First Investment Dilemma
I am a 26 year old female with a secure government job, I earn $53,000. I have just purchased my first home in Western Sydney for $320,000, my mortgage repayments are about $890 per f/n. So far I have re-painted, polished the floorboards, installed a new kitchen, and new air conditioning in the lounge and master bedroom all up I have probably invested about $20,000. I have lived in the home 12 months, and I rent out two bedrooms for a total of $325 per week, (including bills).
My Dilemma is this: I have worked hard to secure the house, which I hope to turn into an investment. It doesn't feel like my own, and I am sick of living with other people. I am thinking of renting an apartment and renting out my whole house instead of sharing. I believe I could get $320 – $350 for the house, however this would match what I myself would pay in rent. At the moment I have very little disposable income with all of my money pouring into fixing up the house. My long term goal is to secure investment properties for a good future; but I am extremely unhappy with my current living arrangements
.Q1: Is it financially viable (or beneficial) for me to rent out my house, and rent an apartment elsewhere?
Q2: Tax time is coming – Do I declare the rent from my roommates for the purpose of claiming tax incentives (interest on loans etc) – I don't know too much about this area – or keep the cash in my hand?
Q3: What is the best way for me to move on and up from here?
Hi.
I am sorry to hear about your situation, as you are obviously trying to be really sensible by offsetting costs with boarders,
but I know this can be a nightmare in reality! Well done though in having started so well as an independent young woman.Here are some options that sprang to mind:
1. Terminate boarders and start again with new ones.
2. Rent out your room as well, and move back home/in with relative or friend for a while so you can gather your thoughts.
3. Reassess your approach by taking a long term view. Could you save all the money from boarders as a deposit for another property just for you to live in, i.e. small flat? Would this goal motivate you to tolerate things as they are for a couple more years?
4. Would a compromise of one boarder only work?
5. Is it possible that your property has gone up in value enough for you to sell and regain a deposit for another home?
My reason for asking is that you may be able to find another property that has a granny flat. This could enable you
to repeat the process, whilst having more independence living in the flat. Sometimes granny flat homes are around
the same price as ones without. Alternatively could you move a secondhand one into your current backyard, with council approval, and rent your former room to cover the cost, again so you are not in the house?!I personally think moving out and renting at this stage would put more strain on yourself with shortfall in the mortgage to
pay as well as rent. This would obviously slow you down in your investment plans too.Good luck, I hope you can work something out.
G
Hi wannabe,have a friend in northside brissie in similar situation,he sold his 1st home that he had cosmetically renovated and had rooms rented out.Bought 2nd home 3brm with approved granny flat and rents the 3 brms out.L shaped house, granny flat attached on end of L, but separated by breezeway.Separate entry and driveway,carport.He says its working a lot better with the relationships with boarders and financially.I don't think he declares the rent and is looking at buying another IP next financial year.Good Luck Al
hello,
declaring the rent is completely up to you.
if you don't declare it, you just keep the cash rent to help the mortgage repayment and you still get 50% off CGT when you sell the house.
if you declare it, you can declare part of your mortgage interest now, but when you sell the house you will lose the 50% off CGT on the part you declared, because that part is investment.
so it really depends on what you want to do in the longer term.about the inconvenience of sharing with others, everyone has different living standard. my personal experience is if you find good tenants, it's actually really nice because you become friends with each other. Actually one of my housemates lived with me for 4 years and she even moved together with me and we remain close friends now.
it all comes down to what you value more: comfortable lifestyle or financial goal. one thing you need to consider is if you want lifestyle now, it will slow down the speed you reach financial goal. if you can reach your financial goal faster then you can have comfortable lifestyle faster too.
good luck.
How about your try house sitting?
There are websites around that that match up people going away on holidays with people who want to look after their places….
My cousin does this and has lived in some really cool places, eg. a mansion in kew! (melbourne).
Of course you'd have to have a place of backup in between house sits but keep in mind that these house sits can be reasonably long term (and the people that can afford the long holidays are the ones with the nice houses!)It would certainly keep life interesting… and if you did this you could then rent out out the third bedroom in your place so you'd have more income coming in allowing you to build up your savings even more quickly.
Also, you would probably be looked upon facourably as a house sitter because you own your own home and are therefore more likely to take good care of theirs.
I know this isn't for everyone but just though i'd throw it out there… Good Luck with your investing
if you look into the option of putting a granny flat in the backyard, be sure to look on ebay ( i love ebay) because there are often good quality granny flats listed for sale on there for really reasonable prices.
have you also looked at the option of having international students? They stay for shorter time frames, so if you don't get on its not as long to endure, but they also pay heaps more for their room. They may also be good contacts if you ever want to travel overseas
As a general rule, it is cheaper from a cash flow perspective to rent yourself than live in your own home, assuming similar rents paid.
The reason is the tax breaks that you receive on the basis of a negative geared property. You put in a ITV form and receive the benefits of the lower PAYG deducted from each pay. However with an income of $53k, we are talking about a 30% marginal tax rate. Do some numbers to see the difference and make your own decision. Wealth is not just about financial goals, it is also personal happiness and fulfilment.Most people would not declare boarder rental, they just regard it as offsetting the expenses. That is unless you run a business providing accommodation.
Good luck
GregDeclaring rent from renting out the rooms will mean you will lose the CGT exemption for this portion of the property. This will probably be a lot more than the tax savings you could get.
Even if you will be paying the same rent, it may still be worth moving out for a few years and claiming your expenses associated with the property. This can be done without losing the CGT exemption under, s 188-145 of the ITAA 1936, for up to 6 years.
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
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