house to live, house to rent??

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Good 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?

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The property is 6 years old, With depreciation, you are able to claim 2.5% of the property over 40 years(as long as the property is built after 1986). With this property i can depreciate it for another 34 years, in the mean time, till i move into the property, i will claim as many expenses and depreciation that i can. As long as i dont sell, i wont pay a capital gains tax but will be able to continue claiming a new lower income taxable threshold.

This is just a different strategy, but very effective and legal.

cheers
s.i.s

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Is S.I.S really just code for “Margaret Lomas”? This is straight out of her books!

34 years is a good length of time, and I agree that the cashflow you get in the meantime is great. This will probably be what’s making it postitive cashflow – you just pay for it in CGT when you sell.

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Hi Rubbachook,

lol… i see you have read her books too.
Nah, im not not Margaret Lomas, but she is some one idol

cheers
s.i.s

Mel, I could be wrong here but I thought once you bought a house (IP) the fhog no longer applied.

Josh

Hi there,

>everyone recognises we are in the early stages >of a correction in R/E.

I think you might be right Bill, and it’s not that I disagree that people can make huge amounts of capital gain from their negatively geared PPORs over time and in a booming market, if they buy right, etc etc etc – but it’s just not a given right now. And if you are buying for CG even in today’s climate it’s not necessarily going to be the same choice that you’d make to live in.
I just think negatively gearing a property right now is risky and personally i wouldn’t do it.

As far as security for a nice place to live goes, you can always signe a long lease if that means something to you. but personally I’m planning to be moving up in the world as to where I live in the next year, so I don’t want to be beholden to buying a PPOR. I also might move overseas. Sure, i could hang on to a house i bought to live in and rent it out, but IMHO PPOR type houses don’t make the best rentals, especially if you have an emotional attachment to it.

In fact i think shopping for a PPOR and shopping for an IP couldn’t be more different.

>I disagree with those that hold the view to rent >and own an IP instead.

I think if you did the numbers on the house that i live in and my three IPs I got instead for the price of a deposit, even you’d agree. I would be worse off to the tune of 50K PER YEAR! That’s a lot of CG catching up to do to break even.! Just impossible for me to afford to live here as a purchaser, but possible to afford to live here as a renter – thanks to the pathetic yields Sydney investors are used to.

I wasn’t saying that everyone should do as i do, but just that everyone should do the numbers on a potential house they might like to buy as a PPOR or putting the money into an IP. I think it is possible to get the FHOG on your first property as long as you live there in the first year. When if you took a holiday for a couple of weeks and went and painted it before renting it out, i don’t see the problem as the law doesn’t define how long you have to live there for.

>If you buy right you will have far better CG >than you would with 3 cheapies
>that are cf+.

well Bill, what would you suggest would be ‘buying right’ in the current market that wasn’t CF+ve? and why? And what say the people looking for a PPOR don’t want to live there?

>My experience is that if you have excellent >yield you have little CG.

yeah, that’s true, but you need the CF+ve properties to increase your serviceability so you can borrow and get more properties. With only neg geared properties in your portfolio, everything sort of grinds to a halt fairly quickly, and it keeps you in your job, paying into it with after-tax dollars. it’s just against the whole thing i am into which is to enable me to work less, not more.

>Also if you are buying Cheapie IP’s they may not >necessarily remain positive cf

I can bet you without a shadow of a doubt that mine will. Hell, i only need 25 percent occupancy to make that happen, and because I have three (all rented) my risk is spread over three.

>and worse, as a cheapie more likely to fall >heavily in a market sell off.

I disagree. There are more buyers who can afford the bottom of the market than any other slice! And yield is yield – it’s a no-brainer that i could always sell a renovated, well-maintained property tenanted and yielding 20-22 percent to an investor any time, especially of entry-level prices under 50K.

And it’s not true about capital gain either – with tasmania, you had declining prices and population for 12 years before people thought, bugger it, I don’t care about CG, i just want one of these cheap houses that seem such good value as a holiday home. So tasmania became hot what seemed overnight, and population is rising like mad, investors are well and truly in.

One of the towns in NZ where I have been buying (much to the chuckles of my friends and family) had a spread about it in the wellington evening post as the new hot place to invest going nuts.

So…that was a nice surprise. i think it’s the Tasmania syndrome. People are looking all over NZ and they find these places with identical houses and rents to other towns, but for half the price. hence the yields being 20 percent not 10 percent.

>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 $60-70k

I personally think that i have bought my properties at the bottom of such a fall. I’m actually not looking at what the value is doing month by month, as I am looking for cashflow. the cashflow over the years should go up, so theoretically, the yield gets better and better over time. it’s really not the value of the house, as such, the value to me is what someone will pay me to live there. and I can’t really see that changing. even if vacancies occur in the towns i’ve bought in, I should think my properties will have the edge because they are so nicely fixed up.

>Cheapie IP’s tend to attract the wrong sort of >tenant.
It’s true that you want a good rental manager to keep a watchful eye on the property. However my tenants have planted 18 trees, fenced the property and put a gate on it and pay rent every week, so as far as i am concerned they are quality tenants. I agree that most of the cheap properties are sh&^tboxes, and if you buy them and put them up for rent and they’re bad, nobody will want them excpet for tenants that nobody else will have. So to a certain extent i think that if you have more money, buy an already good property. but i didn’t have that much and the way I chose to do it was fix up ad redecorate structurally sound dumps.

>Of course you have a choice… but people rent >cheapies because they have to, not because they >want to.

yep – but they rent my ones because they want to as well as they are cheap, because they have emotional appeal (created with my very own hands!!)

I keep meaning to post pictures somewhere. because as we know a picture paints a thousand words!!

cheers-
Mini

thanks mel

Josh