Buy PPOR and borrow against or straight into IP's

Hi All,

I've been reading this forum for some time but haven't seen a discussion on this topic. I've been pondering what the optimum solution for this situation is:

Someone has the following:
2 fully leveraged IP's..
$800k in shares after CGT is paid.

If they are ready to sell the share holding in a few years, and invest all property, which is the best option:

1. Buy a PPOR for $800k cash, live in it and then borrow 6x$100k lines of credit to buy 6 investment properties worth $500k each. OR
2. Buy 8 IP's with $100k deposit and $400k loans each, while living in rental accommodation.

Details:
-Rented accomodation would be to the same standard as the potential PPOR, this is in Sydney
-IP's could be in any capital city

I thought it would be better to buy a PPOR for cash (or pay one off), then borrow deposits as LOC's against that (tax deductible), then buy IP's because eventually the IP's would grow and allow refinance to free up the PPOR again.
Also there would be no rent to pay because living in PPOR - thus helping with the cashflow.
The downside I saw is 2 less IP's - that is 1 less property when including the PPOR. The PPOR should be as good as an IP because it is still owned and the growth is still achieved.

Please - no advise about avoiding property though! This is a hypothetical situation and something based upon a future date.

Dan
 
Hi Dan,

probably six of one half a dozen of the other.

You are in a strong financial position whichever way you go.

If you rent and conduct your own business from your rental property you can claim a % of the rent as a business expense (based on floor area used). This would affect the capital gains concession on your PPOR if you worked from your own home and claimed % of the mortgage interest as a deduction. This might tilt the equation in favour of renting.

I rent and have IP's. Having previously had a PPOR that I moved out of and let.

Living in your own home can offer more psychological comfort...if you do work on your home you benefit not the landlord. Also your tenure is up to you...no decisions by the landlord to sell (and have multiple open for inspections) or to apply to council to demolish your rental property at some uncertain date in the future (both of which have happened during my time renting).

You might want to live in a PPOR for up to 6 months then move out and rent as your PPOR should then benefit from the 6 year exemption from cgt.

I'm interested in replies from others-after renting for almost 7 years and claiming a % of the rent as a tax deductible business expense I'm still undecided.

Ajax
 
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Hi Dan

There are issues other than financial whn looking to rent vs buy PPOR, especially in a variable rental market like Sydney. The main non tangible is the potential of being booted once every 12 to 24 mths. Might be worth asking the wife, often you will get a different view....................

ta

rolf
 
Rolf,

"Might be worth asking the wife, often you will get a different view...................."

I'd virtually guarentee it - no matter what you ask!

Ian
 
Yes I myself have actually been booted once before - was because the owner wanted to demolish and build his PPOR on the land.

I don't mind moving every couple of years, but I can see the problem - it's just the inconvenience of when it might happen. For example if you planned a 3 week holiday overseas, then 1 week before you leave you receive your 1 months notice to leave, not very handy.
 
Hi Dantheman
I might suggest you have a read of that book Jan Somers compiled. "Building wealth story by story" I think is the title. It is a good read about different people's strategies with property investment.
Kind regards
Simon
 
Hi dantheman

Would it be possible looking at buying the PPOR below market value outright. Valuading allowing to get 100% loan of original purchase price to invest in Ips.

Gerd
 
Hi Gerd
Value adding.......mmmmmmm.......I wonder whether that is a good strategy(joke) :D I reckon it's a great way to go if you have the ability.
Simon
 
simonjulie said:
Hi Gerd
Value adding.......mmmmmmm.......I wonder whether that is a good strategy(joke) :D I reckon it's a great way to go if you have the ability.
Simon
I don't have the ability :(
But some do and I know it can work great for them.

Building wealth story by story I have read, a few years ago, I should read a refresher. But I think I see your point - that everybody can do it differently and there is no 1 superior way to do it.
 
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