Hi All – I Was wondering if anyone could tell me if I have missed anything.
I purchased my first home about a year ago, I have a mortgage of 300k (deposit of 100k). Whilst I have enjoyed home onwership I have decided I don't want to be spending so much of my income servicing this loan (it has restricted me immensely) so I have decided to move back with my parents for < 5 years (travel too) to get the mortgage down to a much more manageable level.
I have the property now listed for rent and it's already received numerous applications, however is there anything else I need to do apart from "sit back" collect the rent and put it straight into mortgage together with % of my income? Is there a thing I need to do to make it an IP rather than my PPOR or is an automatic thing that happens when a tenant moves in? Do I need to notifiy anyone?
I will not own another property during this time (and probably ever
) and will move back 100% before 6 years (does that make the property CGT exempt)?Thank you for your time – I am just a tad confused I may miss something and receive a nasty suprise.
A few things to be done.
Find a decent property manager
Take good photos of everything in the place before tenant moves in. Can be used as proof later on if things go awry.
Take out landlords insurance.
See if you can convert loan to I/O but keep making addiitonal payments into offset account to reduce monthkly interest bill.
Advise Office of State Revenue that you have moved out – there may be land tax issues depending upon whcih state you are in.
Move back in before 6 years has elapsed so you maintain CGT exemption status.
Maintain the properties condition so it doesn't deterioratePut up with living at home again.
hehe thanks Derek much appreciated – my home is an apartment near city – perhaps I shouldve mentioned that, I believe Land Tax does not affect this? Also wouldnt the STate Revenue know that I moved out as it will be in my tax return?
Also what real benefit do I have from the offset account? Isnt it easier to just throw it all in the mortgage as my aim is to focus on reducing the mortgage?
Thanks
and apologies for the numerous ?I made comments about an offset account to a similar question in another thread. Pasted below FYI
"At this stage and while you work out what you want to do with this property long term I would suggest placing the equivalent of your principle repayment into an offset account linked to the loan.
For example if your interest bill is $800/month and you are currently paying $1000/month then place the difference $200/month into an offset account. Treat it as a tax and you won't notice the difference.
This means that should you move back into the property at a later date you can make a lump sum repayment on the mortgage.
If on the other hand you decide you want to live elsewhere than you will be able to use the cash saved as a deposit. "
Given the property is an inner city apartment – chances are it will not be liable for land tax. But, hey………………………..I tend to do all the advising then I don't have to worry about getting off-side with anyone.
I'm in a similar situation to you Francesco – I purchased a city apartment, but am currently renting with friends. My apartment is currently renting out for more money than the mortgage repayments (yay!)
I can't see myself moving back into this property, but I also can't see myself selling it (as it's such a nice little cash earner!). But maybe because I'm new to the property investing thing, I'm still not seeing the major benefit in switching to an Interest Only account, even with your explanation above. Surely if I paid extra into my home loan, I could redraw that amount later, and save on interest at the same time? Is the benefit for tax purposes?
Please help me understand! I'm hoping to purchase my future PPOR (will rent it out for a year or so first) in the next few months.
Cattaby wrote:But maybe because I'm new to the property investing thing, I'm still not seeing the major benefit in switching to an Interest Only account, even with your explanation above. Surely if I paid extra into my home loan, I could redraw that amount later, and save on interest at the same time? Is the benefit for tax purposes?Please help me understand! I'm hoping to purchase my future PPOR (will rent it out for a year or so first) in the next few months.
If you pour excess funds into your IP (as per above suggestion) you should be able to redraw the funds BUT (and its a biggie) the redrawn sum will not be deductible as the funds are being used for private purposes.
On the other hand placing the excess funds in an offset account means you reduce your interest bill by a factor of what is in teh offset account AND when circumstances change you can use the funds in the offset to spend on private & non-deductible items without creating messy tax issues.
Cattaby wrote:I'm in a similar situation to you Francesco – I purchased a city apartment, but am currently renting with friends. My apartment is currently renting out for more money than the mortgage repayments (yay!)I can't see myself moving back into this property, but I also can't see myself selling it (as it's such a nice little cash earner!). But maybe because I'm new to the property investing thing, I'm still not seeing the major benefit in switching to an Interest Only account, even with your explanation above. Surely if I paid extra into my home loan, I could redraw that amount later, and save on interest at the same time? Is the benefit for tax purposes?
Please help me understand! I'm hoping to purchase my future PPOR (will rent it out for a year or so first) in the next few months.
Hi Cattaby
If you’re planning on purchasing a PPOR in the future, it would be in your best interest to covert your current IP loan to interest only now.
Basically, at present the interest portion of your IP loan is tax deductible (the principle is not).
However, as you continue to pay down the principle, you’re reducing the IP loan amount and therefore reducing the level of deductible debt that you can claim – it’s slowly dwindling with each repayment.
As you’re planning on buying a PPOR in the future, it’s ideal to keep you deductible debt (ie. your IP loan) at its present level and place any spare funds into your PPOR (whether that be via an offset account if it’s setup as interest only or through additional principle repayments if it’s set up as P&I). This is because your PPOR debt is not deductible (it’s not an investment) therefore, if you want to reduce any debt, it’s this one.
Hope that helps
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks for the explanations guys! Will have to go down to the Commonwealth Bank tomorrow about switching over ASAP
No worries, best of luck with it. CBA’s equivalent of an offset is called the MISA account. Just ask for them to set one of those up against the loan.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
you may also look at getting a depreciation schedule prepared by a quantity surveyor. This gives rise to you claiming depreciables at tax time.
Scott No Mates wrote:you may also look at getting a depreciation schedule prepared by a quantity surveyor. This gives rise to you claiming depreciables at tax time.I don't wish to highjack this thread however I'm also about to rent out what was my PPOR which is also a flat
Before I place on rental market I intend to repaint & re-carpet (both are needed) are these items able to be depreciated or are they capital costs that I can useb as a deduction for this financial year?
MarJac wrote:Scott No Mates wrote:you may also look at getting a depreciation schedule prepared by a quantity surveyor. This gives rise to you claiming depreciables at tax time.I don't wish to highjack this thread however I'm also about to rent out what was my PPOR which is also a flat
Before I place on rental market I intend to repaint & re-carpet (both are needed) are these items able to be depreciated or are they capital costs that I can useb as a deduction for this financial year?
MarJac I am a recently Graduated Quantity Surveyor who works for a firm which specialises in Tax Depreciation. As I understand for re-painting as this is not depreciated like carpet the depreciation applied is part of the building structure and as such a 2.5% deduction is applied per year. With carpet the ATO allows for the carpet to be depreciated over the life of carpet. The effective life of carpet as determined by the ATO is 10 years and per year a deduction is calculated.
If you have any other questions let me know!
Derek wrote:A few things to be done.Find a decent property manager
Take good photos of everything in the place before tenant moves in. Can be used as proof later on if things go awry.
Take out landlords insurance.
See if you can convert loan to I/O but keep making addiitonal payments into offset account to reduce monthkly interest bill.
Advise Office of State Revenue that you have moved out – there may be land tax issues depending upon whcih state you are in.
Move back in before 6 years has elapsed so you maintain CGT exemption status.
Maintain the properties condition so it doesn't deterioratePut up with living at home again.
Hi Derek,
Great advise, short, sweet and direct to the point. I am kind of in the same boat, the difference is I wasn't able
to move into my first home purchased property (FHO grant applied) immediate as it has a rental lease tied to it. I waited 6 months before moving in (collecting rental) and have stayed for 9 months now, currently passing it over to a property agent to look for tenants. My question is, is this property still consider a PPOR? I don't have other properties and renting a place with a friend soon. If I were to move back in on the 5th year, do I still get CGT exemption? Someone told me I will have to pay CGT tax for the 6 months that I collected rental. I am not sure whether CGT still applies for renting it out now.A property can't be your main residence until you have lived it in. So you would be up for CGT for the first 6 months. But, the growth during this time would be minimal and there are deductions to apply against any gain/loss so you may not have to pay any tax.
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
Hi,
Maybe before you just rent out your home do the following (up to you)
1) maybe talk to a broker (Terry, Richard or Jamie) and see if changing or reviewing your loan structure will help you, not just for now but for the future.
2) Try and see an accountant and see what you can claim while renting your home out and ensure its set up correctly
3) organize Insurance (This will be a cost for you)
4) Also since you have an apartment, You might want to see who is liable for your body corporate / rates, You or the tenant.
Also you might want to look at a back up plan, What if your apartment is vacant for a few months? Can you afford to pay your rent + your loan on your apartment? (maybe have some spare funds to cover three months worth of rent
Jpcashflow | JP Financial Group
http://www.jpfinancialgroup.com.au
Email Me | Phone MeYour first port of call in finance :)
Just relised your staying with parents how about just pump your loan with as much finds as possible and then you I've back in you will be allot more comfortable
Jpcashflow | JP Financial Group
http://www.jpfinancialgroup.com.au
Email Me | Phone MeYour first port of call in finance :)
) and will move back 100% before 6 years (does that make the property CGT exempt)?
and apologies for the numerous ?
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