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!
Hi Salla,
Welcome to the forum and thanks for your post.
You ask a question that must be near the front of every homeowner’s mind – namely, what to do with an asset that might be earning equity but which is not performing from a cashflow perspective.
Furthermore, approaching retirement, you no doubt sense that equity is not as ‘useful’ to fund ongoing expenses as is a regular cashflow, mainly because once spent, equity is now expired whereas cashflow is of a recurring nature.
Two important issues to weigh are:
1. Are you willing to take a lifestyle hit to rent out your home to move to ‘lesser’ accommodation?
2. How much equity should you redraw to fund other investments.
The answer to the first question is an issue of lifestyle and the way you are acustomed to living. Only you know if you can ‘downsize’ (in living) to ‘upsize’ (in income).
The second question is a matter of crunching the numbers to see how much extra interest your equity redraw would cost you to access funds to invest. This is where planning is needed as opposed to investing on a whim.
As for loopholes etc., best to see an acocuntant for the specifics, but generally your home (i.e. principal place of residence) is not taxed from a cap gains perspective, but then again, neither are the improvements generally tax deductibel either. Things change a little if you rent your property, especially if it is for an extended period of time.
Good on you for thinking about such issues, and best wishes for your new career as a property investor!
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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