Has anyone gone through the numbers or are doing this themselves?
I currently rent and have 4 IP's. I am currently paying very reasonable rent but will want to move to a bigger place soon.I was wondering about renting again rather than doing a knock down rebuild at an older house I own.
I know this doesn't take into account things such as having to move more often or doing what I like to the place.I am wondering if anyone has seriously done the maths on this and its cons and pros.I looked into it years ago and worked out that you were better off renting (just from a money pov) for the first 5 or 7 years. Then, with rent increases, and assuming rates stayed the same, you were better off to have bought.
But that was when rates were much higher. Now it may be 1 or 2 years.
You will also need to take into consideration that having a PPOR will mean tax free capital gains, whereas if you rent and put the money saved into another investment then you will pay CGT.
Have you considered buying something you think you may want to live in in a few years and then renting it out and you renting something for a few years. That way you get some initial deductions.
Even better, move in for 6 months initially, and then out again and have the ability to claim CGT exemption on the place as well.
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
Hi shanematt,
We are looking into this right now. You really need to crunch the numbers on both scenarios and for the amount of time you will be looking at. I did the numbers on our situation and renting has come out in front for us even though our rent is expensive. Our situation is – 2-5 year time frame then moving away, area we are in is currently at peak of market and so I'm not expecting much in the way of capital growth. The critical factors against buying in this situation is stamp duty and agent's fees on the sale which are not tax deductible for your PPOR.
If you have time on your hands then Terry's suggestion is a good one – move in for 6 months when you buy it then you have 6 years where you can rent it out and still claim your PPOR cap gains exemption.
Hope this helps
LisaThanks guys.I also assume that using my personal stratagy of never selling the whole equation changes.Not paying or paying CGT does not concern me.I was more comparing a rent of say $1000- per week and spending 500k on building a house and living in it.I would have to consider negative gearing benifits,depreciation ect if I never lived in it compared to moving into it myself.
Terryw wrote:Even better, move in for 6 months initially, and then out again and have the ability to claim CGT exemption on the place as well.Hi all, I'm learning here as well, can we still have the tax benefit with this method ?
Thanks.yes.
see s118-145 of the Income Tax Assessment Act 1997.
TD51 for the definition of main residence.
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
The way I see it, if you have IP that are Positive gearing they pay for your rent. Than your landlord pays for the maintence for the property.
Where if I had purchased a PPOR to live in myself, I would not be able to claim maintence of the property, interest, depreciation etc, I also lose an opportuntiy to purchase another postive gearing IP as I would have some equity tied up in my PPOR instead. It would also increase my commitment levels and reduce my income, reducing my borrowing powers. This is the main reason why I rent!!!
I also consider it a bad debt. As there is no income generating from the property and you maintain the property without able to claim anything back on your taxes.
The only advantage in buying PPOR is u do not have to pay Capital gains tax when you and if you sell. But I intend to never sell any of my IP. So there is no advantages for me in my situation.
Don't forget it you have positive geared property you will need to pay tax on this income. This income will increase over time as rents increase. Also you will need to fund your own increasing rent paid with after tax money.
And, you may not intend to sell, but probably will for various reasons. You could also be leaving a tax problem to children or beneficiaries.
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
one thing too: As humans we tend to spend money needlessly on our PPOR and by renting we are not tempted to spend money on that extra garden or super-dooper kitchen (that we really dont need)
so i have stuck to renting whilst having IP's in the background building wealth.
i like it purely as a good discipline.
Lisa J could you give abit more info on how this works
If you have time on your hands then Terry's suggestion is a good one – move in for 6 months when you buy it then you have 6 years where you can rent it out and still claim your PPOR cap gains exemption.
say ive got a ppor which i pay $100k and i live there for 6 months and move out then sell it in 5 years say for $150k does this mean i pay no capital gains on the $50k profit.
Also same senario but i buy another house in 6 months which i live in, which one will be my ppor
Also say property number 2 i pay $100k and sell in 5 years for $120k so i would only make $20k capital gain
or should i take property one and say property 2 was ipI’m renting and have 7 IP. It’s works well for me .
The area I live in has liked 3% return, but it’s a very good place to live! I’m do not like the idea of having well over 500,000 in non-deductable loan if I buy in my area. The dent in my cash flow will mean I’ll have to cut on my development projects.
The places I’m buying are at least 7% return and I do renovations, subdivisions and development to increase return and build an equity.
My very cash-flow wise future plan is:
- Keep renting and actively investing for cash flow and profit in next few years.
- Keep money on offset accounts until I have enough to buy a PPOR for cash.
- Buy PPOR for cash.
- Then draw an equity from home loan and use for further IP. This way all loans will be tax deductible.
keiko wrote:Lisa J could you give abit more info on how this worksIf you have time on your hands then Terry's suggestion is a good one – move in for 6 months when you buy it then you have 6 years where you can rent it out and still claim your PPOR cap gains exemption.
say ive got a ppor which i pay $100k and i live there for 6 months and move out then sell it in 5 years say for $150k does this mean i pay no capital gains on the $50k profit.
Also same senario but i buy another house in 6 months which i live in, which one will be my ppor
Also say property number 2 i pay $100k and sell in 5 years for $120k so i would only make $20k capital gain
or should i take property one and say property 2 was ipYou can rent your main residence out for up to 6 years and have it exempt from CGT.
But you can only have one main residence at a time.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
Good point Terryw!
The main concern I have with living in a PPOR is the large chunk of non-deductable money I will be using.Obviously that large chunk of money could be used to buy one or more great investment properties.Tough decision.Any body else think this way?
shanematt wrote:The main concern I have with living in a PPOR is the large chunk of non-deductable money I will be using.Obviously that large chunk of money could be used to buy one or more great investment properties.Tough decision.Any body else think this way?I have been thinking about this also.The PPOR i am in at the moment is nice but it is not where i want to stay. My plan is to hopefully upgrade in 2 years when/if my contract at work gets extended by ten years. But do i decide to rent and invest the equity i currently have ??? Who knows.I just settled on my second IP and now i am pricing building a new property on the back of the block.The numbers stack up but if i end up borrowing to my limit i may find it harder to borrow the extra cash to upgrade my PPOR down the track.Im at the point now where i will have to make a decesion on which direction as all my choices will now effect things.
Thanks.
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