Which house to sell? Or not?

Hi everyone, I have been doing my head in about this lately and just wanted some opinions..

I have 4 properties in Perth. All IP's. Due to lack of capital growth and high LVR situation (average probably 85-90%) I'm thinking of selling just to get debt down and stop worrying about repayments. Use money elsewhere etc.

3 of these properties I already have switched to P&I repayments a couple of years back due to lower interest rate options. The remaining one was on a fixed interest only (under 4%) which expires in March - this rate will increase a lot higher according to the bank. This is also the highest loan amount, but probably in the best area to sell. This previously was my PPOR and I can claim the 6 year rule. The repayments and change to P&I will increase significantly, I think I worked out an extra $1k per month making it quite stressful for me.

My question is, should I still treat this property like a PPOR and smash down the loan as much as possible, then wait a few more years to sell (within the 6 years - I have 3.5 remaining) and hopefully the Perth market has increased. This just means I have to sell 1 or 2 of the other properties which won't have much equity in them but at least my overall debt will come down. But I'm also worried about tax I will pay when selling down the other IP's.

Or do I just sell the "PPOR IP" to reduce the most debt and hold onto the other IP's...

I know this is so vague without figures. I guess I'm asking if it is a good idea to treat this IP like a PPOR as I won't have to pay any CGT at the end of the 6 years. But the extra repayments will hurt me if I holdA therefore I'd have to sell one or two of the other IP's. Arrgghhh.

Thanks for reading

 

Sometimes paid advice is best

Business Accountants Perth - Chartered Accountants | Westcourt
@Ross Forrester is this your area of expertise

 

If one property can be sold tax free later on then you would ideally keep that one. So the (supposed) gain you make in the future will be higher because you pay no tax.

And you are correct - hard to help without info.

 

Hard to answer without specifics.
But if I had to say 1, I would say sell 1-2 of the non PPOR IP’s.

The main reason being:

1 - You said the old PPOR IP has the most upside for CG.
2 - You have a tax concession with the 6 years (confirm with an accountant first).
3 - You mentioned little growth on IP’s yet worried about Tax? If their has been little growth then it’s likely their will be little to no tax.

If Perth recovers in the next 5 years then just think about all these 3 points above. I think it will become fairly obvious that more upside is in holding the IP that was PPOR.

 

It never ceases to amaze me how people will hang on to property for years scrimping and saving only to sell as the finish line is in sight and to miss the prize of capital growth.

 

If you decide to sell one IP, it should be the one with the poorest outlook for future capital gains and/or appeal to tenants.

In other words, sell the worst, not the best!
Marg

 

Looks like you have a cash flow problem. All properties will have positive and negative features to consider.
A lot of money is involved. I would suggest paid professional help.

 

@Bombers86 does the "PPOR IP" have to go to P&I or can you get interest only extended or would you qualify for a "new" loan on it to reset the 30 years and gain another 5 years of interest only?

It does sound like cash flow is your problem, maybe it's worth having all your loans go back to interest only for a while?

 

It appears the change to P&I and cashflow is driving this decision. I think a lot of other investors may face the same decision despite their longer term plans and patience.

 

I would have thought you would get rid of the worst performing one and keep the better performing ones.
A lot of people have their fingers crossed that the Perth property market will start going up soon , but with the RC in banking , a possible change of federal governments this year and recent changes to how banks work out your serviceability, it might be a few more years of pain.
And then there is the new 7% surcharge on foreign buyers of property, which has just started and for first home buyers they only get their grants on new builds, which is also making it harder for investors of established properties that want to sell.
.

 

Thank you everyone for your replies. I know I didn't give specifics, but most of the feedback is to sell the non-PPOR house/s. I can afford to hold, for the time-being, I guess I'm just wondering when Perth will show any signs of recovery, we do keep seem to hold out as years go on and things just keep working against it - such as the whole banking RC and APRA regulations. I guess the positive signs are that the rental vacancy numbers are under 6,900 according to the REIWA snapshot. Slowly declining still. If we can see that pressure on rentals again at least that will offset some of the holding costs, but again - is the money held against these investments better off somewhere else?

I'm now thinking it may be best just to hold onto them for the next 6 months, and think about what steps to take if there is still no recovery signs in late-2019 for Perth..

 

Yes cash flow is the issue.. How easy is it just to convert IP loans back to IO though? The main reason I switched them to P&I two years ago was to get the lower rates.. But I've now paid down the loans quite a bit and IO would serve me better for cash flow. The two I would like to convert back are with CBA. Do we need to go through a full re-fi to get it switched back, or is it as simple as just being under 80% LVR or something? (The reason I ask is because I have started a sub-contracting role with a new ABN and there's no way of getting finance I understand on this type of employment for at least 12 months..) Any broker input here?