hi everyone, I am new to this site, however I am in the middle of reading Steve's book and am a little confused on what to do.
My husband and I currentky have one investemnt property and we recently purchased some land to build our home. I am really dediticated on building our property portfolio and confused on whether we should build and move in to our owm home or if we should rent and focus on building our portfolio. I do remember Steve saying that if you are renting rather than having a huge mortgage that you would have less debt and therefore be able to borrow more to invest. I do feel a bit funny about this as I dont want to throw away money on rent when it could be paying off my own home.
Does anyone know what the benefit would be if we did choose to go down that path?Renting can have an advantage over a short time frame.
If by renting you can rent out the new home and claim building depreciation on the construction costs it may be better.
But over a long term time frame if you own your PPOR it can be a better choice as eventually you own the house after 12 to 25 years and capital gain is not taxed.
Also you pay off Your own home after paying tax on your wage.
An IP's interest is paid off by before tax income.Do a cash flow forecast.
Borrowing for own home as opposed to renting and buying an investment propertyBank lenders usually take into account your renting costs when you get a loan.
However a rent may be 4% of the property value where as a home loan could be 7% or higher plus principle repayments.If you can pay off your home loan quicker then you can slowly get ahead.
It can slow down your rate of investment while you wait for the equity to grow and for the loan to reduce on your own live in home loan.
I do not live in my own house but I sometimes yearn for a piece of land that I can say is mine and that I can plant a tree on and get fruit off it . I do own a house as an IP but do not live in my own house.Can you get First Home owners Grant because this changes the benefits versus the cons.
Try thinking of your home as a liability as opposed to an asset.
Thank you so much for your feedback.
After reading your advice, I have done the figures and have figured out that the price of the rent would be the same as the construction loan. If we were to rent rather than build we were going to keep our land anyway which we are still repaying.
We have already received our FHG when we purchased our first property.I also was thinking of our home as a liability which is why I was thinking of renting in the first place, however once it is paid off wouldn't it be considered as an asset?
I guess the biggest fear I have is that it will become more difficult for us to purchase our second IP. The one we currently have is negatively geared and only has about 70k equity in it.
I’m not sure why you think that once your home is paid off it will only be then an asset? Is this because it is no longer subject to loan repayments? You will still have expenses without any income – hence the liability label. But saying that, you do need to live somewhere. However in the meantime the interest on you repayments and expenses are not tax effective.
Renting your existing home may be beneficial (other than paying a lower net rent) as you can tap into a host of available tax deductions and it may be possible to improve your cash flow, facilitating further investment property.
I’m not an accountant nor is this advice, DYOR!
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