Do we keep our properties??

Discussion in 'Investment Strategy' started by Kristine, 17th Nov, 2016.

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  1. Kristine

    Kristine New Member

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    Hi all,
    Me and my partner(25&29) each own a property one in Craigiburn (worth $300,000 owe $210,000 living in but can acheive $1200mnth rent) and one in Mooroolbark (worth $480,000 owe $210,000 with $60k availible redraw currently rented for $1200 a month). We are moving in with my parents soon to build a deposit for a home together we could acheive 50k by the end of 2017. We are looking to buy a home together in the East, homes we like are between $600-$800k. My partner would like to sell both of our current homes and invest after we pay down our family home. I would like to keep one or possibly both as investments now! Any advice?
     
  2. Lil Skater

    Lil Skater Well-Known Member

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    If you can afford to keep both, do.

    It sounds like your partner may not like debt, but there's good and bad debt. By the time you finish paying off the family home of ~$700k you'd likely have gained quite a bit in GC for the other two and be able to borrow more down the track.

    At your age having two investments is a great accomplishment (actually for most people having two is!), selling them will see you with more cash and be able to pay down the loan/take a smaller loan on your PPOR, but I think you'd get a lot further with 3 properties than 1 and "starting over".

    End of the day though, it's what ever works best for both of you and gets you closer to your end goal.
     
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  3. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    I agree with Lil - keep them if you can. Make a budget so you can be realistic about your cashflow. If you can show hubby that things will be fine even if rates rise/incomes drop/tenants leave etc, it will go a long way toward helping him see where you're coming from.

    You're not alone, I have one of those husbands too - very lovely, but just uncomfortable with debt. :)
     
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  4. Tony Fleming

    Tony Fleming Well-Known Member

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    I'd keep both if possible, obviously if it is hard financially just sell one off. After selling costs, CGT and than future IP purchasing costs you will get back to where you already are at now.

    As @Lil Skater said there is good and bad debt.
     
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  5. Gockie

    Gockie Life is good ☺️ Premium Member

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    Hi Kristine,
    I'm in a situation just like you but with bigger numbers.

    My partner....we have a home worth 2mill plus, I have a debt of 260k on it. He just wants me to pay it off.... put this into context 260k is less than the debts on any of my IPs.

    It's really hard to live with. I want to buy another place with the money from my West Ryde sale. I've found a great place, ticks my boxes. The place is 550k when many other houses in the area are near 1mill. I see heaps of potential.

    But... He is insisting I pay the PPOR off. We both want him off the loan but the bank says he cant come off it since he is on the title. I can't do a loan split on that loan to pull equity out and do 105% loans for investment purposes. My thought was to take the West Ryde money, put it into PPOR then loan spilt for a new purchase but the partner won't let me. I have other IPs with less than 80% loans but I can't pull that equity out of the due to serviceability on my own income.

    Back to PPOR. I've explained how he's not going to be stuck with the 260k debt if I die because our house can provide multiple incomes (convert garage to a home, plus take in multiple uni students or short term guests), and he can have some of my IPs which have plenty of equity to repay the house if that's the case. I've got a lot of equity in other properties and I can sell them off if I need to.

    Very very frustrating and takes mental energy....
    I could have had a Doonside home near the station for 325k a few years ago but serviceability stopped that purchase. With my partners income it would have been an easy buy that would be over 700k now... frustrations... does mean whatever I buy I am careful with though because buying anything is not easy work.
     
    Last edited: 17th Nov, 2016
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  6. 2FAST4U

    2FAST4U Well-Known Member

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    That seems to defeat the purpose of selling in the first place!
    Apart from stamp duty and selling costs you're also very likely to be paying higher prices for Melbourne property in the future. Meanwhile you also incur the opportunity cost of losing equity in the property you already own since Melbourne is still a rising market. Maybe if it was in a place like Perth and you believed that prices would stagnate the strategy would make sense. Personally I'd try and hold both, but worst case try and negotiate/compromise for selling one and holding the other.
     
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  7. Brady

    Brady Well-Known Member

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    I don't think it's just a case of saying selling or keeping without further information.
    What was the previous status of these properties, were they owner occupied or investment?
    Have you looked into the tax implications?
    If they were were originally owner occupied you might be able to sell without any CGT. Could be worth selling, not paying tax - having large deposit for next owner occupied property and to load up once purchased on debt that would be tax deductible.

    Get some good advise @Paul@PFI @Terry_w
     
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  8. highlighter

    highlighter Well-Known Member

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    I don't agree that there's good and bad debt. I'm from Ireland, and heard the same years ago. In reality there's debt, and there's debt that's working for you. When you invest in the property market, you're betting the debt is going to work for you by increasing your properties' values at a faster pace than your costs. If that pace slows, your debt isn't going to be "good debt". It may be servicable debt, it may be comfortable debt, it may be debt that remains beneficial, but it will still be debt. Never tell yourself there's such a thing as "good debt". It can make you complacent.

    I think we're facing a market where rates are going to rise soon. We're in one of the biggest property bubbles that has ever existed. We have record low wage growth, population growth at almost half what it was a decade ago, politics is turning on high immigration and our main group of investors are often inexperienced, negatively geared boomers who'll start to retire soon. Even Chinese investment is way down. We also have a huge oversupply entering the market, especially in apartments. Finally it's getting much harder to borrow. All of these things are already affecting prices in many areas.

    None of this means the market will collapse or will necessarily stop growing, that's not what I'm saying, I don't have a crystal ball. But if the market goes through a rough patch (and it would be silly to think this isn't at least a possibility), it's going to very quickly separate the wheat from the chaff when it comes to investors. That's what happens when a bubble unwinds, I've seen it personally. If you want to succeed you need to be the wheat. If it happens, it will no longer be possible to be a set and forget success: it will take real active management and a good tolerance for risk.

    Consider your personal goals very carefully. Yes you might get further ahead with more properties, but if your goal as a family is to finance a home, are you already most of the way there? If you're looking for wealth construction, awesome, but again if there's a downturn on the horizon, you'll have to be someone willing to fight for it and willing to hold on through any possible setbacks.
     
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  9. Perthguy

    Perthguy Well-Known Member

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    Not in Perth! :p

    I believe there will be a correction in Sydney and Melbourne markets in the next couple of years. Every boom in Sydney and every boom in Melbourne has always been followed by a period of correction/consolidation and I see no reason why this trend should not continue. The last correction in Sydney lasted around 10 years I believe?
     
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  10. hammer

    hammer Well-Known Member

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    Whichever path you choose ....youre in a fantastic position! Congratulations!

    Thinking outside the box here.....could you compromise and buy a cheaper home? A townhouse or something if the sort?

    Nothing pays debt off faster than not acquiring it in the first place!

    That way you could keep your ips, still live in the area you like and most importantly, not fight with your partner.....

    If you keep your ips, but now focus all your energy on your "cheap" home you would be in a fantastic position in 5 years time without much PPOR debt.

    You might even be able to have a smashed avo or two along the way....

    Everyone wins?
     
  11. highlighter

    highlighter Well-Known Member

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    Could be the best of both worlds there OP if your primary goal does happen to be owning. If you owned a place outright or close to it, I imagine that would free up a lot of spare cash for other forms of investment such as share ownership. One advantage to shares is portfolio diversity.
     
  12. Ross Forrester

    Ross Forrester Well-Known Member

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    Kristine,

    It is really hard to say without knowing your income and risk profile. Even factors like future children and if your family needs to live on one wage.

    My personal starting point was to clarify what our family wanted in life and what we needed to do to get it. At a personal level: once this was identified it became clear that we did not need to take on a massive level of debt to get where we want to be. This allowed us to pay down the debt on our family home before looking outward. I do not know if this is the case for yourself - it was just the best fit outcome for us at the time.

    This kind of future planning and soul searching should be the starting point for yourself. Their is nothing wrong with taking an aggressive approach if you are prepared to take on the consequences. But every choice has a consequence - both personally and financially.

    Just don't go in blind. And do the process with your spouse so you are both on the same track. Do not fight over money after the decision is made.

    Their is a lot to be said for living a simple life.
     
  13. Colin Rice

    Colin Rice Mortgage Broker Business Member

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    Try and keep them ALL if possible. I have sold houses in the past and made good coin but have also crunched the sums to see what would of happened if I kept them all and in hindsight I probably should have but was operating of the current knowledge levels at the time. I think you may have some knowledge gaps that need to be filled first before deciding.

    You have a fair bit of equity you can access. Why are you not accessing it?

    Have you been dealing directly with a bank as thats what it looks like?

    Without knowing your full story I can see so much potential here :)
     
    Last edited: 17th Nov, 2016
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  14. Terry_w

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

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    One strategy you could possibly implement is forthe owner of
    Mooroolbark (worth $480,000 owe $210,000) sell it to the other who could borrow to buy it.

    The buyer would buy it for $480,000 and pay $480,000 to the seller. They would borrow the full $480,000. The seller would pay off the loan of $210,000 and have $270,000 cash left over. This could be used for the deposit on the new main residence.

    The full $480,000 loan would be deductible to the purchaser if the property is rented out.

    In VIC this is free of stamp duty. If the property is or had been the main residence it could be CGT exempt as well.

    The costs would be some conveyancing fees, tax advice, mortgage discharge and new loan fees.

    I am not saying you should do this, but it is one strategy you could consider.

    But don't try this without advice - Part IVA.
     
  15. Kristine

    Kristine New Member

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    Although i have aquired a fair bit of equity my knowledge around the area to feel safe using it is fairly limited! I'm reletively new to the investment world and am tredding carefully untill i know what I'm getting myself into.Thankyou (and all others) for all your advice.Giving me alot of insight a bit to think about.
     
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  16. Lil Skater

    Lil Skater Well-Known Member

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    There's some excellent professionals on this forum, it's worth researching them on the forum and making some calls. This place is filled with a lot of information (as with anything though, make sure you do your own DD as not everything you read is true) and extremely valuable people.

    Also, don't hesitate to come to our Melbourne meet ups. There's normally two a month, one east and one west. A very mixed bag of people there ;)
     
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  17. Kristine

    Kristine New Member

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    Wh
    What's the name of your meetup group? Would definitely be interested :)
     
  18. Lil Skater

    Lil Skater Well-Known Member

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    Sent you a PM :)