Maths? Anyone?

[Grogounet]

Bonjour,

Shall I sell or keep? I already have an idea of the answer but wanted to ask some of the minded ppl on this forum to confirm.
We have a unit in OZ and want to know if we should sell or keep it as we move back overseas.

Boughts $495k in 2015 - 2018 value is $455k approx

To keep it, with a scenario of IO at 7%, it would cost us approx $22k per year (we wouldn't be able to claim rental loss anymore) - becomes $17k in 10 years if the rent increases (3%)
The idea is to leave $150k AUD in offset here in Aussie land to prevent us from using our euro salary, at least for the beginning. We hope the market will eventually pick up again (IP in New Farm, QLD) eventually.


Option 1:

We sell. We loose $40k straight + time for us to repay interests on those.
5% of fees for selling, etc... Another loss of $25k
So $65k loss - outch
We take our $85k ($150k - 65k) That we invest wisely in index. At 6% theory we should $150k approx in 10 years.

It's tough, we all make mistakes throughout the years, we move on and continue our investment journey


Option 2:

We keep the IP
We leave $150k in offset
If IP grows 3% per year, it should be valued at $600k in 10 years worst case
We pay CGT when we sell

So:
-150k on the offset
- 40k to fund the rest of the rental loss (most prob for our euros)
+ 200k capital gains
- 100k CGT approx (should be less)
- 30k fees (5%) resale

TOTAL loss= 120k
NB1: Some would say that the loss should equal for even more because I have "lost" $65k of returns I could have taken into the bank by placing the $150k in shares instead of leaving of the offset account.
NB2: I believe that the loss would be reducing more after 15 or 20 years, where eventually it would start to make some financial sense, but man... that's a VERY long time to see some theorical returns!


2 questions: Have I forgotten anything in the calculations - I know a lot is theorical? Which option will you chose?

[middo]

I'm not going to comment on your maths because I don't know all of the implications of foreign ownership of property in australia taxation wise.  However, I would suggest that buying rental properties in Australia for income is a mugs game.  I personally would sell, take the hit now and invest what you have left.  We are in the process of doing that ourselves.  The sooner we can the better.

But - that's just my opinion.

[marty998]

I like questions like this - gives me a reason to do some research :)

For the benefit of others (because I'm sure you know), non-residents do not get the full CGT discount.

If you purchased the property prior to 8 May 2012, you can access the CGT discount, but you must apportion it to the time that you were a resident for tax purposes.

https://www.ato.gov.au/General/Capital-gains-tax/International-issues/CGT-discount-for-foreign-resident-individuals/


One thing you are missing is the carried forward capital losses you will have on Option 1. You will need to keep track of these if you are not lodging Australian tax returns for the foreseeable future. They may be able to be used if/when you return and have future Australian capital gains.

[Grogounet]

Thanks both,
Marty re- capital losses.
I didn't take this into account as we don't plan to come back necessarily
What option do you think you would take?

[marty998]

I'd still take option 1.

Is your property subject to the QLD non-resident land tax surcharge? That could be a real cash drain for you...

[itchyfeet]

The non-resident land tax surcharge does not apply to Australian citizens (in NSW at least).

Land tax sucks.

In a time where net rental yields in Sydney are only 3% or less, the 1.6% land tax chews through more than half of your rent before you even get to the ATO’s greedy mitts. Yes, there is a tax free threshold, but once you are past that... sheesh!

Owning property is a very tough way to make money now that the days of big capital gains are ancient history.

Taxation of stocks is so much better.
 -   No wealth tax, and franking credits; versus
 -   Land tax, land rates, high stamp duties and income tax on whatever is left.....

and then you have low rental yields, vacancy periods and tenants that damage your property. Then there are agents fees that would make your private equity broker embarrassed.

I would vote to sell out, but meanwhile I am sitting way overexposed to property and not adhering to my own advice...sigh...

[marty998]

The non-resident land tax surcharge does not apply to Australian citizens (in NSW at least).

Land tax sucks.

In a time where net rental yields in Sydney are only 3% or less, the 1.6% land tax chews through more than half of your rent before you even get to the ATO’s greedy mitts. Yes, there is a tax free threshold, but once you are past that... sheesh!

Owning property is a very tough way to make money now that the days of big capital gains are ancient history.

Taxation of stocks is so much better.
 -   No wealth tax, and franking credits; versus
 -   Land tax, land rates, high stamp duties and income tax on whatever is left.....

and then you have low rental yields, vacancy periods and tenants that damage your property. Then there are agents fees that would make your private equity broker embarrassed.

I would vote to sell out, but meanwhile I am sitting way overexposed to property and not adhering to my own advice...sigh...

Holding costs are a bitch. If it wasn't for the ability to leverage into it via 80% loans, no one would ever invest in property.

OTOH, that same leverage is now wiping out a lot of investors who accumulated from 2016 to 2018.

[happy]

Its a bummer leverage works both ways :(.