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Approach property ownership like a business

I’m currently paying off a house, which I had built for $230,000. I just got it valued at $420,000. The house is on a prime piece of land. I don’t live in the house and have rented it out, but the rent that I am getting does not fully cover my repayments to my financial institution. I am debating about selling and building another one or two houses to sell. Should I go ahead and use the equity in my current house that I am paying off? Or should I sell off my house and start on a bigger house/s?

Great question, though I am a little short of information, but the complexity of the questions and the range of alternatives you could consider has forced me to come up with a good idea for you to work out your own answer. The whole consideration shows that you are thinking like a businessperson. You are looking at your range of opportunities and it means, if you are seriously business-like, you will have to clearly spell out your alternative plans. Next, you will cost each option to see which one is likely to bring the biggest return.

Here are some things you need to do:

  • Find out what the house would sell for.
  • Determine your profit, including any capital gains tax.
  • Work out the price of a new, bigger home.
  • See what loans and what houses you could acquire off your equity.
  • Work out what they could be rented for.

The tax implications of each option need to be understood as well.

There could be other issues to look at that could affect the bottom line and that’s why you need to use a business plan approach.

Ideally, you should seek an accountant’s and financial planner’s advice because this is a serious investment play. It can be false economy to avoid good advice. By the way, if you have rented the place for less than six years, there might not be a capital gains tax.

One last thing, are you sure you are getting all of the tax deductions you should be getting as a landlord?

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Tuesday, September 21, 2010

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