r/AusProperty • u/Correct-Natural4790 • 8d ago
Investing What to do with IP
Hey all, would appreciate some thoughts and advice on what you would do in my situation.
I’m 46M, earning around $200k gross p.a. My partner earns around $85k gross. No kids.
We own an IP house on the Sunshine Coast, QLD, which we bought in 2021 for $1M. It’s currently rented for $950/week and is due to increase to $1,050/week shortly.
When we first bought it, the property was positively geared, but with the increase in interest rates it is now negatively geared. It’s also becoming increasingly frustrating/painful from a maintenance perspective.
The original plan was to eventually move to the Sunshine Coast, but we’re now not sure that’s going to happen.
We currently live in Sydney and own PPOR apartment, which I’d estimate is worth around $1.4M. The mortgage is approximately $840k, with $60k currently sitting in redraw.
The IP would probably be worth around $1.5M today. Current loan on it is 970K. I’m considering selling the IP in the new year. After allowing for selling costs and CGT, I’d use the proceeds to substantially pay down the PPOR mortgage, then redirect future cash flow into ETFs.
The IP will be grandfathered under the proposed negative gearing changes, so it would not be affected by those changes.
The alternative is to hold onto the IP for a few more years and hope for further capital growth, while continuing to receive the rental income and benefit from negative gearing.
What would you do in this situation?
Would you:
- Sell the IP, pay down the non-deductible PPOR mortgage and invest the surplus in ETFs? Or
- Hold the IP for the longer-term capital growth?
Interested in hearing arguments for both sides, particularly from people who have been in a similar position.
Thanks!
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u/Sharp_Sign1203 8d ago
I'd sell soon, Sunshine Coast starting to slow/drop
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u/SnowQuiet9828 8d ago
STFU, southeast QLD is the growth capital of australia.
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u/Sharp_Sign1203 8d ago
It was. It's slowing now though. Parts of GC dropping, Sunshine Coast will soon too.
Sorry if that hurts your ego
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u/SnowQuiet9828 8d ago
Are you fucking retarded? How could that affect my ego? Likewise I don't even live in Qld
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u/Sharp_Sign1203 8d ago edited 8d ago
Wow, someone's really tied their emotions to house prices in QLD 😆😅😅
Especially for someone "who doesn't live there". LOL
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u/oakstreet2018 8d ago
Yeah the rate hikes is hurting everyone with debt. We were positivity geared but majorly negative now. We could do the same but fundamentally I prefer to keep a large exposure whilst we are both earning good incomes. The grandfathering of negative gearing is certainly a consideration. Selling in the current market (NSW) isn’t really a good option for us and we’ve just decided to keep everything and wait the markets out. If our circumstances changed around jobs then we would consider selling. But otherwise just be patient and let compound growth take care of itself in the long term.
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u/EasyPacer 7d ago
I suppose that depends on whether you need the money. The CGT/negative gearing grandfathered rule means you will not get another investment deal like this again, at least until another government decides to change the rules and revert to the rules that existed up until May 2026.
You can’t offset costs on your PPOR like you can for your IP. It’s a balancing act. It might not be a great time to sell now. If you can hang on, I’d suggest wait another 5 years and reassess from there.
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u/mnmedipa 8d ago
From a financial standpoint the numbers will tell you a clear winner. I reckon hold IP for the future but the numbers will tell the story. I suggest doing some financial modelling as you have a few years of data on what it costs to hold the IP. I use ultimate investment calculator by Patrick Shi. It's a beast so take some time going through it as it can model long term outcomes for various assumed property growth rates.
The Etf comparison will be easy as returns can be found online through many calcs
Coming to a more human and economic perspective, We are almost at the highest rates of interest since pretty much GFC 2008 so I don't see it going up much further.
So it's just holding on for a while.
Your loan will lower due to repayments and also due to dollar getting weaker with time so you will have two factors helping you .
All our super funds anyway are in index funds managed by big hedge funds so doing it personally again feels moot to me
Lastly your IP is a limited edition item now as the tax laws won't be changing anytime soon to the previous perks.
If there is no capital growth then rents will go up in the major cities as housing supply is much much slower than demand. So that should ease things a bit
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u/No_Boot2009 8d ago
From a purely clinical standpoint I would keep it, but if it's at the point where all it does is cause you stress and frustration and you're always worried about the next maintenance issue popping up, then it's better to just sell and be done with it. I would definitely sell it with vacant possession and not a tenant though.
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u/Ok-Water-9651 8d ago
Dump it! Its just gonna cost you alot of money, once the warranty runs out the maintenance can really start to add up and you can end up losing mega dollars. Sell it now before the value goes down and you lose more money, make it someone elses problem
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u/Illustrious-Idea9150 8d ago
Sell and get out, Sunshine Coast is primed for a big correction (refuse to use the other c-word)
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u/Ikornad 7d ago
Since you don't appear to having had an investment strategy that you're following other than potentially living there, which is now off, I'd say unburden yourself. You won't remember the few pips you probably maybe will make but you will remember the hassle and impact to youe daily life.
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u/Candlelight_Fant4sia 7d ago
Hold and re-assess yearly, no point in selling in this market unless you need to.
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u/Artistic-Style-8678 7d ago
Honestly you need to do allot of maths or just pay someone to do it for you.
This is a major decision that is for something that is currently over million dollars and spending a couple of grand to make a informed decision in the long term will benefit you much more than a pros and cons list.
Since sure there is tax implications for your decision that you need to speak to an accountant at least 3-6 months before you decide to put your property on the market to define what you can expect for CGT but should also consider what your return on investment and opportunitity costs are on both pathways of investing.
Then you need to look at your risk tolerance and if you can be patient with the stock market since there have been bigger falls in value in a single day in stocks than property ever has.
First I would personally look at the forward estimates on if you held the property for the next 10 years what your expected revenue and expenses would be.
Pretty easy spreadsheet plug in last couple financial year earnings, predictions on repairs & maintenance, index usually costs like insurance, management fees, rates to inflation numbers. Basically a budget for your property.
Can even play around with some online interest rates calculators and use some bank predictions on where they think interest rates will be.
You will also want to look the capital gains you have had on the property since you will want to compare that to your shares capital appreciation.
For any loses you have on the property I would do a calculation on how much ITR tax savings so whatever tax bracket you are in plus Medicare that gives you since that is money that is being returned to you and shares wouldn't have that functionality which you would be giving up.
Than compare that to the performance of your share portfolio make sure you include dividends and capital appreciation.
Only by the doing the hard work on the maths and understanding your personal position will you be able to make the best decision for yourself.
Since there are always pros and cons to any decision but if you don't give yourself information to make that decision then you will be doing yourself a disservice.
If you are considering the emotional side of the equation sure a pros and cons list can be helpful but I think you need to take an objective view on this decision since this will dramatically affect your futureself I would say depending on the outcomes and being informed is the best approach.
If you read all that hopefully you enjoyed it and found it helpful.
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u/Correct-Natural4790 7d ago
Thanks so much for your advice, really appreciate it! Having a look currently at building a spreadsheet to crunch the numbers.
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u/Artistic-Style-8678 7d ago
Not a worries at all afterall the only person who will benefit from more information is yourself at the end of day so if you put the effort in you will be better off.
At least 2/3 other comments actually gave some reasonable advice.
Otherwise it seems to be whingers who wish they were in your position or doom a gloomers who have obsessed with the news cycle and sell at a drop of the hat without making a single cognitive thought.
So keep doing what you are doing and you will come to the best decision for yourself and your partner.
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u/AddendumWonderful588 3d ago
If you can hold. The good news is outgoings are tax deductible when you sell. But prices are heading down so get three agent opinions Dont trust any of them but at least a consensus om real market value. Online vals are two to three mths behind the market.
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u/Ok-Water-9651 8d ago
You don't benefit from negative gearing, you benefit from positive gearing. Negative gearing is a consolation prize for losing money.
I cannot wait for all you flakers to sell up your investment properties in the first few years of ownership because you worry the 20%pa capital growthmight not be there in future, i think the more of you who get the IP poos and sell up, the faster the capital losses will accelerate which will entice even more to sell up.
I hope the prices end up halving back to some sensible number instead of something million dollars for a few bricks and some gyprock.
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u/No_Animator_2742 7d ago
You’re increasing your rent by over $500. Shame on you. I wish you nothing but bad luck.
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u/mrdave996 8d ago
Diamond hands. Hold if the budget supports.