PPR rented out; return very low, what would you do?

Discussion in 'Investment Strategy' started by Rachel_, 28th Nov, 2019.

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  1. Rachel_

    Rachel_ New Member

    Joined:
    28th Nov, 2019
    Posts:
    1
    Location:
    NSW
    Hi all,

    This is my first post here, would love to hear your thoughts on my situation please.

    We have a paid-off home in outer western Sydney, approximate value $730,000 base on realestate.com.au recent sales data. 5 bed 2 bath on 760sqm, R2 zoning. It's gone down in value approx $80,000-$100,000 in the last 2 years due to market movement.

    We moved out of this home approx 2 years ago into my mother-in-law's home (mother in law moved into a newly built granny flat). We pay insurance, rates, and maintenance on this property but we don't own it and we don't pay any rent.

    PPR is rented out at $570pw. Our net return on the PPR for the previous financial year was only $12,000 due to very high maintenance/repair costs. New hot water service, new garage doors and repairs to garage door controllers, multiple roof leaks due to storm damage, appliance service (new oven element), plumbing repairs (leaking shower taps) and a few other things. Maybe being rookie landlords we said yes to the tenants' requests more often than we needed to and spent too much money. We have new tenants now and hope the maintenance costs will be lower this year.

    Our reasons for keeping the property are:

    1. To maintain a PPR so that we can stay in the Sydney real estate market (CGT free for 6 years) in case there are changes with the family situation and we can no longer live in MIL's house

    2. To have income/cashflow to supplement the family budget.

    Would it be possible to sell this property and purchase another as a PPR? Or would we have to move into the new property for a time to be able to claim the CGT exemption?

    Is it even worth bothering trying to maintain the CGT exemption on a PPR or would we be financially better off to sell our PPR and purchase (perhaps multiple) investment properties?

    Thanks in advance for your suggestions!
     
  2. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    You've asked some very open ended questions with very little context to your circumstances so it's not really possible to tell you if you're able to buy another home or what the best strategies might be.

    Some things to consider though:
    * The rental yield isn't particularly low compared to a lot of properties I see, it might even be quite good. Do further research on the local market.
    * Repairs and maintenance can eat into your cash flow very quickly. The good news is these costs can offset your tax bill, make sure your accountant knows about all this when it comes time to do your tax.
    * The market has dropped the last 2 years. If you sell now, you may be selling at the bottom of the market. Most predictions I see are that markets will increase by 10-15%. You might be a lot better off if you wait a while longer before selling.
     
  3. Terry_w

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

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    You must first live in a property before you can use the 6 year rule.
     
  4. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    7,880
    Location:
    Australia
    Selling and buying ppor would cost you 10% in agents fees and stamp duty even if cgt free. Youd need a good reason to do it, such as upgrading, downsizing, for schools, work, the existing ppor has issues, etc
     
    SeafordSunshine likes this.