Debt Recycling Strategy: Buy and Sell Property after some Growth

Discussion in 'Property Information Resources & Tools' started by Terry_w, 24th Oct, 2016.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yep
     
  2. Otie

    Otie Well-Known Member

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    What happens if you move into the IP for 6 or 12 months before selling and rent out the PPOR then move back into PPOR once IP is sold- can CGT be avoided? Or is that dangerous territory?
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    CGT cannot be avoided by simply moving in to a property after it has been rented. it would be worked out based on the time rented v the time lived in - a small portion may end up being exempt.
     
  4. L3ha7

    L3ha7 Well-Known Member

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    Thanks @Terry_w for answering.

    We are thinking to buy a PPOR in couple of years and Mrs is.not working at the moment and thinking to sell the property my wife bought in 2001 and she lived there for couple of years and since 2003 used it as an IP till now. She is thinking to sell so the CG Tax will be applied from 2003 to 2018 (untill sold).

    Once sold and after all the expenses the remaining profit will attract CG tax-will she pay only 50% of the CG tax or full amount ??

    Out current PPOR is under my name so I assume no point paying this off because we may not get loan to buy another property (PPOR) at this stage due to less serviceability because of new lending rules?!
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    If you move out of the main residence and rent it the CGT is worked out differently - cost base is the value at the time the property first becomes income producing.

    She may also be able to use the 6 year rule to reduce the CGT even further. So it will be way less than 50% of the total gain.
    Tax Tip 109: CGT and Being absent from the main residence for more than 6 years Tax Tip 109: CGT and Being absent from the main residence for more than 6 years

    It may be wise to pay off the PPOR debt so that you can reborrow
     
    craigc likes this.
  6. Ritzzz

    Ritzzz Member

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    Hi Terry,

    Would appreciate your view on this one

    Being on P&I Var is causing both my IP to negative cash flow on rent itself by 300$ each property pm and this is not taking into account all misc expenses.

    IP's
    Value 470,000.00 465,000.00
    MV 376,000.00 413,721.00
    LVR 80% 89%
    Equity 94,000.00 51,279.00
    P&I Var 4.39% Invt 3.85% OO
    Rent Income Yearly 19,200.00 20,160.00
    Repayments yearly 22,800.00 22,800.00
    OOP -3,600.00 -3,600.00
    Misc 10000 10000

    income late 60's and hubbys early 100's
    Refunds from tax at year end is making up for 70% of extra rent outflow.

    Another land worth under 400k settling in apr this year. still deliberating on what to make of it
    Pre approval received from anz of 850k for another invt in next 6 months.

    issue right now is while it pains my heart for it to be negative cashflow, i want to retain these properties as capital growth is high and inc in value will be able to make up for it and my preference for it is to be p&i only as while i can park my funds in the offset if its IO, the opportunity cost of that money doesnt allow my conscience to. Currently in negotiations with a broker im meeting tomorrow to give me a better invt only or oo PI rate. Anything else i could do better do comment. Im also keen on maintaining my serviceablity as i plan to hold these 2 for a min of 5 years while building a portfolio.

    thanks pchatters
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Any non-deductible debt?
    Can u handle the repayments?
    If it grows in value why the worry?
     
  8. Ritzzz

    Ritzzz Member

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    We live on rent of $2000 a month. Does this strategy seem fine to you? There is potential for growth possibly in the next 2-3 yrs
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I don't know enough to comment further. Not sure if you have a home paid off or a renting.
     
  10. Ritzzz

    Ritzzz Member

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    The ppor we had is one of the ip's and we currently live on rent
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Live on rent means you are receiving rental income with which you support yourself.
    Sounds like you may rent where you live?

    if you pay PI on the investment loans that will leave less cash for you to buy a main residence in the future. This may not be a worry if you don't plan it, but if you do then it may cost you more in higher non-deductible debt.
     
  12. L3ha7

    L3ha7 Well-Known Member

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    Thanks @Terry_w , I am going to read the Tax Tip 109 first and will ask if still have any questions.

    But I am still not getting why pay off the PPOR (under my name) when we be moving (planning) to new place in next year or the following and current PPOR will become IP for me to do the negative gearing because It is under my name and the left over funds after selling Mrs Property can be used as a deposit for the upcomming PPOR purchase (that will be under both of our names) !!!
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    if you are moving then it would be better not to pay down the current main residence loan possibly

    Read the tip about the benefits of buying in one name too - especially the main residence in NSW>
     
  14. L3ha7

    L3ha7 Well-Known Member

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    Roger that
     
  15. L3ha7

    L3ha7 Well-Known Member

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    Hi @Terry_w ,

    I tried searching using above keywords but not much luck. Would really appreciate if you can advise a Tip # to narrow down the search!?
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Strategy: Buying Investment Properties in 1 name only Strategy: Buying Investment Properties in 1 name only

    Not specifically about the main residence but still applies. The other strategy is selling 50% of the main residence to your spouse before moving out and renting it (if that ever happens) - possibly no stamp duty and no CGT and higher deductible loan.