Truly a beginner question

Hi Patrick,

I believe the theory behind that is to actually get more rent for your IP than what you are paying to someone else eg. you rent your IP for 250 p/w whilst paying Jo Average say 200 p/w thus you just made 50 p/w. Sounds simple enough doesn’t it? But it’s not that straight forward, people often overlook the finer details.

It is a one way of doing things, especially when you are starting off, but not for me I’m afraid.

BTW….even though I have been investing property for years (trust me, many many years)….I still feel like a “beginner” when I talk to people such as those in this forum.

All the best,

Jo

I’ve found this a strange way of thinking too – but I guess it depends on the value of your PPOR. I mean, if you’re living in a $30,000 house, I don’t see the point. But if was a $450,000 one…

I think they’re saying that you rent your own home out, but you in turn rent yourself for less than that rent you’re receiving. This gives you more free cash to use for investment purposes.

Also thinking about it, if you “transferred” your home from yourself, to your business asset (IP – investment property), you can now claim all sorts of tax deductions – that – if it was still your PPOR – you would have had to pay for out of your own pocket. Also, because you’re now renting yourself – you don’t pay those where you’re renting either – your landlord’s does (or his tax deductions do).

Allan.

I totally get this question and agree with the book’s advice. We rent an 800K house in Sydney for the poor landlord’s (had they bought the property today) 2 percent yield.

Meanwhile I have properties which earn me 20 percent yields in good old NZ which more than cover my half of the rent.

And here’s the amazing bit, my properties are worth only a tenth of the value of the place I am living in – the amount of a deposit on where i live now! And the rents from my investment properties completely support me living in a place in Paddington, Sydney which I could no way afford to buy.

mind boggling huh. Cause i did the numbers, see!…..let’s say I bought this 800K place, I would have had to have 80 to put in as a deposit, had interest only of probably 1200 a week, plus maintenance and rates….which would have cost me approximately…hmmm….6-7 times what I am paying now!!!!!! Less the income from my rental properties, make that 8 times!

in case you’re still not convinced-

Like someone mentioned above, Mortgage interest on own home has no tax benefits. It’s paid out of tax-paid dollars, the worst sort! But interest on investment properties is tax deductible.

the gov’t’s way of kicking back investors for helping them solve a problem which if not for investors would mean state housing would have to spend a whole lot more money.

There’s more reasons for it too – i.e. I work from home full time, and so a portion of my rent and bills are also tax deductible. Even if you are an employee you can start a home-based business on the side I think (property investing!!) and take advantage of the tax laws.

In fact… I can’t imagine one single financial reason to own one’s own home first. The only reason is an emotional one as far as I can see.

All of this is just my opinion of course…I love a debate so bring it on. Anybody?

“Coz your landlord might be wanting the same thing.”
Not quite….me wanting to make money, as in, real cash not just ‘equity’.

Landlord wanting to lose money, actual hard cash they pay into their property out of their pocket each week, in the hope of either ‘legally minimising tax’ OR capital gains.

If all things were equal and you for example rented an identical house to the one you had as your investment property, you’d still save with tax write-offs.

cheers-
Mini

Some things are worth more than money. In my opinion one of them would be my own home. Somewhere that I can’t be evicted from because it is being demolished to build a duplex/the owners son is comming back from overseas or whatever reason or whim strikes the owner of my rented “home”.

I want my kids to grow up in one place – last two moves broke their hearts (well the eldest anyway -my baby is too young to care… yet).

That’s my opinion, however I just can’t do it right now. I also believe that, if you are more like my husband (not at all sentimental about the “home of your own” thing”), then there are definite financial benifits in renting while you build an IP portfolio.

Regards
Sonja

Hi Patrick,

Not quite – but you are getting there [exhappy].

Deductible loan cost do not include principle repayments. Assume you are paying $1000/month with $800/month interest. Only the $800 is deductible as the other $200 goes towards loan repayments and is not considered a cost of the loan.

Any income in excess of expenses will be taxed and this is calculated over the course of the year.

So assuming your property is making you $300 month and is costing you (excluding principle repayments) $250/month – this means you are makng a profit of $600/year. This would be added to your other income sources and taxed accordingly.

If however the numbers were reversed and you made a loss of $600/annum this would be deducted from your taxable income.

Derek
[email protected]

Property Investment Support Available. Ongoing and never stopping. PM welcome.

The other ‘benefit’ of renting vs owning, is that you don’t pay rates/land tax etc. etc. on your rental – the landlord does.

So your rent (plus utilities) are your costs of living in the house. If you in turn rent out your PPOR, you get to claim the costs of these items that you are paying in your tax return.

Cheers
Mel

As far as I know you can’t claim on an IP unless it is at market rates. This is especially prevalent if you are renting to relative. The tax office looks very harshly on this.

Thanks,
Luckyone

‘Market Rates’ sounds like a very large grey area. How would they determine the rates for a place that could in fact have reasons for being so cheap to live in.

– rental doing work in the garden or some other CG (potential) increasing activity.

– a particular issue with the very localised area that means the rental income would be lower. A good example would be a terrible neighbor.

Is there a specific article I could read on this issue to see how it would work for me?

Acey, have you checked out renting a house from your own trust rigorously with your acct? Seems like something the ATO wouldn’t look favourably on. How long have you been doing that for?

Bruce
Mooloolaba, Qld