Hi all,
Our goal is to live in a property in Sydney's inner west costing $800K+ but I was wondering is it wise to 'buy the home we're going to live in forever' now, or buy 2 cheaper investment properties eg 2 units and rent out (mortgage)
we have $150K savings to put towards property investment and income from work and rental property to sustain a maximum mortgage of $800K+thanks!
You might have to do up a spreadsheet with both scenarios and work out which is best.
Another idea – what you considered buying the dream home now, live in it for 6 months and then rent it out and you rent elsewhere. You then claim the negative gearing benefits, save tax, and still have the property CGT free for up to 6 years. Do this for a while, while at the same time saving as much as possible in an offset account to bring the interest down. When it gets cashflow positive move in.
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
Do you have to live in it for 6 months being the minimum length of time?
Jennybetter check with a tax advisor, i can find nothing which indicates a minimum length of time. The tax act doesn't specify, it just says if a ''main residence' but doesn't define it.
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.htmlPrinciple residence is defined in TD51, but again no time length is specified.
http://law.ato.gov.au/atolaw/view.htm?locid=cgd/td51/nat/atoIs a principle residence the same as a main residence????
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
There is definitely merit in this idea!
In response to your query there is no specified length of time that you have to live in the property in order to make a place your main residence exemption, the main thing you have to keep in mind though is that you have to keep on renting. As soon as you purchase another property that you choose to live in your situation changes.
I am in the same boat at the moment, however in Melbourne. Finding something within our price range in an inner city/bayside suburb that hasn't taken off is proving to be a struggle!
Im not entirely sure but i believe you have to live in the property for a minimum of 12 months not 6 months before it is CGT exempt
Suchy wrote:Im not entirely sure but i believe you have to live in the property for a minimum of 12 months not 6 months before it is CGT exemptCan you back up this claim? I have never heard of anything like this.
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
Sammyh wrote:There is definitely merit in this idea!
the main thing you have to keep in mind though is that you have to keep on renting. As soon as you purchase another property that you choose to live in your situation changes.Not necessarily. You can live in the new house and still claim the old one as the main residence (but you won't be able to claim both). The good thing about it is you can leave decided which one is going to be your main residence (and CGT exempt) until much later.
And, you can even claim 2 houses as a main residence for a period of up to 6 months. s118.140 ITAA 1997
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
As Terryw said compile a spreadsheet & do the numbers & you will find that by deferring your home purchase for a property cycle about 7 years & buying 2 cheaper investment properties, capital growth & cash flow bonus of Tax/depreciation deductions & interest deductions will ensure you will be way ahead, you can then use the accumulated equity gains as a deposit on your own $800K home.
buy the dream home instead of 2 investment properties
i was thinking like this. that dream home today is $800K and you can afford it. In the next decade or less it could easily doubled and be $1.6M. would u be really sure you can afford it by then? even if you could its still then not worth it. the 10 years lifestyle sacrifice is not worth the cost of wealthy creation from buying the 2 IPs.
maybe if you could afford 5 IPs instead of 1 home then it might worth it. if you could borrow $800K for your home then you should be able to borrow much more on IPs because on IPs you can claim the rent incomes.
Terryw wrote:Suchy wrote:Im not entirely sure but i believe you have to live in the property for a minimum of 12 months not 6 months before it is CGT exemptCan you back up this claim? I have never heard of anything like this.
my mistake, ATO says the factors are
"
- the length of time you live there – there is no minimum time a person has to live in a home before it is considered to be their main residence
- whether your family lives there
- whether you have moved your personal belongings into the home
- the address to which your mail is delivered
- your address on the electoral roll
- the connection of services (for example, phone, gas or electricity), and
- your intention in occupying the dwelling. "
IF you live in the new own property for a few months then you can rent it out. In my view that would be best for you. You just have to be careful about paying the taxes timely.
I guess you should have the investments first so that cash will just flow in and then you can get your dream house.
The only cash flow in a ng property is out of your pocket, as Terry points out you will have to weigh up all options & scenarios
You should wait a few months in the current place. Make enough money to buy the dream house and then you should make a try for it. This is completely my personal opinion.
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