Hi All,
I’m new to the forum and hoping to get some valuable advice, thanks in advance to all who reply
I’m a 22 year old and have purchased my first property, a 2-bed, 2 bath, 1 garage apartment in Pemulwuy (NSW) off-the-plan due to settle in April 2012.
The property was $370k and I will have saved up ~$100k by settlement date (partially impacted by share market volatility). My current income is $61k, with the possibility of a promotion and payrise to ~$75k in June 2012.
At the moment, I am looking at structuring my finances for this property. I am mindful that I do not actually want to live in this property but would rather keep it as an IP long term. I also hope to have more IPs in the future and hope to one day afford a place closer to Sydney CBD which I will have as my PPOR. However, I do currently qualify for the FHB grant should I choose to take it.
Therefore, is it better to:
1) Rent out the property immediately, foregoing the $7k FHB grant, but receiving ~$400p/w in rent? (rental estimation provided by the real estate agent and semi-verified against realestate.com.au numbers, as there is only 1 comparable apartment listed)
2) Live in the property for 6 months to qualify for the FHB, then rent it out for ~$400p/w.As I purchased the property off-the-plan, before the foundations were laid, I believe I will qualify for a stamp duty exemption even without the FHB.
From simple calculations, they look quite similar comparing the $7k FHB grant vs 6 months rent (after tax), but as I am not aware of many tax deductions/implications I could be very wrong.
Also, as I would like this property to be an IP long term, I plan on taking out an IO loan with a 100% offset. Is this advisable?
I plan to put down a 20% deposit (to avoid LMI) and store the rest in the offset account.Lastly, is there anything I should do/consider now in these early stages to set myself up for investing in more IPs?
I know these are a lot of different questions, but I’m very keen to learn. I’m very grateful for all responses!
Thanks guys
ggbehhttp://www.ato.gov.au/corporate/content.aspx?doc=/content/86191.htm
6 Year rule maybe?
So if you lived in the property to start with yourself, you can then declare it a ppor which makes it Capital Gains tax exempt for upto 6 years from moving out, while still allowing you to claim all the normal deductions for a rental property for the period in which you are renting it out.
All the other details seemed fine.
Yes the 6 year rule would be the advantage. As you don't pay stamp duty not much of a gain from the FHG.
With the 6 year rule though you do have to move back in within the 6 years. If this is not likely I'd leave the FHOG for another time.
While you have good depreciation in the first few years, the property is quite negatively geared so keep that in mind as it will affect your cashflow and ability to get further loans for the next one.
Your idea of loan set up is correct for your situation. IO and money in the offset. That way you can use that at a later date for deposits.
I like to have a separate account where all my investment money goes in and out. ie rent goes in, all payments go out (interest, rates, etc). Easier for the accountant too.
Good luck.I was going to suggest the benefits of living in it include keeping it CGT free when you rent it out – for up to 6 years. No need to move back in either, but if you moved in and out the exemption could continue for another 6 years.
Also, the loan set up is good, but have you considered trying to get a 90 or even 95% LVR. LMI would be payable, but this would be deductible over 5 years, after you move out, and you may be able to cap the LMI into the loan so you don't need to pay it in cash. All of this will free up more cash for your future PPOR and would be more tax effective. You just have to weigh up the costs v the benefits.
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
If you believe you will rent the property out then i think i would be taking a 90% lvr with 100% offset account as LMI is a loan cost and a deductible expense (Over 5 years or the term of the loan whichever is the lesser)
It is not all that bad and is an opportunity cost and if it means you can get into your own PPOR down the track i think i would be going that route.
With your income and deposit you certainly appear to have the capacity to buy another property so think i would be thinking about how to stretch out your deposit to maximise its effectiveness.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Terryw wrote:I was going to suggest the benefits of living in it include keeping it CGT free when you rent it out – for up to 6 years. No need to move back in either, but if you moved in and out the exemption could continue for another 6 years.Oh. I thought you had to move back in. You learn something new every day.
So if you don't move back in after the 6 years does the CG kick in from the 6 years onwards?
I beleive you can count the whole 6 years exempt – as long as you can meet the other conditions.
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
Thanks for the responses all.
In assessing how negatively geared my property will be, are there many more significant factors other than:
1) rental income
2) interest payments
3) property management fee
4) council rates
5) body corporate rates
6) letting feesIt would be good to get as clear an estimation as I can of the property's cashflows as early as possible.
At the moment, I have only done a high level assessment against my current disposable income and I'm quite satisfied that things should be alright.Also, I assume it is only advisable to take a 90% lvr with a 100% offset if I believe I can find another suitable IP in the near future? In the current environment, I'm a bit wary of picking a bad property.
ggbeh
Don't forget repairs as these can be significant in some properties. Actually new propertes can have high costing repairs too.
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
Correct me if I an wrong, but I was under the understanding that Stamp Duty concessions require the property to be Owner Occupied for at least 1 year?
Is this different for OTP properties?Insurance and depreciation.
Hi Denis
Yes different in every State.
Regretfully Qld is not one of those.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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