Ask Paul: We're overseas, what should we do with our Aussie properties?
We are currently residents overseas with my husband working as an expat while I am a housewife (no kids). We have two properties: an old elevated, four-bedroom, two-bathroom house in Nightcliff, Darwin, and an old (but in good condition) two-bedroom cottage in Edge Hill, Cairns.
We have been paying off the Nightcliff house as this is where we will reside when we finally pay it off (in about five years). We plan to live there for two years and give it a coat of paint, then sell it and move to Cairns (using the money that we get from the sale of the Darwin home to pay off the remainder owed on the Cairns home), to live in the low-maintenance cottage for our retirement.
In the meantime, we are making nearly two extra repayments above the minimum payment required on the Nightcliff home to pay it off. The cottage in Cairns is on minimum payments. Both get good rents - Darwin $650 a week (we owe $412,000) and Cairns $550 a week (we owe $380,000). The payments are made from an offset account.
Can you see any problems or tax implications for doing it this way instead of just depositing the extra money into the offset account and paying the minimum required? They are both mortgaged as investment properties and we never lived in the Darwin home, only the Cairns home. - Sally
The key issue is to end up having no debt on your home and any residual debt on investment properties. But as you will sell your Darwin property in a couple of years and pay off your long-term home in Cairns, I can't really see a better way of doing this.
It would have been handy if you had lived in the Darwin home for a while and then had the "six-year exemption" to keep its tax status as your principal residence, but that is pretty useless, hindsight-type information.
So, on the face of it, it looks fairly straightforward. If there is any further complexity with your financial affairs, or you want professional advice rather than the general information in a column such as this, I'd bounce your plans off your tax accountant.
But it seems to me that you will sell your Darwin home and pay capital gains tax on any profits. This issue you should definitely discuss, in advance of the sale, with your accountant.
Then you pay off your Cairns home and live there debt free. It sounds pretty good to me!