Your Investment Property forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Current home versus new home

Notify me of new replies via email
Andy | 15 Aug 2013, 11:17 AM Agree 0
My current scenario is; I brought a property and living in it since 2+ years and have repaid 50% of the mortgage. Recently, I bought a land and I'm about to commence the construction. I'm confused if I should be renting out this new property or move in it myself and rent out my existing property or sell. I need some solid advice in relation to CGT, gearing, loan structure etc.

Any advice on the above is highly appreciated.
  • Eos Property | 16 Aug 2013, 04:03 PM Agree 0
    Hi Andy,

    Normally there is no CGT to pay while a property remains your home. There are a couple of exceptions which do not seem to apply in your situation.

    A few points for you to consider.
    1. Which one to live in? Investment and home owner needs are slightly different so suggest you look at the area and work out which area is the best to LIVE in. Once you have worked this out then look at the other property to see if will make a good investment - check area plans, anticipated rent and compare this to the loan/purchase price you have. This will help you determine if two properties are affordable.

    2. If it is POSSIBLE your existing property will become your investment property then stop paying extra money into the loan now and convert the loan to interest only. Instead of paying down your existing loan aggressively place the extra money into an offset account. This means you can use the funds to help pay for the new home rather and reduce your borrowings. It is not possible to refinance your existing home (if that becomes an investment) and use the additional funds for your new home and deduct this interest.

    3. Are you using a broker? By the sounds of it you have plenty of equity in your existing home and there should be no need for your loans to be cross-collateralised (second mortgage). If the loans are currently crossed then speak to your broker/bank about doing a release of security. If the bank says they cannot do it then find a broker. (If you need broker recommendations - let me know and I can send you details)

    By the way - great effort paying your loan down so quickly. You have set yourself up very well just make sure the next couple of steps are considered and strategic.

    hope this helps.
  • Andy | 21 Aug 2013, 05:15 PM Agree 0
    Thanks Eos Property. It does help.

    1. If I decide to live in my new home and rent out the existing property, I will be positively geared (on which I have to pay tax). Also, I have to pay P&I on the new home loan. What can be done here to minimise the tax and increase the benefits?

    3. Not sure what exactly do you mean by the term cross-collateralised (sorry I'm new to this). If you mean do I have a separate loan for these two properties, then the answer is 'Yes'.

    Any other tips that you may have to deal with my situation would be highly regarded. I'm a bit hesitant in deciding what could be the correct strategy.

    Much appreciated.
  • Eos Property | 23 Aug 2013, 09:18 PM Agree 0
    1. Don't be afraid of paying tax - it means you are making money. On top of this the money you are making is passive so it shouldn't 'hurt' much. I am constantly amused by people who are so (overly) focused on saving tax. The thing to remember is even on the top tax scale you spend a $ to get 46c (?) back.

    If the property is relatively young you may be able to depreciate some expenses if you move out of your existing property. You can also use the surplus rental income and plough it into an offset account (or directly into the loan) to help pay it down quicker.

    2. While you may have two separate loans they may still be cross collateralised. This means the bank may security over both properties for one of the loans. The only real way to check is to go through your loan contract/conditions to see if both properties are listed as security for one of the loans - probably the second property's address.

    3. Based on what you have said so far - it would sound like you are on the right path. Sure you can tweak a few things up and this can be done relatively easily at this point in time. I have seen plenty of people who want to get everything just perfect from scratch - often ending up procrastinating and consuming lots of time learning.

    Hang in there and keep asking questions.
  • Hosscoffs | 27 Aug 2013, 07:13 PM Agree 0
    Don't forget you can still nominate your existing home as your PPOR for up to six years after moving out. sell it after that at a profit and pay no CG Tax.
  • Eos Property | 27 Aug 2013, 08:16 PM Agree 0
    Hi Hosscoffs - that is true provided Andy only declares one of the properties as their PPOR.

    This is not a simple matter to get it right - make sure you seek good advice from a qualified accountant.

Post a reply