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Advice for a newbie

Discussion in 'General Property Chat' started by Kegs86, 5th Jan, 2016.

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  1. Kegs86

    Kegs86 Active Member

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    Hey all,

    First time poster here!
    I was just chasing some advice from you guys as to what you would do in my current situation.

    I currently have a PPOR in a small country town in North East Vic and I am planning on moving to Melbourne this year. I have also been planning on buying an Investment property very soon.

    If I was to sell my house here at a conservative price I would take around $110-115,000 in the pocket to put towards an Investment property.
    On the other hand, The rental yields here are quite good and I would have access to about $90k using LMI with my local bank.

    The place is only costing me around $100 p/w interest to hold with a rental appraisal at $270 p/w

    There is no capital growth here whatsoever but I was thinking that maybe having this property being positively geared may increase my borrowing capacity for future investments..?

    Is it worth holding onto this old weatherboard house or should I be cutting dead?
     
  2. Michael_X

    Michael_X Mortgage Broker Business Member

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    Hi Kegs86,

    If it's not costing you much to hold and there is good rental demand, I would pull the equity and use that to fund future purchases.

    You get around all the transaction costs of selling a property. It may not be going up now, but who knows in 10 years time, you might be very happy you held onto it.

    Prefer to be accumulating assets vs trading assets.

    Cheers,
    Michael
     
  3. JacM

    JacM VIC Buyer's Agent Business Member

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    Hi @Kegs86 ,

    Welcome to the forums :)

    Keep in mind that if you use that equity release to buy a home for yourself to live in, then the mortgage interest on that money will not be tax deductible. This is because the purpose of the borrowings was to buy something for you to live in... not to acquire an investment asset.
     
  4. Kegs86

    Kegs86 Active Member

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    Cheers Jacqui,

    I will be using the equity for an Investment property only and I don't plan on buying another PPOR for a while yet!
     
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  5. Kegs86

    Kegs86 Active Member

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    Thanks Michael,

    I guess being an older weatherboard, Although renovated inside, I still worry about structural issues in the future. And of the $90,000 that I will have access to around $25k is my own money which I was wanting to use for an overseas holiday in the next couple of years!
    But I guess you have to make sacrifices in life to get anywhere!

    Cheers Greg
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If there will be no CG then there is no real point in buying property. But you already own this one and have incurred costs to acquire it.

    So I guess you should ask yourself
    1. If you sold and invested the proceeds would you make a better return?
    2. Could you borrow against the property instead, and get a similar return without incurring selling costs
    3. How does the above effect serviceability?
     
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  7. Leo2413

    Leo2413 Well-Known Member Premium Member

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    @Kegs86 I agree with @Terry_w. Generally I don't believe in selling assets when in the accumulation phase but if there are no prospects of CG, unless the rental yeild is spectacular, then the 3 considerations Terry raises are very valid imo. Smartest choice would be to assess how the options you have now will affect your future wealth creation in the short and medium terms. Just my opinion.
     
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  8. Kegs86

    Kegs86 Active Member

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  9. jpcashflow

    jpcashflow Well-Known Member Business Member

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    Hey Kegs,
    Good thinking and strategy - Just ensure any future loans are set up correctly :)
    But allot of people forget the mention, if you sell your PPOR now you may not have to pay any capital gains tax at all. So you are netting 100%.
    Where if you rented out the property and then decided to sell you may be liable for capital gains tax.
     
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  10. Kegs86

    Kegs86 Active Member

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    G'day Johan,

    I was reading about the 7 year rule I think it was. And that if I move for "work purposes" and rent out my PPOR that I will be CGT free for a few more years yet if I decide to sell
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The 6 year rule. No need to move out for work purposes either. However if there is no CG then it may be better to not apply the rule, but to suffer a capital loss which could be carried forward and offset against future capital gains from something else.
     
  12. Kegs86

    Kegs86 Active Member

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    Terry, could you give me an example so that I can understand this a little better?

    Cheers mate
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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