WWYD in my situation?

[Mia2009]

Hi guys,

I?ve been a lurker for a while, and I love this forum ? it?s so informative and you guys are so knowledgeable full of great advice.

I?m hoping to get your opinions on what you would do in my situation. I own 2 properties with my husband, one of which is our PPOR, and 1 property in my name only. I work part-time and my income is $30,000 gross and my husband?s income is $90,000 gross.

Here are the figures for our properties:

IP No. 1 (My name only)

Date of purchase: March 2007
Purchase price: $302,400 + spent $10,000 on renovations
Current market value: $604,800
Mortgage balance: $285,600
Rental income: +ve geared at $1,700/month

IP No. 2 (Jointly owned)

Date of purchase: Feb 2010
Purchase price: $435,000 + spent $30,000 on renovations
Current market value: $450,000
Mortgage balance: $352,000
Rental income: -ve geared with holding cost of $400/month

PPOR (Jointly owned)

Date of purchase: November 2012
Purchase price: $755,000
Current market value: $800,000
Mortgage balance: $487,000

My dilemma is (a) do I sell off both IPs to reduce debt and try to pay off the mortgage in PPOR, say, in about 5 years or (b) do I keep all properties and try to buy more properties?

Our long-term aim is to add more IPs to our property portfolio with a buy and hold strategy.

My calculations are that if we go with option (a) we will be left with a PPOR mortgage of $150,000 (after fees, charges and CGT) which we can probably pay off in about 4 years if we keep up with our current repayment amount ($2830 per month).

If we go with option (b) and keep the status quo, we can save about $1500 per month towards building up another deposit to buy more IPs. But I think option (b) is a more stressful option.

What do you think?

P.S. Before anyone advises me to access the equity in IP 1 to reduce the PPOR debt, you should know that IP1 is an overseas property and refinancing is not as straightforward or probably out of the question.

 

[wylie]

I once asked our broker if we should sell an IP to reduce our PPOR debt to nothing. He pointed out that our PPOR debt was only $100K and we would be giving up potential growth in the IP, costs to sell and costs to rebuy (which we wanted to do). Your PPOR has considerably more debt but I still would be reluctant to sell either IP, unless they are not going to grow.

My first thoughts (not advice, but really just thinking out loud) is that your first IP has had substantial growth and throws money into your pocket. You could sell it and clear your PPOR debt. If there is more scope for growth, I'd keep this one and call it my "cash cow".

IP2 isn't worth what you've put into it (yet) so selling it seems pointless, especially considering the purchase costs to get into it (unless it is never going to perform for you - in which case maybe cut your losses). It is costing you $400 per month to hold, but if it has potential to increase, that wouldn't bother me, if I could afford to hold it until rents go up.

If you sell one or both IPs, you would be paying capital gains tax on the first one, paying an $15K agent commission and maybe another $15K or $20K stamp duty to buy again. Multiply that by two for both properties and that is money you are just giving away in order to clear some non-deductible debt. That is a high cost in order to swap non-deductible debt for deductible debt.

I'd be inclined to smash down your PPOR debt if it bothers you, or use the money you have "spare" each month to buy another IP that is positive or neutrally geared.