Reply: 3
From: Les .
G'day Firefrog,
Just thought I'd throw in an extract from the Archives. It doesn't point you toward the "numbers" and/or how to calculate them - but the thoughts in that whole string (dated 9/14/99, so it's real early forum stuff) could be useful.
This was just one answer to Sue (from me):-
"As I see it, these are SOME of the reasons that rentals first are better than own home first.
1. Banks will take a percentage of any rental income into the lending equation so you can afford a rental earlier than your own home (see Jan's 101 stories about the two blokes that bought each other's units).
2. Losses are reimbursed - borrowing costs, maintenance, rates, insurance, etc. Even some personal costs, insurances are Tax deductible when purchasing rental property.
3. Tax relief of up to $100 per week (or more) can appear in your pay packet. With 2 or 3 rentals, this extra can be effectively paying the rent on the property you occupy, or paying off your mortgage - but you must own rental property to do this.
4. You can rent in an area to "check it out" before buying your home there and still be having equity growth through your rentals.
5. You will spend less on consumables for someone else's property than on your own home. Thus, money you may have spent on landscaping, a patio, air conditioner, etc. can go instead into real assets (like another investment property).
6. Your investment properties don't have to be near where you live, or work. So you can buy them in areas where rental demand is high.
7. We are less inclined to "pay off the principal" on a rental than on our own home. This leaves extra cash available for more investments.
8. As equity grows, you can re-borrow against the gain to buy more rentals. This applies to your own home too, but we usually feel less concerned about re-mortgaging a rental than our own home.
9. At some stage down the track, you can borrow against a rental property to provide a deposit for your own home - and then have the rent excesses and Tax relief help pay off your home mortgage.
10. "getting involved" with property BEFORE buying your own home will stand you in good stead when it comes time to buy your "dream home".
And, against Rentals first? I can only think of two
1. CGT will apply when you sell a rental - but this only applies when you sell - so DON'T!
2. Tenants from Hell - I've heard they make up less than 1% of all renters. You can protect against them via various Insurances, and Jan outlines some smart ways of preventing them from spoiling your chances.
I hope these thoughts help you in deciding which way to go.
And I leave with one thought that helped clarify my thinking on the above - and that was "We pay a high premium for wanting to purchase our own home". I can't remember the author, but with all of the benefits we DON'T get when purchasing our own homes, I certainly understand where they were coming from.
Les"
Me again (in the present ;^) - the story mentioned is #79 in "Building Wealth - story by story"
Hope it helps,
Regards,
Les
