Sell previous PPR to fund new PPR or convert to investment?

Discussion in 'Investment Strategy' started by mikel, 20th Mar, 2019.

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  1. mikel

    mikel Member

    Joined:
    20th Mar, 2019
    Posts:
    23
    Location:
    Melbourne
    Hi All,

    I’ve been reading this forum for the past 6 months, but don’t have much to contribute yet as I’m new to property investment and seems like there are a lot of learn.

    Personally, I kind of stumbled across property investment opportunity through life style change.

    My wife and I built our dream home 15 years ago in a then new estate area near deer park. 18 km from cdb good distance for commuting to work daily and we have our mindset of starting a family and living there forever. So we thought at the time, fast forward a decade and kid starts school at the local government primary school. We were not too impressed with the school curriculum, catholic or private school was not an option. So we decided to move to a better government school in the inner west which also helped for commuting to cdb and give us more time to juggle between family and work.

    At the time we paid off 70% of our dream home, where we could sell and use the fund for our new purchase. But since market was hot (so we decided to hold it) and the bank was able to provide sufficient funding for our new purchase without selling our dream home, so we took a large loan home for the new purchase and converted our dream home as investment.

    We have been living in our new purchased home for about 2 years now, and during the whole time I keep worrying about the large loan which isn’t tax deductible and at the same time our dream home (investment) is actually positively geared.

    What crosses my mind is if we should sell our dream home and use the fund to paid down our new purchase given that we are paying a lot of non-deductible interest on one end and hardly any tax benefits on the investment property and market is not getting better. I’m in favour of selling, but would like to hear others advice and if they have experienced this situation and share their journey and pit fall of the path they took.

    Thank you in advance for any advice

    Cheers

    Mikel
     
  2. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Have you run the numbers?

    I helped a client 'keep' their house by selling it to the trustee of a fixed unit trust with the clients borrowing 100% to buy the units in the trust. Net result was 100% of loan interest deductible and they got to keep the property for the cost of stamp duty basically plus they got to personally negative gear the shorfall. ATO approved too.

    If you don't want to keep the property you could simply sell and if you did so would you borrow to buy another?

    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
     
  3. mikel

    mikel Member

    Joined:
    20th Mar, 2019
    Posts:
    23
    Location:
    Melbourne

    Yes, I ran some numbers based on figures from previous financial year. around 4k positive geared and paid 17k in non-deductible interest.


    'keep' it was our initial approach as there were some emotional attachment to the property. But at the same time, it may cloud our judgment from investment principle perspective.


    Selling it to the trustee approach, would that incur a stamp duty cost and the cost of setting up the trustee. What is an estimate out of pocket fee and tax we’re looking at for example property worth 800k? The idea you suggested really sound like what I’m after. Will read your reference article


    If we do sell, my position is to buy another (if we can get sufficient loan from the bank)
     

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