Sell or Keep for investment?

david6509 on 23/08/2021 - 17:55
Last edited 23/08/2021 - 18:09

Ive recently purchased a property privately below market value and now living in it. The same week i moved in a contract fell through on vacant land which i had intially tried to get before this house (ballot draw from a developer). The pricing on the vacant land is about 20% under the current market value and it was the original reason i sold my exsisting house.

As it looks now ill be building on the vacant land and moving into once finished, this process will take about a year ( land still underdevelopment and building)

Ive never owned an investment property but with the current rental market im thinking it may be worth keeping, i had intially tried to find a rental and i couldn't believe how hard it was (30+ applications per property)

Rent would cover the mortgage repayments and id still have nearly 50% equity in the newly built house.

Any advice would be greatly appreciated.

Poll Options expired

  • 4
    Sell the first house and move into newly built house?
  • 54
    Keep both and rent the first house out?
Financial

Comments

  • hothed on 23/08/2021 - 18:39
    +1

    Investment properties typically are negative cashflow.
    It'll depend on your income so see if you can afford the cash flow hit.
    Personally I have a few IPs and I'd buy shares every day of the week over them. It's a mental overhead and a pain in the ass.

  • apsilon on 23/08/2021 - 18:39
    +1

    If you can afford to keep both why wouldn't you?

    • ihbh on 23/08/2021 - 19:09

      afford to keep both

      Because there's the short term (when interest rates are artificially low) and long term (when interest rates revert to long term levels).

      • david6509 on 23/08/2021 - 19:11

        That's another thing to think of as I've just been calculating repayments off current interest rates

    • david6509 on 23/08/2021 - 19:09

      I could flip the current house for a profit and have a small mortgage with less stress (I've never owned a rental before)

      The house is also not a typical rental property (1000sqm land with 300sqm house)

  • RockyRaccoon on 23/08/2021 - 21:15
    +1

    Watch capital gains implications. Talk to your financial adviser on best strategies.

    • david6509 on 24/08/2021 - 11:31

      From what i found
      I wouldnt pay cgt if i sold as it was my main residence and i will be living in it for a year.
      If i rent it out i think ill be entitled to 50% cgt when i sell it .

      • bemybubble on 24/08/2021 - 12:46

        Which one has the potential to grow more OP. The one you’re in or the one you’re building??

        • david6509 on 24/08/2021 - 13:15

          To be honest im unsure, they are neighbouring suburbs. Id say the vacant land suburb has had more growth in the last year.

          Cost for both propertys will be within 5% of each other.

          The one im living in is at the end of a culdesac on 1000sqm with a 300sqm single storey

          The one im building on backs onto a golfcourse and is 500sqm and will be built with a 2 storey 300sqm home.

          • bemybubble on 24/08/2021 - 13:21
            +1

            @david6509: Gotcha,

            Only reason why I ask is it might pay to understand these two things:

            6 year absence rule

            Home first used to produce income rule

            • david6509 on 24/08/2021 - 13:51
              +1

              @bemybubble: thanks for the info, this example sums up my situatuion if i decide to keep it as a rental.

              Erin purchased a home on 0.9 hectares of land in July 2000 for $280,000. The home was her main residence until she moved into a new home on 1 August 2003. On 2 August 2003, she commenced to rent out the old home. At that time, the market value of the old home was $450,000.

              Erin does not want to treat the old home as her main residence, see Continuing main residence status after dwelling ceases to be your main residence, as she wants the new home to be treated as her main residence from when she moved into it.

              On 14 April 2021, Erin sold the old home for $496,000. Erin is taken to have acquired the old home for $450,000 on 2 August 2003, and calculates her capital gain to be $46,000.

              Because Erin is taken to have acquired the old home on 2 August 2003 and has held it for more than 12 months, she can use the discount method to calculate her capital gain. As Erin has no capital losses, she includes a capital gain of $23,000 on her 2021 tax return.

  • Some Guy on 23/08/2021 - 23:05

    Owning an IP isn't that hard. Get some advice about the tax implications (CGT, Land tax, deductions etc), and factor in a couple of % rate increase, and see if they sit well with your situation. But from the sounds of it, you wouldn't be too far away from a positively geared IP which is a very good thing.

  • bemybubble on 24/08/2021 - 08:38
    +1

    If you can afford both - keep both. Build from that. If you can't afford both - then sell your PPOR and move into the other :)

  • Indomietable on 24/08/2021 - 19:45

    Keep both. If anything, sell the vacant land without building anything. Most newly develop land generally not so good for investment, especially if it's a first home buyer area.

    • david6509 on 24/08/2021 - 23:30
      +1

      I did look at the idea of selling the land but then I would have to pay capital gains tax. This area isn't really for first home owner buyers.

      • Indomietable on 25/08/2021 - 14:01
        +1

        This area isn't really for first home owner buyers.

        In that case, I think you should be fine.
        Sorry, I'm jumping to a conclusion since most developers who develop vacant land generally operate in the newly opened land / first home buyer area. Finding good quality and a long term tenant in these areas is really difficult. The capital growth has also been disappointing.

        In that case, try to keep both. It's hard to be in your position now and its pretty easy to offload property that you don't live on.
        You might have to pay CGT but that means you made some gain.

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