We are a young couple, 22 and 24, combined gross income of ~$70,000.
I purchased a studio apartment off the plan 2 years ago in Melbourne CBD for $220,000. This was signed under my name (and/or nominee) and is due for completion in 3 months time. Once complete, this will become our PPOR for the time being. As it was signed for 2 years ago, I am only eligible for $13,000 FHOG. A $20,000 deposit has been paid off and we have ~$55,000 in savings ready to go. Upon completion, this will essentially leave us with a debt of about $145,000.
Now I figure it's best to start investing in property as soon as possible and I would also like to kill two birds with one stone. In the long run, the studio apartment will be too small for the two of us therefore my plan at the moment is to buy a bigger apartment off the plan and once complete, we would move into it, thereby turning the studio apartment into an investment. Has anyone had experience doing something similar? My calulations show that the studio apartment would most likely be slightly positively geared. Are there more benefits of trying to negatively gear it?
A scenario I am also looking at is to transfer the title of the studio apartment into my partner's name so that she gets the $13,000 FHOG, then buy the bigger apartment under my name to receive the $26,000 FHOG. Has anyone done this and exactly how legal is this? Also, if I did take this route, how hard would it be to place both of our names on both titles after the 6 month 'live in' period?
I do apologise for so many questions, but evidently I am new to this area and have a lot to learn. Any other advise would be very much appreciated.
Make sure you check the current value of the studio apartment. And get a proper depreciation report for it, especially considering it’s brand new.
If you transfer the title of apartment, that is sale and you’ll be liable for stamp duty…
If you don’t go and live in the studio, but rent it out and buy something existing as your PPOR you should be able to access the increased FHOG??
It will be illegal to claim the grant each in the time zones you are considering mainly because as a couple you can only claim one grant by law. Seek clarification at the State Revenue Office (sro) web site. Or ring them up for a chat you will get through to someone helpfull quickly.
Interesting and helpful strategy to buy a property. I guess the developer gets pre-sales that way and helps to get the finance across the line. What would the property be worth to sell to a nominee on completion?
Just because you have signed and/or nominee doesn't mean you can nominate anyone. Its not that easy. You will be charged stamp duty as will the girlgfriend, unless the OSR has proof you had an agreement prior to signing the original contract.
I would suggest you get the highest loan possible for the studio and make it interest only with a 100% offset account. Live in the place first, establish it as your main residence and then you have the flexibility later to work around the CGT exemption. When you buy the new place do the same – high IO loan with a 100% offset account. that way which ever place you move out of will have a high loan for tax purposes and your cash will be available and there should be no tax problems of redrawing the money etc.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for the help guys. Looks like I will have to make do with the $13,000 FHOG.
Maybe it is a good idea to put off buying another place for another 3-6 months to allow myself to move into the studio apartment and do as much reading on investing as possible.
I think we will get a high loan for the studio apartment to allow us to redraw funds as needed. Terry, I am unfamiliar with the CGT exemption you mentioned; is there any place I can get more information about this?
Also, if I do decide to buy the two apartments, is it a better idea to put all my money in the investment property and try to positive gear it, or put the money in my PPOR and negative gear the investment property?
There is a CGT exemption on your Primary place of residence.
With any 'investment' – property, shares, whatever – you pay tax at your marginal rate on any profits (capital gains) realised when you sell. If you hold the investment for more than 1 year, you only pay CGT on half the gain.
You don't pay CGT at all on your PPOR (if held for more than 1 year IIRC).
RE Strategy, only you can really decide whether + or – gearing is best for you and it depends entirely on what you actually want achieve from property investment. Do you want to supplement your income – in which case you should probably + gear – or do you want to reduce your tax bill – in which case you should negative gear.
These aren't the only two options, of course, but the point is you really need to do your homework first. Talk to an accountant and (perhaps) a financial advisor. Discuss your circumstances and your objectives and listen to what they tell you.
Education and preparation are the 2 most important things, whichever road you choose.
Good Luck!
bator.h wrote:I think we will get a high loan for the studio apartment to allow us to redraw funds as needed. Terry, I am unfamiliar with the CGT exemption you mentioned; is there any place I can get more information about this?
yep
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.htmlTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
bator.h wrote:Also, if I do decide to buy the two apartments, is it a better idea to put all my money in the investment property and try to positive gear it, or put the money in my PPOR and negative gear the investment property?
Hmmmm. Think about what you are asking.
Would you reduce your loan on the main residence and save interest – which is non-deductible?
or
Would you reduce the loan on your investment property and save interest which is deductible?
It would be better to have bigger deductions to save more tax wouldn't it?
But, I would do it slightly different and have both loans IO and pay neither off. But have a 100% offset account against the loan on the main residence. This way, if you move back into the unit, or to another property, you can take your money with you and establish a new 100% offset account on the new main residence and save non-deductible interest,
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
imugli, thanks for the advice and explanation.
Terry, that site has a lot of useful info, thanks for that. Also what you said in your second post makes a lot of sense.
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