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  1. #1
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    Question House owners: Sell or rent out?

    For those of you who have owned a house and sold OR owned a house and rented it out and kept it as an investment property, I would like your opinions and knowledge about Pros and Cons.

    We are moving. We have just built our own home. Been in it a year. We are relocating from FNQ to Brissie. Hubby got a transfer (through our request) because we felt we needed family support now having our first bub and no other family around, and for job/study opportunities for me. (We/I feel for our relationship to survive we NEED that support right now). Family support will help ease the childcare financial pressure too as mum can help look after bub 1 or 2 days a week while working/studying.

    We have been away for 6years. We always thought we would return to Brissie, but then early last year thought we would not get a transfer any time soon, took advantage of the first home buyers grant and seized the opportunity.

    We both LOVE living in Cairns. It was a hard decision, but either way now it is really too late to change our minds. Not that we seriously were going to.

    The market is bad for selling. Looks like we are barely going to 'profit' from the cost to built by the time you factor in $11000-14000 for real estate commission and advertising. We were hoping to have enough profit to go towards a deposit for the next place (which if we sell, would not be for a few years due to the small amount we could get for the house).

    Problem: Due to the estate not being finished but near the end, people can still build which is cheaper and would not want to pay min $20000 more for an established home. The Real estate in the estate said if we could hold on to the property for another 12mths, our return would be better because a) there would be no more blocks for sale like ours being the most affordable type of establishment to buy in the estate, and b) the market should hopefully pick up.

    To sell the house we would be losing out on the benefit of the first home owners grant, therefore making the next house harder for us to buy as we would have a lack of deposit. And would take 3-5 years to save. So the issue of selling is about not making a good enough profit by the time you factor in other expenses from the sale.

    To rent the house would be good. The original idea was to rent out the place for 12-24mths while I complete a Post Grad Study, but currently, our finanical situation doesn't allow room for movement. If interest rates go up, it will hurt. If we don't have a tenant 100% of the time it will hurt. The costs of maintaining the property through rental agency and any other things which would pop up as well as paying our own rent in Brissie and the Gap between our renters and mortage would probably be a strain.

    If I am studying I will only be able to work part time so renting out our place we would not have any buffer income as we would if I was working full time it would not be so much of a problem.

    As i said, we originally wanted to hang onto the property to return back to it in a year or two once I finished studying. But thinking it is better to cut our looses (emotional attachment )

    So, what are your experiences of selling or keeping a house as an investment property, and what do you think is the best option.

    Is keeping a rental property too much of a drama and hassle and should you only do it if you are 'comfortable' financially?

    What are the 'hidden' costs of having a rental property???


    We have spoken to mortgage broker about the situation, we both think (if I am still only work part time and not having 2 full time incomes) then keeping the property as an investment is not the best idea for us financially.

  2. #2
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    I'm not sure if I am understanding this correctly, but you own a house in Cairns, but want to also buy one in BNE. Is that correct?

    I would keep the Cairns property. While it may be a struggle, it is a 'good' struggle if you know what I mean. You will be struggling, but if you buy another house in BNE, you will have property worth in excess of $800000. (I don't know house prices in Qld, but lets say 350000 for Cairns house and 450000 for BNE house)

    If you sell the Cairns property, it sounds like you will just break even, and think of all of the interest you have been paying since you had the house.

    Costs involved with an investment are, agent fees if they handle the rental, rates, water parks and gardens charge, body corporate (which if it is a house I doubt you would have) and of course any repairs that need doing to the house.

    Keep in mind, that if you are not making money on the property, this can be used as a tax deduction.

    Rough example, these figures are purely an example:

    Rent for the year $12000.

    Expenses: Rates $1200
    Water charge: $400
    Agent fees: $600
    interest charged on the loan over the year: $18000.

    So, you made $12000 in income on the property, but you spent $20200. The difference is $8200, which can be used as a tax deduction.

    Hope this makes sense. You need to go to your bank with a letter from an estate agent in Cairns telling them how much rent you would be likely to receive, so they can workout this amount on top of your income, so they know how much you can borrow for the BNE house.

    Hope that helps!

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    Rent house out if you can. Even if you have to live off pasta for the next 10 years. Prices in that area will go up, especially if it's in a newly developed area.

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    Travelmum,

    The idea is to only have one property for now as that is all we can manage. So if we sell the property in Cairns, it would be a few years anyway before we could buy in Brissie. But if we keep the property in Cairns, we would rent in Brissie for a while.

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    U can rent out The cairns property for 6 years and sell it and still not have to pay capital gains tax as long as you don't buy a home in brisbane.
    You should consider the negative gearing tax savings of an investment in your calculations.

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    Quote Originally Posted by ziggy29 View Post
    U can rent out The cairns property for 6 years and sell it and still not have to pay capital gains tax as long as you don't buy a home in brisbane.
    You should consider the negative gearing tax savings of an investment in your calculations.
    Umm - not really sure about that

    As far as I know, you only claim your principal place of residence as CGT free .... if you arent living there (are in fact earning income from it), then you will have to pay capital gains tax on any gain made over the period it is rented out.

    I wrote a reasonable amount on property investing here

    The most important thing to consider is basically whether or not you CAN afford the repayments. The worst thing that will happen is if you cant make the repayments and have to sell in a forced sale or in a hurry. You end up losing a lot more as you HAVE to sell, so you end up taking a reduced sale price in order to get it sold.

    What happens if you rent it out, and the tennants dont pay, and then damage the property before moving out? (It happens more often than you think)

    You may struggle to make the bank repayments without the rental income, wont be able to afford to fix the damage, cant rent it to a new tennant or sell it until its fixed. Do you have the ability to borrow a bit more under those kind of circumstances? Do you have a redraw or other funds to access to tide you over in times of no tennants? If you do, then renting might be a good option. If you dont, then personally I would sell now and rent while saving for a deposit on another place in Brisbane.

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    On occasions, a person may cease living at their sole or principal place of residence. When this occurs the person may elect to have this residence continue to be treated as their sole or principal place of residence. If the residence is used for income producing purposes, such as deriving rental income, the exemption runs for a period of six years. After six years any capital gain is assessable on a pro rata basis. This concession has particular application in situations where work requires a temporary or extended relocation.

    This is correct. We live in Perth, but our Principal place of residence at this stage remains a property we own in Brisbane

    Look, in an ideal world I would suggest you keep your property in Cairns and rent in Brisbane until you are in a position to buy again, and then you will have your home and an investment property.

    But, yes, there are expenses involved with renting out your property. Maintenance and repairs can be costly. This, and property management fees, are taken directly from your rental income, so while one month you may receive 4 weeks worth of rental income, another month you may only receive 1 or 2 weeks worth.

    It can be difficult dealing with property managers, some are really bad communicators, but when you find a good one they are worth their weight in gold.

    If you have a high turnover of tenants, it is also costly as you have to pay relet fees, and also lose out on rent if the property is vacant for a few weeks.

    You need landlords insurance, an absolute must. But the excess for rent default is pretty high at $500 (usually).

    But property investment is one of the best things you can do for your future, if you can manage it.

    Good luck

  8. #8
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    that is for a temporary or extended relocation ..... which I understood to mean is for a situation where you intend to move back there at the end of it.

    A permanent relocation on the other hand, means that your principal place of residence changes.

    If you were to claim that - I would strongly suggest you see an accountant in order to check it out thoroughly.

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    My accountant mentioned to me that I could avoid paying CGT on my investment if I kept it as my primary place of residence, and then I could avoid paying it, however if we were to ever sell this house, I would have to pay it on this one, as you can only have one primary place of residence.

    As for damages on the Cairns place, I believe landlord insurance (I think mine is $250 a year, though I have a unit not a house) would cover the cost of damages or lost rent, though you would have to read the fine print.

    Hmm, that is the extent of my input on this one! I dont want to give the wrong info!!

    Actually, I better just add, I am in Vic so things regarding tax could be different from state to state.

    Goodluck!

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    Quote Originally Posted by KatiesMum View Post
    that is for a temporary or extended relocation ..... which I understood to mean is for a situation where you intend to move back there at the end of it.

    A permanent relocation on the other hand, means that your principal place of residence changes.

    If you were to claim that - I would strongly suggest you see an accountant in order to check it out thoroughly.
    No, there is particular application for temporary or extended relocation, but I believe it is not limited to it.

    Main Residence
    Your main residence is not subject to capital gains tax. Once your place is deemed to be your main residence, you can rent it out for up to six years without losing your main residence exemption.

    As long as it is your main residence BEFORE it is rented out, you can continue to call it your main residence for up to 6 years.

    Of course, consult your accountant


 

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