Hi Everyone,
Thanks to anyone who takes the time to read!
We currently own 3 properties – 2 in my name, both rented and cash positive, the other in the Mrs name is a 2 bed unit in which is our PPOR.
We are looking to move move to a house as we have had a baby girl.
After reading a few articles, I am now drawn to the concept of renting our PPOR, and renting out the unit. The rent from the unit would be equivalent to that of the new house.
The Mrs will earn around $30K this year, plus the rental income would be $22,630. Est. interest, depreciation and expenses around 30K, which would take her below the tax free threshold.
My questions are:
1) What are the negatives of doing this if any?
2) Is there a way of applying the tax deductions to my income (my income is much higher)?
3) Does anyone have any advice, or things to look out for?
4) On another note, who do you see about this stuff? I'm looking for guidance on this and structure for future property purchases (Trust?) In the people I have been referred to, there seems to be a gap in skill set between a Financial Planner and an Accountant. Does anyone have a good referral for me with proven results?
Thanks again!
2) You can't transfer the income between different owners unfortunately.
3) You haven't taken into account how much rent you will need to pay in the new house, so although the income will be about the same as the rent, you will need to stick your hand in your pocket to cover it (a bit of swings & roundabouts)
Have you worked out how much money you will save doing this?
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 only way you can claim any deductions of your current PPOR is if you "buy" all or part of the property from your wife via a spousal transfer and become registered on the title. Different states have different rules governing costs involved in doing this. You would need to run the numbers overall to see if it's works out to your advantage.
Cheers
Tom
Do you intend on buying the new house tio live in?
As Terry said- do the numbers. That will tell you whether it's viable.
I think so?
My partner will pay around $100 per week in tax, so that will be our saving – that is based on us renting a house for the same price that we rent out the unit for.Am I missing any other costs or savings? Am I using the right formula?
We would be in a position to buy in around 10-12 months, but this would get us into a house earlier, and potentially save us some money (if my sums are correct)
After reading some articles on this site, I noticed some investors prefer to rent their PPOR rather than buy and live in it as the expenses aren't tax deductible if you live in it. I guess this concept seems to defy my initial logic, as I was always told to pay your house off as quick as possible, and "rent money is dead money". I just want to make sure this really is the best option.
Hi Geddo,
Assuming that the house you R moving to is a rental!
Just remember, you are able to claim MRS unit as your PPOR (Both of you) for up to 6 years.
If you moer back in temporarily, you restart the PPOR clock again, for another 6 years.
AND no you cannot claim deductions for a property of which you do not have your name on title.
The gap in skills (property) knowledge between FP's and Acct's is one that we have all come up against from time to time.
What you do to overcome this is to continue learning as much as you can from Forum's like that & Steve's seminars and books.
Never give up, keep up the passion by refueling and servicing your tank courtesy of Ziggy Ziglar< may he R I P.
You will soon discover that YOU have created yourself as a bridge to span the skills gulf that exists between your FP & Accountant. Nearly all other investors could probably attest to having suffered from the same experience.
Geddo, you & family (congratulations) have done wonderfully well to date. There is no doubt in my mind that a decade from now you'll be a guest speaker at some property seminar, where you will relate some of your experiences to a new batch of wanna be investors.
Read, learn, attend seminars, muck up, fall down, get up, dust yourself off and continue your journey.
I predict that in that same decade some of your friends and family will be feting you as their inspiration for having set them on the path to financial freedom.
Enjoy the journey.
Best
callmeLes
Geddo wrote:I think so? My partner will pay around $100 per week in tax, so that will be our saving – that is based on us renting a house for the same price that we rent out the unit for. Am I missing any other costs or savings? Am I using the right formula?Above you said she is on a taxable income of abotu $30,000. Tax on this would be about $2200 or so. $100 per week in tax savings = $5000 pa. Something doesn't add up??
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
Geddo wrote:We would be in a position to buy in around 10-12 months, but this would get us into a house earlier, and potentially save us some money (if my sums are correct)After reading some articles on this site, I noticed some investors prefer to rent their PPOR rather than buy and live in it as the expenses aren't tax deductible if you live in it. I guess this concept seems to defy my initial logic, as I was always told to pay your house off as quick as possible, and "rent money is dead money". I just want to make sure this really is the best option.
Expenses aren't deductible if you live in the house. But neither are they deductible if you rent somewhere else – you still have to pay rent and this is not deductible.
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
Hey Terry,
Thanks for your reply….
Yes, the income is incorrect. I estimate she will be paid $41,600 gross, which would work out $36,000 net.
So, taking this into account, the upside of renting looks even more attractive.
Thanks a lot Les, they are very kind inspiring words.
Yes, i have been reading and absorbing as much as possible.
I guess to this point I am happy with the progress, but you can't help but reflect and think how you would change structures etc…
I guess my next phase is setting up the right financial structure, particularly to allow flexibility to shift income to either party.
The world of property investing is so exciting and really does make you feel like wealth is an achievable goal no matter who you are!
The PPOR 6 year rule is mainly for when selling isn't it? This reduces you CGT?
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