My fiance and I are looking at buying our first home but also would like to start building up a portfolio of IP’s. What would be the best way to go about this? I thought I would ask now before we purchase anything. Thanks!
I advise you to buy an IP first. And if you want to live together then just rent. as you will be getting rent from your IP and the interest is tax deductable.
An IP first is the way to go. Then maybe a few years down the track you can use the equity(and your savings) to get into another IP or to buy your PPOR. I will use this method when I begin investing in a few years time.Christopher.
There is no right answer.
Buying a home means you have a nondeductible debt that you can use all your income to reduce together. You can also buy a run down property and improve it to build equity faster. You will get the FHOG and SD benefits.
All equity you realise is CGT free and can be freed up by increased borrowings at any time.
Equity gained can by either payments into the loan, improvements or market growth can be harnessed to buy additional IPs.
Alternatively you can buy IPs first. You will pay rent that is not deductible and earn rent that is taxed. You wil not get the FHOG and will prob lose the SD exemptions for good.
I think in a slow market such as this one I would be looking to buy a PPOR first. But that is purely a personal choice. I enjoy living in my own home.
Simon Macks
Residential and Commercial Finance Broker
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Hi, Creation1
I agree with Mortgage Hunter. There is no right or wrong answer.
On one hand, you could go for an IP, earn the rental, pay tax and use the rental income for investment. On the other hand, you could get your own place, pay down the place and use the equity from there for future investments.
Depends on you and your partner’s objective.
Personally, I am for renting, but my partner prefers to put our money into getting our own place, and then using the equity to invest.
So, really up to you and your partner, after considering your goals / views.
Regards
Daniel [specs]Morgage hunter, I believe my idea incorporates both your ideas(even if i didnt write it here).
Buy a property, live in it for 6months(then you will be able to obtain the FHOG and SD benefits), in this time you can renovate it(buy a dump and reno it up heaps), then you can move out and rent somewhere else and then rent out that reno-ed place.
Therefore you will get the FHOG(and SD discount) also you will obtain the equity and you will have a deductable interest as it is an IP.Is this alright everyone.
I’ve had this idea for a week or so and its starting to become cemented in my head. I need some feedback even if it seems harsh, its all constructive to me.Christopher.
the above replies are all great advice…
when it comes down to it, do you really want to be paying someone elses house off?
if u can find a CF+ property than maybe renting might be a more attractive option. If it isnt CF+ than wouldnt this be the most likely scenario; ??? please correct me if im wrong…
1.you rent a house, and purchase an IP
2. your paying rent (money you wont see again)
3. your losing money (if CF-). interest rates may increase (now you are paying more for this IP)
4. your IP wont be getting much (if any) capital gain.And this is considering you secured long term tenants…
I will most likely get corrected on a few things there lol. Feel free to.
Hi Creation1, and welcome to the forum. You can answer this one yourself, as really it all depends on your feelings. If you are 100% clinical and concerned only with getting started with building an investment portfolio, obviously renting. Sure, dead money, but not the responsibility and you can work on your investing plans meanwhile. However there is a lot to be said for the ‘secure’ feeling (it is only a feeling) owning and living in your own home brings, and what is the point in accumulating property if you don’t feel content and happy meanwhile? ……I miss it! If you buy your own home sensibly, and don’t over capitalise with spending on it, you will find you have some equity to help out down the track I’m sure. All the best…..and while I’m at it, (this comment is not directed at you, but reading through the replies I finally felt the need to broach the topic)the FHOG is for first home buyers for their own home. While some are ‘scamming’ to get it so as to live in the place for a token 6 mths or so, some of us have never had anything made availalbe like this, and would have really appreciated it all those years ago. While it is and can be done technically, even if someone is never ‘caught’ or questioned, I reckon it is a tad unethical if not dishonest. Anyway….like I said, all the best with your journey![biggrin]
Well V8ghia, um. With me planning to buy an IP and live in it for 6months while I reno it. I will not be like most people and just change my mailing info to that address. No, I’ll actually be living in the IP for the 6months.
Anyways its not like I’m recieving the FHOG with my IP and then my PPOR. I only recieve it once. Like anyone else. I’m just mearly buying a house to live in, renovating and deciding later on that i want to turn it into an investment property.Also, with the money you pay rent with, yes i agree that its dead money. But maybe in times of low cashflow it might be better to rent than to own your own home. As your rent you pay will be less than the interest repayments. Its only a good option if your cashflow can’t support you having a PPOR aswell as an investment porfolio.
Christopher.
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