I purchased my PPOR in 2000 for 200k and now find the price has moved up to 400k thanks to the past boom. My loan is now in the region of 150k.
.
My question is this…my PPOR could be rented out for $300 weekly thus making it a +ve cashflow property.
.
Could I then move out and rent another property and purchase an IP with the equity in my PPOR giving potentially 2 IPs.
.
I don’t know if this is feasible or not. The place I would rent would be $350 weekly.
.
But thought this would give me a portfolio of 2 properties and a jump start into the investing world.
.
I would be interested to know if this would be a foolish way to go or is there some merit.
.
Any advice would be appreciated.
.
BenHi Ben, it is feasible to move out of your PPOR & rent it. However, running the figures means you will be worse off. Why? Well if a $400,000 home rents for $300/wk & you use the equity out of the first to buy the second you will have the following –
Property value = $800,000
Loans = $550,000
Interest = $740/wk (assuming 7%pa)
Rent received = $600/wkYou will be -ve by $140/wk plus have to find the $350/wk rent for yourself. Can you afford $490/wk?
Hope this helps[cap]
And sorry the bad news is we still haven’t allowed for other costs such as insurance, council rates, management fees etc x2
Keep in mind that you will lose the CGT exemption if you rent the place out.
If you do rent it out I would have a valuation done which will lock in your CG so far and you can still claim the exemption on that portion.
You can also use the equity to buy two IP’s if youy wish without moving out subject to serviceability and purchase price.
Speak to a capable mortgage broker about your options.
Cheers,
Simon Macks
Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hey Simon. Is that right about locking in the CG. I thought your gain was apportioned over the time rented vs time PPOR less 50% discount of course. I didn’t think a valuation would be considered by ATO because obviously this value could be influenced!!
Is what my accountant advises.
I am talking a registered valuation – not a dodgy Real Estate Appraisal.
Anyone know differently?
Simon Macks
Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Simon, I found this example on the ATO website on how to work out the CG. Sorry it is so long.
Example
Part exemptionThe facts are the same as in the previous example except that Frank rented out the house from 26 October 2000 – the date of settlement of the purchase contract – until 2 March 2002.
Frank makes a capital gain of $30,000 on the house. To work out the part of the capital gain that is exempt, Frank must determine how many days in his ownership period the dwelling was not his main residence.
Frank had an ownership interest in the property from settlement of the purchase contract (26 October 2000) until settlement of the sale contract (20 July 2004) – a total of 1,364 days.
The period between the dates the purchase contract was signed (14 August 1999) and settled (25 October 2000) is ignored. Because the house was not Frank’s main residence from 26 October 2000 to 2 March 2002 (493 days), he does not get the exemption for this period.
Frank calculates his capital gain as follows:
$30,000 capital gain
x
493 days
1,364 days=
$10,843 taxable portion
Because Frank entered into the purchase contract before 11.45am (by legal time in the ACT) on 21 September 1999 and entered into the sale contract after this time (and he owned the house for at least 12 months), he can choose either the indexation or the discount method to calculate his capital gain. Frank decides to reduce his capital gain by the CGT discount of 50% after applying any capital losses.
That is correct but I don’t believe it is the only method available.
I will check it tomorrow.
Cheers,
Simon Macks
Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Ben
You could move out and rent, but you could also stay put and buy another property. If you rented your home and it was positive geared, you may have to pay more tax, but this could be offset if you are renting cheaply eslewhere.
Also, under section 118-145 of the ITAA you may be able to rent out your home and to claim an exemption from CGT for up to 6 years, if you do not have another main residence at the same time.
Terryw
Discover Home Loans
North Sydney
[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
You must be logged in to reply to this topic. If you don't have an account, you can register here.
