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I am just after some advice as I am really stuck trying to come up with the best portfolio structure going forward. Apologies if I waffle on but the situation is a little complicated which I will delve into below.
The situation is that I started investing in property around 18 years ago and have sold and rebought a few times. I currently have 4 rentals which are all cashflow positive with reasonable equity (some high, some low). All rentals were bought in my own name.
I finally bought my own home to live in almost 5 years ago which has been a great little house, but it's 50 years old and I have my eye on a brand new architectural build which could potentially be my forever home.
Normally I'd just sell my current residence to fund the purchase of the new home, however I am not currently in a position to do that for the following reason - during my ownership, I have had the Canty Earthquakes EQC claim on my home reassessed, which has led to my standalone concrete block garage being written off and categorised as a rebuild. As a result of this, I received a circa $80,000 settlement from EQC. If I were to sell my home right now, I'd have to hand that cash over to the purchaser - essentially giving them a 20% discount (or paying their deposit for them!!). However, I have priced up a replacement Versatile-type steel clad garage for around $35,000. So if I were to rebuild the garage before selling, I'd A) likely get a better sale price due to having a brand new garage, and B) I could keep the balance of the EQC money ($45k).
So the idea became to use the equity in my portfolio to buy the new house whilst retaining my current home for the medium term, and renting it to my in-laws in the meantime. This would allow me the time and space to get the garage rebuilt while they are living there, and they would happily put up with the inconvenience of garage construction onsite. The in-laws already live in one of my smaller rentals, so moving to my current home would be no problem for them.
I then realised that if I were to retain ownership of my current home and convert it to a rental, I would fall foul of IRD rules and wouldn't be able to claim loan interest costs for that house, so I started reading a bit about LTCs. This brings me to the reason for this whole post:
Should I create an LTC and then sell my current home to that LTC, and put the sale funds towards the purchase of my new home?
If so, should I also sell all my other rental properties to the LTC at the same time?
I only have a basic understanding of LTCs, and what I have read online is a bit confusing. Several accountant websites talk about the TLC purchasing your home with 100% financing (with the full sale price going to me the vendor). I am struggling to see how that works.
It's also worth noting that Christchurch property prices are unlike anywhere else in the country - what I mean by that is that my current home has not really appreciated in value to any discernible degree over the almost 5 years I have owned it. So part of the reason I wish to keep it is so that I can allow some further time to try to make at least some capital gain on it (whilst collecting some rent on it in the meantime). If I were to sell it now, then after sales commission and fees I would likely not walk away with any gain at all. It's also worth noting that I have paid down the loan on my own home quite a bit - I borrowed $440k and the loan is currently $231k - Some of that reduction came from the EQC money which is currently offsetting the loan.
I think I have included all the pertinent information, but I'd appreciate any advice from anyone who may have been in a similar situation. Let me know if any further information is required. I know that if I do go down the LTC route, I will need professional advice and that it will likely cost a bit to set up.
The situation is that I started investing in property around 18 years ago and have sold and rebought a few times. I currently have 4 rentals which are all cashflow positive with reasonable equity (some high, some low). All rentals were bought in my own name.
I finally bought my own home to live in almost 5 years ago which has been a great little house, but it's 50 years old and I have my eye on a brand new architectural build which could potentially be my forever home.
Normally I'd just sell my current residence to fund the purchase of the new home, however I am not currently in a position to do that for the following reason - during my ownership, I have had the Canty Earthquakes EQC claim on my home reassessed, which has led to my standalone concrete block garage being written off and categorised as a rebuild. As a result of this, I received a circa $80,000 settlement from EQC. If I were to sell my home right now, I'd have to hand that cash over to the purchaser - essentially giving them a 20% discount (or paying their deposit for them!!). However, I have priced up a replacement Versatile-type steel clad garage for around $35,000. So if I were to rebuild the garage before selling, I'd A) likely get a better sale price due to having a brand new garage, and B) I could keep the balance of the EQC money ($45k).
So the idea became to use the equity in my portfolio to buy the new house whilst retaining my current home for the medium term, and renting it to my in-laws in the meantime. This would allow me the time and space to get the garage rebuilt while they are living there, and they would happily put up with the inconvenience of garage construction onsite. The in-laws already live in one of my smaller rentals, so moving to my current home would be no problem for them.
I then realised that if I were to retain ownership of my current home and convert it to a rental, I would fall foul of IRD rules and wouldn't be able to claim loan interest costs for that house, so I started reading a bit about LTCs. This brings me to the reason for this whole post:
Should I create an LTC and then sell my current home to that LTC, and put the sale funds towards the purchase of my new home?
If so, should I also sell all my other rental properties to the LTC at the same time?
I only have a basic understanding of LTCs, and what I have read online is a bit confusing. Several accountant websites talk about the TLC purchasing your home with 100% financing (with the full sale price going to me the vendor). I am struggling to see how that works.
It's also worth noting that Christchurch property prices are unlike anywhere else in the country - what I mean by that is that my current home has not really appreciated in value to any discernible degree over the almost 5 years I have owned it. So part of the reason I wish to keep it is so that I can allow some further time to try to make at least some capital gain on it (whilst collecting some rent on it in the meantime). If I were to sell it now, then after sales commission and fees I would likely not walk away with any gain at all. It's also worth noting that I have paid down the loan on my own home quite a bit - I borrowed $440k and the loan is currently $231k - Some of that reduction came from the EQC money which is currently offsetting the loan.
I think I have included all the pertinent information, but I'd appreciate any advice from anyone who may have been in a similar situation. Let me know if any further information is required. I know that if I do go down the LTC route, I will need professional advice and that it will likely cost a bit to set up.
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