I am interested to know anyone's thoughts on my situation.We are a new arrivals to Australia, about 2 years and 8 month ago. I’m 45yo and my wife 42yo, a 3 1/2yo Daughter and a 17yo Son. We have a 100k combined income, without debts and rented in Adelaide, SA ($1.280 Monthly). I’m interested to know the pros and contras between buying a Home (Owner Occupied) vs. to start investing in properties and keeping us renting for 3-5 years.
Any tips or suggestions
A. Bravo
Hi Bravo,
as they say rent money is dead money. by renting your probably paying someone else's mortgage off. Although there a substantial benefits to be made with an investment property.
The benefits of an investment property are rental income, depreciation and interest and bank charges can be claimed, to name but a few.
I suggest you speak to your accountant to find out all the benefits involved in investment properties.
Although with an owner occupied home there are no tax benefits to be gained but you have the security to know your have your own home.
good luck with your endeavors.
regards,
Have you considered buying a home, living in it temporarily and then renting it out. This way you may be able to claim deductions and still have the property CGT free. ie you get the best of both renting and owning.
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
I would buy a PPR that has substantial ability to manufacture equity, inexpensively. For example, buy a dated-looking house and gradually update the paint, window treatments, get the garden looking nice – basically buy something tired and make it look fresh and loved. Then get it revalued and draw the extra equity out as a deposit for your first IP.
From a purely financial perspective, you're better off continuing to rent and buying an IP, because of the tax benefits, but I recommend a PPR for these reasons:
* if cashflow gets tight, it can be tempting to sell an IP, whereas you'll tend to ride out the challenges in the home you're living in
* there's a feeling that comes from living in your own home that I consider worth a great deal
* whilst you can't claim the negative gearing benefits each year on your PPR, you do get CGT exemption. (Yes, I read the post about buyng a PPR and moving out and making it a CGT-free IP; I can't be bothered manipulating my affairs simply to try and defraud the Australian taxpayer. Whilst it may be difficult to prove, if your intent was always to move out, then it is fraud.)
* it's easier to continually improve and maintain a PPR – because you're living in it – and maximise its valueBest wishes!
Evening Bravo,
A little while back I was in a similar position with a choice of buying one or two IP's and renting with similar money. After seeing an accountant he gave me the advice of putting all my money into a PPOR and borrowing equity out of PPOR for the first IP. The first thing is he stated you need a roof over your head but it is also an investment. This reduces your non-deductible loan as much as you can. The next part was all the money used to buy the 1st IP was 100% borrowed in effect. It was much better when it came to tax time. the initial deposit you pay in cash for IP's does not allow for any interest deductions. What happens in a couple of years when you want a PPOR and your money is tied up in IP's? Would it be the best time to sell?
My personal opinion is that at some stage your mortgage repayments will be less then renting. The sooner you get there the easier it can become.
Cheers
Creanycreany wrote:Evening Bravo,A little while back I was in a similar position with a choice of buying one or two IP's and renting with similar money. After seeing an accountant he gave me the advice of putting all my money into a PPOR and borrowing equity out of PPOR for the first IP. The first thing is he stated you need a roof over your head but it is also an investment. This reduces your non-deductible loan as much as you can.
Don't agree with what you were told.If say, you buy a property for $100k with a 20k deposit, then you have 20k equity.
So let's say the bank will lend you 20k as a LOC against the PPR for an IP and you buy one for 120k.
OK, your debt is now a total of 200k (80k non deductible and 120k deductible.)Buying the IP has done nothing to reduce non deductible debt, as you still have your original 80k debt on your PPR.
The advantage of buying a PPR, living in it for 12 mths, then moving out, and turing it into an IP, is that the 80k debt is then deductible.
But this is only an advantage if you move somewhere where your rent is lower, or you buy another PPR getting the stamp duty concession and add value significantly. This is a sensible way to start out.
I have modeled this in a spreadsheet analysing whether first home buyers should buy a PPR, IP, or continue renting.
The next part was all the money used to buy the 1st IP was 100% borrowed in effect. It was much better when it came to tax time. the initial deposit you pay in cash for IP's does not allow for any interest deductions. What happens in a couple of years when you want a PPOR and your money is tied up in IP's? Would it be the best time to sell?My personal opinion is that at some stage your mortgage repayments will be less then renting. The sooner you get there the easier it can become.
Cheers
Creany
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