Sell PPOR or hold and convert to IP

Hello this is my first post, and have been stewing over this for way too long so I will try to give as much relevant info as I can.

Status:
- Married with one child under 3
- my income $135k
- Wifes income $45k
- Savings circa 120k

Current Properties:
1. PPOR Sydney (SW sydney - Liverpool/Moorebank area) fully renovated - 100% ownership in my name
Recent Bank Value: $1, 000,000 but realistically could sell for $900-950k in this market.
Current Mortgage: $330k

2. IP Logan area - In both Names (50/50 ownership)
Recent Bank Val $395,000
Current Mortgage: $360,000
Rent return: 390pw

Situation:
Our PPOR property in Moorebank is zoned R4 high density but currently its worth more as a home than as a development site due to FSR and height restrictions. Have discussed with Council to increase zoning and height due to yields not satisfactory for developers and Council have taken advice on board during current LEP review and may have an answer in 12-18 months.

Tried to sell with neighbours 6 -8 months ago and was offered $1.15m for mine (to sell as a collective) but I am sandwiched between neighbours who have unrealistic expectations and we could not agree on a deal and the sale fell through and neighbours are no longer currently interested unless they are offered an unrealistic amount. So tossing up whether to sell individually or hold out for future growth during market recovery.

The area is being developed with apartments and due the future congestion and overpopulation so regardless, we want to move and are motivated to move within the next 6-12 months.

Considering the following options:

Option 1:
Sell PPOR property for market value $900-950k and purchase new PPOR approx $1,000,000.
PPOR mortgage would be approx. $480,000 plus cash savings 120K in offset.
No CGT, but buying and selling costs involved (stamp duty + Agent fees etc)
Sell now before my property value as a home is negatively impacted by future apartments in the area.

Release equity in new PPOR to purchase future neutral geared propertys likely interstate (brisbane).
Low mortgage on PPOR to allow maximum tax deductibility on future IP's

However will i kick myself if a developer comes along later and offers big dollars?!

Option 2:
Keep existing PPOR and convert to IP
Mortgage $330,000
Rent return $600pw
Buy new PPOR for $1,000,000 - hoping to take advantage of sydney flat market.
Minimal cash savings left after using it to reduce LVR on new PPOR
Hold IP till Sydney market recovers and potentially sell to developer or just hold for yield/cashflow.


Option 3:
Same as option 2 but add Granny Flat
Mortgage $400,000 (after GF add)
Rent return: House $600pw
Granny Flat: $400pw
Buy new PPOR for $1,000,000
Minimal cash savings left after using it to reduce LVR on new PPOR
Hold IP till market recovers and potentially sell to developer.

Concerns of converting PPOR to IP:

• Converting existing PPOR to IP would attract CGT when sold.
• Renting out a fully renovated high quality finish home could get damaged.
• As PPOR convert to IP is in my name only and will be positively geared, maximum tax on rent will apply. i.e. my total income would be 135,000pa + $41,340 (50% Rent from logan and 100% rent from liverpool property) = $176,340....This will be taxed at 37%

Any thoughts would be greatly appreciated.

 

I'm not quite sure how CGT is calculated, but I'm fairly certain you're only going to pay CGT for the period the property is an IP. The period you lived there would be exempt. There may be other ways of extending it further, ask your accountant about the 6 year rule.

All properties experience wear and tear. The problem you'll really have is this was once your home and you're probably quite emotionally invested in it. Damage can be repaired and there's things like the bond and insurance to protect you financially. A good property manage will also mitigate this significantly. The real challenge here is you'll need to let go.

You may be able to transfer the title into joint names or your wife's name at negligible cost. This would change the tax equations significantly. Speak with your accountant about this before you do anything at all.

 

Option 4: PPOR to IP (good rental return and vacancy safety due to completed reno), rentvest in a nice area for 5 years, buying time for potential development deal. Plus possibly extract equity and invest in a new IP3 without depleting savings that might be needed for a growing family or later PPOR purchase?

 

what about options 4 and 5 and 6?

4. Sell 50% of your main residence to your wife who can borrow to acquire it. No CGT and $50 duty.

5. Move out and rent it for 6 years and then sell CGT free. New main residence won't be exempt from CGT but the CGT could be nil or very low in the end.

6. Sell to a fixed unit trust trustee. pay stamp duty but CGT free. You will be able to claim 100% of the loan interest in your personal names, be able to get the land tax threshold as an individual, get asset protection and still have the ability to get the property into a SMSF at a later date or into a testamentary discretionary trust upon death.

see
Strategy: 11 Strategies for when you move out of the PPOR and keep it Strategy: 11 Strategies for when you move out of the PPOR and keep it

 

Possibly sell to neighbour for more than $900-950k taking advantage of his inflated valuation.

Saves agents costs.

 

This is also a potential viable option, need to convince the wife about renting though. It will also preserve the property as CGT Free using the 6 year rule

 

Thanks Terry, the more options the better

I guess I would need to check whether she could get a loan to borrow the 50% as she is earns $45k..property value is $950-900K.
Then whether this would lessen our borrowing capacity for our next PPOR.
but this is a good option
Stamp duty would still apply for her portion im assuming though

Yes this could work and would give enough time to realise any developer offers

This option is really thinking out of the square, and something i would never have considered, It definitely sounds like something i should look into with the help of my finiancial advisor/accountant/broker

Thanks also ill have a read of your Strategy link

 

It would need to be a joint loan as you would both be owners and mortgagors, but you need to carefully consider the loan structure.
There would be just $50 duty in NSW.

Why on earth would you seek legal advice from everyone except a lawyer!

 

Thanks Terry alot of food for thought, just what i was after. I want to look at all possible scenarios to make the most informed decision.