essentially you will be up for GST on the sale of the new property and may not qualify for any CGT exemption even if you keep the property for over 12 months.

The following link may give you a few ideas:

http://www.bantacs.com.au/booklets/How_Not_To_Be_A_Developer_Booklet.pdf


kp

 

[quoll]

G'day CCC

I reckon selling is good, it's hard to give up the PPOR, but if you can sell it and use the profit to purchase something else that you don't need a mortgage on then you'll help yourselves with serviceability which will let you purchase more investments which will be good in the long run.

I'm speaking from experience as we bought a really good house in a great location with a huge mortgage and it has been a big weight to carry around while trying to invest. Would have been a lot easier without it. But it's a great house

Cheers
quoll

 

[see_change]

I have no problems with selling if there's a good reason .

We sold our PPOR ( large mortgage ) in sept 2001 ( one year old ) and bought another PPOR in the same area for almost half the price ( no mortgage ) . That freed up equity and servicability that enabled us to buy up multiple IP's in the following 18 months.

Wouldnt have been able to do that without selling.

We're now about to build a similar house to the one we sold , on our new block , and we'll have that with considerably more equity than we had before.

See Change