I would really like to buy a house to live in and not pay rent, however i am reasonably intelligent financially and the other side of me is saying to buy some positive cashflow properties first, really not sure what to do, hhhmmmm
G’day Rickyw…
Horse before the cart.
House to live in first… and keep it.
Bill
Bill O’Mara
Real Estate,Mortgages, Option Writing & Forex. [email protected]I’d ride the horse!
I think it comes down to how disciplined you are at saving.
1) PPOR pay off loan/not tax decuctable interest and then invest will set you back a number of years in investing.
2) Rent, invest the difference (this is the hardest for most people to do) I believe will generally put you ahead thanks to the extra years compounding.
You have to remember that generally the house isn’t an asset. It doesn’t produce income/deductions and you can only get cash by selling. (without borrowing against equity which means interest)
However (being the devils advocate) a home does provide security and if you do pay it off really quickly, don’t keep upgarding to a bigger house and a bigger morgatge you will probably be better off in the long run. It also provides a sense of security and a place to call home which to some people is invaluable.
3) How about buying a house through a trust and renting it for yourself. You get a good tenent, no stamp duty on transfers etc, deductions and extras. Only drawback is CGT but personally I think some of the advantages may outweigh the negatives depending on your individual circumstances.
Josh
Disclosure: I’ll probably be going with option 3 so I’m a little biased.
hmmmmmmmmmmmmmmmmmmmmmm.
bill, sometimes I SO don’t get you.
how can you say that ricky should buy a negatively geared PPOR which will give him no tax benefits, and which he is buying at (according to you Bill) the top of a boom and which (also according to bill) could go down in value by up to 20 percent?
(ironically, this sounds like something most of the world would go for, actually, keeping them in their jobs and poor at the same time…)
I did the numbers on either buying the house where we rent for $400 p/w worth 800K with 70K deposit versus buying
3 NZ IPs for 70K returning $300 per week in my hand. (22 percent return.)i’m about a thousand bucks a week better off to rent someone else’s negatively geared liability nightmare getting my landlords a measly 2.6 return on today’s value – (plus they have to maintain it) –
– than buying it. that’s not even taking tax advantages of an IP which you don’t get for your PPOR into account which makes the difference even bigger.
this is only my situation, but i would advise doing the numbers on your own situation. i would be extremely surprised if you would find that buying your PPOR would make you wealthier unless you negatively geared it for many years. i.e. ten years, enough time for the market to dip, recover to where you are now, and gain enough for you to recoup what you lost over the years negative gearing and through inflation, and another few to (finally) make up your losses
the thing is, your PPOR has to be where your life is, where you want to live, but your IP can be anywhere – where the yields are, where the capital gain is, where the deals are.
cheers-
miniricky :o)
Buying your own PPOR can be much more exxy than IP’s, depending on what you are looking for in each. Often, we want to live in much more glamourpuss places for a home of our own, whereas for an IP, I wouldn’t live in 2 out of 3 of my IP’s. But if I bought my own home, where I live, it would cost me twice to three times the amount my IP’s cost me. So I could have 6-9 IP’s for the same price as a PPOR (I live in sydney).
Like MiniMogul, I rent. I’m not completely happy with that, but the more I learn, the more I realise that for many of us haven’t been in the RE game long, a PPOR is a dream down the track.
May babyboomers own their own home. Many gen-Xers don’t. IP’s are a way to own my own home. Through investment, I can do it. To save a deposit to buy my own home, and then pay it off myself, well, I just can’t do that right now- in ten years, I may be able to
kay henry
yeah right on kay.
yeh i live in sydney too, paddington. where are you?
we should have a coffee some time.anyway, yeah, basically, what kay and i are doing means that our IPs will buy us our house further down the track, whereas if we’d bought our PPOR now it would be out of earned income, in tax-paid dollars – the most expensive kind.
I live at home with Mum and Dad[
]. It’s way cheap!There’s only one of my IP’s that I would have lived in, and it’s the one I just sold to my friend for below market value so he would actually buy a house. I was going to move in, but it’s a townhouse, and the yard is definitely not big enough for my dogs[
]. The others are smaller again, or twice as expensive, and way more than I could ever afford.I’m going to wait until my cashflow is enough to either rent me a house (need yard for dogs, plus landlord who will allow dogs – might ‘suggest’ one of my family buys another IP), or like Kay, make enough from growth in IPs to afford a cash, or near cash purchase.
Cheers
MelI know this is only a minor consideration, but if you buy an IP first, you’re effectively throwing away $7000 (for the FHOG).
Secondly, if you buy your PPoR with an investor’s frame of mind (getting info on rent levels etc), you can still turn it into a great IP when/if you’re ready to move on to another PPoR.
-Ian
p.s. melbear: I wish my parents lived in Brisbane!
My 2c
My partner bought her PPOR about 4yrs ago and lucily it’s appreciated in value ‘greatly’, it’s now her IP.
she would’ve missed that $ making opportunity if she had rented only (couldn’t afford to rent and invest) a PPOR is ‘forced savings’and you’re building “Equity M8” [^] and the work you do on the gardens etc all just ‘increases’ the value..and you don’t have to pay the labour! if you have your PPOR and haven’t done so for a while- get it valued it just may brighten your day[8D]
Not only that as a tenant you may be required to move if the owner sells or the rent jumps massively -for no reason.
So i’m an advocate of purchasing your PPOR.. but that’s just me i dont feel like moving if i dont want to- i see both sides of the argument though and realise there’s advantages too!
The ‘trust’ idea i know nothing of really- but hey! i like it, sounds like a win-win 2 me
REDWING
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
Rickyw, I agree with Redwing. We took the leap and bought our PPOR (in Sydney) and got it under value. I haven’t lived at home since I was 13 (boarding school, interstate for uni and now Sydney – originally from Nth Qld) so I was craving a little stability and a patch of dirt to call mine. I think when you’re younger (I’m just 23) there’s a huge pull to get out and prove yourself (that’s how I feel anyway[
]). But we decided at the end of the day we both wanted something that was ours. The rest will come with patience and perseverance…no right or wrong answer, get yourself a PPOR if it feels right. If you want that IP, get it instead! []G’day Ricky…
I replied to you earlier and said to Buy your own home first…and keep it…..Buy IP later.
Your opening sentence also suggests to me what you would “really” prefer to do. I don’t make all my descisions based on the Dollar and feel that security of tenure plus all the other ++++ are worthwhile and of course CG is tax free one day.
Westan has reminded me….. I keep forgetting to say not just now. I mistakenly assume that everyone recognises we are in the early stages of a correction in R/E.
I disagree with those that hold the view to rent and own an IP instead. If you buy right you will have far better CG than you would with 3 cheapies
that are cf+. My experience is that if you have excellent yield you have little CG.Also if you are buying Cheapie IP’s they may not necessarily remain positive cf and worse, as a cheapie more likely to fall heavily in a market sell off. An example is the 25% market fall in Canberra late ’94… Even quality homes fell 25%..but cheapies lost 50% in value within 12 months. 2Br units (Hawker) $112k down to $55-60k
Ex-govt homes in Higgins $130k down to $60-70kCheapie IP’s tend to attract the wrong sort of tenant. Of course you have a choice… but people rent cheapies because they have to, not because they want to.
My views based on my experiences…….
Cheers
Bill O’Mara
Real Estate,Mortgages, Option Writing & Forex. [email protected]If you buy an IP, and don’t live in it, and bought it after 2001 (I think that’s the date) you can still get the FHOG.
Bill, I don’t think that any of my properties are ‘cheapies’ (well, OK, one in SE QLD definitely is, but that was my first ‘learning’ experience). I’ve had awesome growth from some of them, and being a IP versus PPOR, I’ve had help paying for it, both from the tenant, and the taxman.
I had no idea those places in Hawker were valued so highly and then fell – I can definitely see that happening again, as you’re looking at around $200K to get one of them now – same same Queanbeyan units.
Cheers
MelRedwing, you could also get around being ‘kicked out’ before you are ready by asking for a long lease when you first move in – ie 5 years or however long you want. If you then have say, CPI increases in rent, you should be doing ok. I know as a landlord I was more than happy recently to sing a 4 year tenant on those terms. I’ve also agreed that if they leave Canberra for their work, that they give me 60 days notice, and that’s all that’s required.
There are ways and means. Or use a trust, or get a family member who wants to invest. Or buy a house for your sister to rent, and you rent the house she buys etc. etc.
Cheers
MelG’day Mel…
Canberra has a mind of it’s own and tends to go to extremes. I think that this well become less so in the years ahead.
I’m sure you know the units at Hawker… While you’re in the area drive past our first home
9 Goodparla St… $50k 1972. Just to make your day drive past Nevada, Pasedana & Arizona near the Watson shops… had a third share in the 42.. cost us $550k 1972 then we strataed them, Unit Plan No 10.In reference to the cheapies I was refering to Westans “3 @ $70k in NZ”. Not for me.
Been a while since I’ve said hello… sorry.
Cheers
Bill
Bill O’Mara
Real Estate,Mortgages, Option Writing & Forex. [email protected]hi all
hey Bill i think you are getting me (westan) and Mini Mogul confused [?], i haven’t contributed to this thread yet. i can understand the confusion we do look very similiar.[
]by the way, what a top post by Mini i agree with what was said (but she/he said it not me).[
]Given that most people move within 5 yrs it has to challenge the whole notion of ownership for many people. i certainly wouldn’t buy a 800k place i could rent for 400pw. i’d be with mini investing for a 22% return [8D]
regards westanG’day… Westan & Mini
Apologies, you must have the same colour Stars?
Cheers
Bill
Bill O’Mara
Real Estate,Mortgages, Option Writing & Forex. [email protected]thanks guys, i really appreciate and enjoy the various points of view. If i were to buy a house to live in i wouldnt be buying anything overly expensive and just something i could call my own in an area (i know we are coming into a tough time) that i could see capital growth (6-8km from perth cbd) However i feel there is some opportunity to be patient and i know of a positive cashflow properties or maybe area that i will visit in jan in south australia (where im originally from). Its funny the more you learn about different aspects of investing and strategies the harder decisions can be!!! I am 22 yrs old, starting a job next year which i will stick to for a while, i have 10-15k in shares and really want to make the right decision to achieve financial freedom in 10 years or so. The trust setup sounds very interesting and renting back to myself – new concept to me so more info would be great on that.And the first home owners 7G can apply to an investment property – interesting – is that after a year or am i on the wrong track??
Thanks again guys. If i bought my repayments would be 160ish a week or renting maybe 90-100 in an convenient area………….. the decision process continues but its great to learn.
cheersHi Guys,
Im gonna give a differnet opinion here, i live with my grandmother, and i choose to live with her, cause i think paying rent is dead money, second thing is, owning your own home, that is not completely paid off, is one of the biggest liabilities you can have.
Earlier this year i purchased a house in Wavell Heights in Brisbane, just before the property boom, even so, this property is very highly negativly geared. The reason why i purchased such an expensive property is that, one day when im ready to move back to brisbane, i will have a home that is almost or nearly paid off.
How??
The property is Highly Negatively geared, so i make a loss but, this loss will reduce my taxable income, secondly i have offsetted the cost of this property using other positive geared properties to fund the extra amounts the bank wants.
But what the real killer is, i know im gonna move into this house eventually, but cause im never gonna sell it or claim my CG, Im heavly depreciating this property.
This way ill never have to pay a higher capital gains tax, cause i will not sell this property and i will keep depreciating this property, and keep claimin it, till i eventually move in. As for the negative gearing, i will just offset it against some of my passive income properties. Which will neutral out the effect of paying higher tax cause of the passive income offset.
well thats my opinion
cheers
s.i.sGood to see you’re so well sorted out S.I.S! More so that I am, for sure. Never say never, I reckon.
Re your depreciation strategy, though, if you’re depreciating indefinitely, won’t you run out of things to depreciate? You can’t depreciate for more than an item is worth.
How do you envisage that working?
SIS said:
“Im gonna give a differnet opinion here, i live with my grandmother, and i choose to live with her, cause i think paying rent is dead money…”
SIS, some people don’t pay rent or “board” to relatives, and some people do. Just because a person is a relative, doesn’t mean it’s a free ride.
kay henry
]. It’s way cheap!
]. The others are smaller again, or twice as expensive, and way more than I could ever afford.
]
]
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