I am new to property investing, but keen to get into something to replace my income when I retire in a year or so. The little bit of investing I have done (exchanged contracts last week on my first ever, bought by myself, IP!) has got me excited about continuing. My husband and I have a large PPR in the northern suburbs of Sydney. My son, who is also keen to buy his first IP, has a PPR in a high rental inner city Sydney suburb. From my reading, it seems to me that both these residences would earn us good rent and tax deductions and are currently useless as income earners, while we continue to live in them. My question is, if we bought a cheaper property each to live in and improve over twelve months (in areas with good growth) and rented out our existing PPRs, would this be a good move in terms of cash flow, tax benefits, and long term financial security? Tell me if I am missing a few million loopholes or pitfalls!
It may improve cashflow, but if you do not have a loan on your PPOR or it is low, then you will probably not save tax, but will be paying extra tax on the profit you are making (Rent minus costs).
If you bought a cheap property and did it up while living in it, it may not be wise to claim it as your PPOR as this would mean you would lose your PPOR status on your current home for this period. It may save you some CGT if you sell, but long term it may not be wise.
But it still may be a good idea to live in your IP while doing it up and then renting out your main one. It would give you cashflow and you can concentrate on the renovations. you just have to crunch some numbers now.
Terryw
Discover Home Loans
Mortgage Broker
[email protected]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
Thanks Terry, helpful advice. I have just read Steve’s book “0 to 130 properties….” couldn’t put it down! It is just what I need in terms of preparing an income after retirement. The only trouble is, positive cash flow is so hard to come buy (as has been mentioned many times on theis forum). The strategy to rent the present PPR and downsize has some positive lifestyle benefits. I have just mowed our large lawn, exhaustion! Looking forward to a smaller dwelling with no gardening. Would still value some other comments about renting out the family home (the kids are against selling it).
cheersSalla,
http://www.bantacs.com.au/booklets/Rental_Properties_Booklet.pdf
Should give you a free booklet on rental properties.
Julia
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