Buy PPOR or IP first?

[Chris G]

Hi peoples,

Can't recall any posts about this. What are peoples thoughts and feelings about buying a PPOR or IP first?

When would you consider buying an IP first?

when would you buy a PPOR first?

Would you always buy PPOR first or always buy IP first?

If you wanted to live in a place you cant afford to invest in at the moment would you buy IP elsewhere? Invest in something else till you can afford to buy PPOR there?

Should be interesting to hear the different ideas and the reasons behind them.

Cheers
Chris

 

[simonjulie]

Hi Chris
My opinion is to build up equity to leverage with in the future.
If that involves taking small steps like buying in areas that you can afford well that's fine as long as the fundamentals of property selection are taken into consideration. To buy a PPOR first or not is more likely to do with personal circumstances rather than academic argument.
Kind regards
Simon

 

[Crystal]

Hi Chris,
I was asking the same question a couple of years ago! On a single income, I could not afford to buy a PPOR, so I bought a positively geared investment property instead. I am now just about to buy my third IP and am still renting.
I still cannot afford to buy a PPOR but I can afford to buy more IPs!
Jan Somers promotes using the equity from your PPOR to buy IPs, but I like the tax deductions and the rental income, which are helping to speed my path to retirement and a new car!!!
Good Luck,
Crystal

 

[Kevmeister]

I think it depends on your personal situation.

Although if I was buying a PPOR I would consider purchasing a property with good growth potential, and if I was buying an IP then Yield (rental income) may be more of a consideration.

If, on the other hand, you were still living at home, then I would suggest purchasing an IP - because all other things being equal, an IP is going to have a tenant paying you for the use of your property, and having a PPOR will not.

Finding an IP that could become your PPOR might therefore be a good compromise in this situation, but I'm not sure what happens with Capital Gains tax in that situation.

This argument is less valid or even moot when you have substantial rental expenses of your own (ie. to rent or to buy), which is not the case when living at home.

 

[tonyd]

Hi Chris,

I'll echo what others have said - it depends on your personal situation.

While living overseas I bought an IP and rented. I intended to continue on that path, because you will get richer quicker if the mortgage interest payments are tax deductible and if someone else is paying for it.

But when I came back to OZ, I had little savings (but a good income) and didn't have the knowledge to buy IPs without good deposits or equity.
So I used the FHOG to build a PPOR (in a good rental location!) and got my foot in the OZ property market that way.

I now have the flexibility to use this PPOR as an IP at a later date or use the equity to buy another property.

OTOH I have a friend who is happy to rent while continuing to buy IPs. But he is single and lives like a monk which helps to accelerate his wealth creation.

Good luck,
Tony

 

[geoffw]

Tony,

OTOH I have a friend who is happy to rent while continuing to buy IPs. But he is single and lives like a monk which helps to accelerate his wealth creation.

The game of Cashflow is about "getting out of the ratrace"- where your passive income exceeds your expenses.

This is two sided. We all talk about getting extra income in this forum.

But there is also the matter of expenses.

Simon and Julie, who contribute to this forum, are out of the ratrace as a result (partially) of renovating houses.

But it's also been as a result of reducing expenses.

I've been in a very bad situation recently where I've had a horrendous tax payment. But, as a result of this, I've learnt to be able to get by with a lot less toys. Once I couldn't go a week without buying a new CD. I buy about two a year now- and I don't think I'm any worse off.

So if your friend lives a life of a monk- he'll achieve his lifestyle of not relying on work more quickly.

It will take me a lot longer, because I still want to be comfortable as I go along.

But I will get there heaps faster than my colleagues, who poopoo my interest in properties, and who are buying all thelatest gadgets.

 

[bundy1964]

Originally posted by Kevmeister
I think it depends on your personal situation.


Finding an IP that could become your PPOR might therefore be a good compromise in this situation, but I'm not sure what happens with Capital Gains tax in that situation.

I think in simple terms that a % is used when you sell for working out CGT.

Purchase costs 100k rented for 5 years then PPR for 5 years then sold for 200k net would give you 100k profit that would split 50/50 as a share of the time used as an IP so 50k would be subject to CGT ( remembering only half the gain is taxed ) so you would pay tax on 25k at your highest tax rate unless you have made a previous capital loss that you can claim.

Depreciation claimed may reduce your purchase costs when CGT is worked out.

Joys of tax