Tas re; converting your PPOR to IP through a trust and renting it yourself.

More intriguing with each post indeed.

What if you fail to pay the rent ? could you get kicked out ? hehe ! would you loose your bond if you trashed the place ?

More seriously, what about insurance claims on accidental damage ? I guess that would be the same as a normal claim.

On another note, so effectively how I see it is that you are simply converting your PPOR into an IP and renting it back from yourself, which as you indicated you would be renting out anyway, so its a legitimate IP

I can see a potential draw back here in some situations. Say I can get $180 a week if I rent out my PPOR as an Ip to a third party. But if I rent it myself as a trust, I only pay $130 per week which is my weekly repayments on my loan.

One would clearly have to do the numbers on both scenarios. i.e. live in as a trust or rent out to third party and rent yourself.

In this situation could it be argued that the trust is not as cost effective as me renting it out. Clearly I guess that depends on then what it costs me to rent out another property to live in.

On the other hand operating as a trust could mean I can delay certain repairs that I would otherwise make if I wanted to get the $180 a week if rented to a third party.

So clearly to me it seems a trust may not always be the most cost effective solution. I would hesitate to say that a brand new IP may not always perform as well if you rented it out to yourself, as opposed to renting it out to a third party.

For one as its brand new, there are no savings to be made by delaying repairs as there is nothing to repair.

Also, as mentioned, on a brand new IP your repayments may not reflect the rent you may otherwise get from a third party. i.e. it may be much less than the rent you could get. Thus you may be getting a lower ROI unless of course you made a point of paying market price rent into your trust arrangement. But as it’s your own money, this seems hard to conceive.

Also with a trust, aren’t you being double taxed on your income with a trust? I mean I pay PAYG income tax and then use some of that income to pay rent into the trust and being trustee the rent paid by my income is also taxable ?

Much to learn.
cheers

I just spoke to a real estate agent who valued my PPOR and he also suggested I rent it to myself. When I said through a trust you mean ? he said yes thats right.

So now I’m getting curious and have some questions as follows;

1. Is this just a tax dodge or something ?

2. How expensive is it to set up your PPOR as a trust and rent it from yourself.

3. What are the bennefits of this ?

thanx

Hmm property value / 10 to get rent ? hope this is not the only measure of cash + but granted you did mention I think for properties under $100K

Imagine a $300K property / 10 = $30,000 in rent, yipeeeeeeeeee !!

Sounds like an interesting concept that could be developed further, this “Renters Equity Share” thing. Hey this could be the next big wave in property investment, enabling cash positive brand new investments. hehe ! [8D]

Say at the end of the tenants lease, the property is revalued based on average property growth rates for that area. The tenant is paid back the sum of their extra payments, plus a capital growth component consisting of their yearly extra contribution. Hmm starting to sound like some kind of property renters mini super. hehe

formula

End Lease Rebate = total yearly extra contributions plus ( total yearly extra contributions divided by the property value times property value capital growth amount. )

For Example;

Say CG = 10% on a $200K property = $20K

ELR = TYEC + ( TYEC / PV * PVCG )

say the tenant paid and extra $20 per week

END LEASE REBATE = $1040 / $200,000 * 20,000

Thus in this case End Lease Rebate = $1144

Hmmmmm Rather long winded I guess so simply add 10% to the TYEC and you get the same result

i.e. $1040 * 1.10 = $1144 doesn’t seem much but this is 10% flat rate return for simplicity.

Not much of an incentive though

[]

seriously, I doubt it would take off though.

where is the best area to invest in NZ ?

” I believe you should use outstanding debt rather than property value, as that gives a more accurate result. Others may disagree. “

What if the outstanding debt is $10,000 ?

I mean anyone can pull simple formulas out of thin air. I just thought of one with 10 seconds.
Try dividing the property value by 1000 then multiplying by 2 that give you your rent. Hmm that gives you your 0.2% Damn I just realised thats the Eleven Second Rule reversed. hehe

More seriously, mother I suggest you utilise a decent negative gearing calculator, with forward projection capability. Also ask to view the body corporate meeting minutes for the last few years.

max sounds like its costing you money. I would sell it if I can’t get $270 min, if you can cover your holding costs for the life of the asset, with capital growth after CG tax. I would then reinvest in more conventional residential units, flats, townhouses, small developments etc.. that I expect may offer better capital growth. The high rise market is gonna be flooded and they can always build another.

Your call, in the final analysis