Renting out My PPOR for Investment and Moving to a Rental

Ltranceozzy on 03/12/2017 - 15:14

Hi,

I will be seeking professional advise but wanted to gauge the wonderful OzBargain guru's free advice :)

I currently have a mortgage of $500k balance on a $725K property which is our PPOR in Melbourne, Australia and I'm looking at ways to make this an asset quicker and reduce liability. I was considering 2 options:

Option 1- Sell the property & use the equity to buy a property of lesser value (say $450k) with a higher deposit and lower LVR thus a lower mortgage and also use some of the equity to invest in purchasing an investment unit or apartment

Option 2- Do not sell the property as the property is still growing in Capital value of about 7% to 10% per year due to the suburb popularity and instead I would rent this property out for the amount that will cover the monthly mortgage repayments plus council & OC rates give or take (say roughly $650 per week). We would then look at renting a smaller house for about $400 week in a nearby suburb). All the additional income saved from not paying off the mortgage ourselves wil be invested into equities/bonds and other income earning assets.

Thoughts anyone?

cheers

Trance

Financial

Comments

  • mysterytal on 03/12/2017 - 15:17
    +4

    Capital growth of 7-10% is not sustainable long term. I would not take any capital growth into account when calculating if it's worth it or not.

  • whooah1979 on 03/12/2017 - 15:20

    I currently have a mortgage of $500k balance on a $725K property

    is $725k what you paid or is it the estimated value from websites like realestate?

  • pjetson on 03/12/2017 - 15:22
    +1

    If you rent it out, you'll have to pay tax on the rental income.

    • whooah1979 on 03/12/2017 - 15:30

      there isn't much there to pay.

  • chumlee on 03/12/2017 - 15:35
    +3

    Why not stay in your ppor and aim to pay down the mortgage faster?

  • drprox on 03/12/2017 - 16:24
    +4

    Not worth selling and downsizing (or "cashing out") in such a minor way really given stamp duty and sales costs. Transactions costs are ludicrous.

  • tranceozzy on 03/12/2017 - 18:20

    Thanks for the comments. To answer some of the ques, the property value is currently $725K based on similar sales in the street. Already paying extra repayments on the m/gage but looking to get into property investment and finding the best way to capitalise on the equity really.

  • monkeybusiness on 03/12/2017 - 19:07

    Why not Option 3? - Do nothing, pay down your mortgage faster via a offset account and if you really have an itch to invest in bond/equities or another property then you can always take money out of the offset account to fund it.

    Option 1 is usually not worth it due to transaction costs e.g Stamp Duty is involved.

    Option 2 is viable but you need to consider the fact the hassle and costs involved in moving to another property and also managing your property to rent to someone else. Typically properties tend to be negatively geared once it is a rental property so you any "savings" you had may need to spent on this rental property as well. You will need to do the calculations to see if this is worth it to you.

  • eapster on 03/12/2017 - 20:31

    I was in a similar sort of position to you a couple of years ago. I took option 2 and havent looked back. The house is rented out whilst we rent interstate for much less.

    The only difference being all the additional income is going into an offset account to the now investment property loan. Whilst this reduces the amount of tax that we claim back, I am far infront interms of interest saved in repayments.

    Also, provided you move back into the PPOR within 6 years and you dont buy another PPOR in the meantime, you dont have to pay CGT even though it was rented out - under the 6 year rule.

  • TheBilly on 05/12/2017 - 21:25

    Option 1: Selling costs, lost stamp duyy make it not worthwhile
    Option 2: Not bad, but make sure you get more rent than you pay otherwise going backwards again

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