Our situation please help?

For years we diligently paid off our mortgage on our home using it as our main asset. Two years after paying our mortgage off our circumstances have changed and we had to relocate two hours north. We have now been in a rental for 5 months and our mortgage free home is on the market. We have been unable to sell our home regardless of a significantly lower price point than what we purchased the house for 8 years ago. The WA housing market is widely said to be the worst it has been for 7-8 years so we are facing a rather large loss to sell the house. We are now facing the scenario where we may have to rent the house out which is not something we wanted to do. I wanted to sell so I could move forward and get our equity out of the house. I can not buy another home unless I sell our home.


I do not know much about investment properties and I thought if I could somehow get another mortgage on the house and turn it into our investment property it would make a good investment. My husband however says that we can’t do this because our house is mortgage free.


I don’t know why this is the case and I am quite confused. If we rent the house out as it is we have all our equity tied up and will have to pay tax on the rent we receive and we won’t be able to buy another house as all our equity is in the house. As I understand it now even if we managed to buy another house with a very large mortgage we could not claim any tax offsets because it would be our primary residence rather than a investment property so we would be stuck with an extremely large mortgage and rental income we still have to pay tax on for our first home.


This all seems confusing and unfair and I am not sure who to talk to or what to do. We approached a property manager and it looks like after all the costs i.e. fees and insurance we will receive less in the hand than we currently pay in rent. Then we will still need to pay tax on the rental income we get. I feel a bit stuck and would appreciate advise or ideas on what we can do. I don’t really know where to start. Do you know of an honest and knowledgable finical adviser in Perth or even some legitimate articles I can read to start understanding investment law?


I hope my husband is wrong and somehow we can strip the equity out of the house by getting a mortgage on it and turning it into our investment property so we can buy another house to live in?


Thanks.

 

You can definitely turn it into an investment property and withdraw the equity to buy yourself a property to live in Speak to a broker and get the ball rolling You are in a great position to have a fully paid off mortgage

 

Your husband is correct.

You have two choices.

1. Sell the house and move on. You may take a loss on the sale but will have the capital to buy again.

2. Keep the house and rent it out. There is no way you can make any borrowing tax deductible if you intend to buy another home to live in.

But look forward, not back. If your house has fallen in value then the loss is set. It only makes sense to keep the house if you feel it has good prospects for decent capital gain in the not too distant future. likewise with buying in your new location.
Marg

 

Sure you can.

But the new borrowings will not be tax deductible, which seems to be the quandary.
Marg

 

See this thread:

Strategy: 11 Strategies for when you move out of the PPOR and keep it https://propertychat.com.au/communi...n-you-move-out-of-the-ppor-and-keep-it.11311/

 

We face a similar situation if we ever decide to move.

Our dilemma is complicated by the fact that our PPOR was purchased in 1979 and so always cgt free. Also in an area of continuing high Asian demand so values expected to continue to rise well above city averages.
Marg

 

Thats a good dilemma because you could move and get the main residence CGT exemption on the new property, rent out the old one without it attracting CGT either.

 

Maybe your Husband is right,but after all those years of NG then to break even the same may well happen over the next five years ..Maybe just sit down and both be on the same page ,myself i would sell and move foward at least you will be cashed up know the mistakes you have made and the experience just use it..

 

I would not sell the poor at a loss given we can see Perth market close to bottom or as some say, starting to rise again. Would you be able to rent it for another year or two and just suck up the tax, and rent where you live now. Are you convinced this new location is going to be your ever after home?

Further research will show that there will be many tax deduction s against the rent, meaning the tax you pay will probably not be as much as you first thought. And possibly not as much as the loss you will take if you sell now.

 

Yeah, was going to say, a terrible situation

 

LOL....you say it is unfair, heaps of people and the media always crowing on about how the rules are unfair for investors.

What you can do, is spend months here, read as much as you can, gain an understanding, then you will not think it is the end of the world as there are ways to turn this around over time.

You will have the things you say, a non deductible new home mortgage & pay tax on your extra income, but I would say that is not terrible.

You may want to pay someone competent to help map out a plan and path if you do not want to learn it all yourself.

 

Exactly.

And worth thinking about as, if we don't go crazy, we can afford another PPOR without selling our present home. And as PPOR in joint names rent would most likely be tax free.

A decision for the future!
Marg

 

Or even use the 6 year rule to your advantage.

Move into a new main residence for a while and then out again back to the old one.

 

So Good Vibes, you bought a home and worked hard to pay it off in full. That's great. Well done. As people have said, you can't now load it up with debt, but you do have an asset you can leverage as opposed to selling it at what might be close to the bottom of the market in Perth.
You were a bit vague about your circumstances, but are you okay about living in rental accommodation? What if you stayed renting and bought another property to rent out in an area you think has good prospects for growth? It would have plenty of deductible debt.
Scott