convert PPOR to IP

[TonyY]

Hey guys,

As I've been really new to investing I am really addicted to it so to say...
I starting reading about property investing a month ago or so and the only thing that's going through my head is investing, I'm determined as I'm still young at the age of 21, I own my own property that I live in. Now I'm quite confused with the subject of converting your PPOR to IP, any help is much appreciated.

I will be moving out sometime next year to a relatives house with mother/brother and hoping to get tenants in.

The questions that arise are:

What is the actual process of the subject?
What changes?
benefits? etc... there's so many questions I want to ask but we'll stick with these for now.
my loan balance is $319,000
IO repayments p/m of $1,900

Also to add I've been living in it for 2 years now.

Regards,

Tony

 

[Aaron_C]

All you need to do is start listing the property as an investment property on your income tax return. This means you have to start recording all your rental receipts, rates notices, land tax, other outgoings etc. so you can claim these as dedutions and rental income for your tax return.

 

[Peter_Tersteeg]

Hi Tony,

I'd make sure that any extra repayments you're making are going into an offset account and not onto the loan redraw. This could save you from missing out on a bucket of tax deductions later.

Other than that, I'd say you need to move out, appoint a property manager, and get the property tenanted. As Aaron suggested, keep all your receipts for tax purposes later on. There's not much else you need to worry about.

 

[TonyY]

All you need to do is start listing the property as an investment property on your income tax return. This means you have to start recording all your rental receipts, rates notices, land tax, other outgoings etc. so you can claim these as dedutions and rental income for your tax return.

Thank you Aaron for the input much appreciated.
When you convert your PPOR to IP does negative gearing take in place in my shoes?

Also to add I've set up my first goal refinance to save interest and to also put $25,000 into the offset account end of next year. It will be hard but I shall achieve. This way I'll save more, then planning to use the equity I have which accumulates to $96k atm to purchase my first IP in 2013

 

[jankas]

PPOR to IP

Hi Tony,

Converting PPOR to IP is a great idea. Best to speak to your accountant though BEFORE doing this to make sure you tick all the boxes with the ATO. Then it's as easy as the other replies state. The ATO also run seminars Australia wide for ppty investors http://www.ato.gov.au/pathway.aspx?sid=42&ms=businesses&pc=001/003/094&mnu=40306&mfp=001/003 Worthwhile attending, especially if you're just starting out. Hope this helps.

Cheers,
Janine

 

[Aaron_C]

Well negative gearing may/may not occur depending on how much rental you can get for the property...you need to work out the expenses for renting the place out

 

[TonyY]

Hi Tony,

I'd make sure that any extra repayments you're making are going into an offset account and not onto the loan redraw. This could save you from missing out on a bucket of tax deductions later.

Yerp, that's what I'm trying to do, any spare cash I have I put it into the off-set account thanks once again

 

[TonyY]

Hi Tony,

Converting PPOR to IP is a great idea. Best to speak to your accountant though BEFORE doing this to make sure you tick all the boxes with the ATO. Then it's as easy as the other replies state. The ATO also run seminars Australia wide for ppty investors http://www.ato.gov.au/pathway.aspx?sid=42&ms=businesses&pc=001/003/094&mnu=40306&mfp=001/003 Worthwhile attending, especially if you're just starting out. Hope this helps.

Cheers,
Janine

I will surely look into that Janine, thank you

Well negative gearing may/may not occur depending on how much rental you can get for the property...you need to work out the expenses for renting the place out

understandable, roughly I'll be hoping to get $360-$400/wk, that's how much people pay for around my area for a 4bedder

 

[veseli]

Does this become his IP even though he doesn't own any other property?

I think if you lived in it more then 6 months and you rent it, it is still you PPOR but you only pay tax on the money from the rent, and no tax if you sell the house?
Correct me if im wrong, but if you buy another property then its a different story.

 

[bbbala]

Howdy

I am all new to this also and am considering doing something similar, but am considering 2 options.

Option 1

Convert PPOR to IP.
want to buy a new PPOR leveraging the equity in existing PPOR where possible

Current PPOR value ~530k
Loan amount - 180k

Have lived in this place for about 6 yrs and i really am trying to avoid selling if possible, but I feel with current single income may have to.

What are the CG implications to this if i chose to sell in the future and if increase my existing loan on the old PPOR/new IP to fund the new PPOR, is this fully tax deductable or only the additional portion. ie 200k + 180k = 380k IP loan where 200k used as a deposit on new PPOR. Is only the 200k tax deductable, not the entire amount?? if so, probably not so attractive but still better then buying new and paying stamp duty

Option 2
Buy new PPOR but rent out short term ~1yr(with view convert to PPOR and conver existing PPOR to IP)


Sorry for long post....but have been thinking this for sometime and finally am going to crank things up...

Thanks - I am thorougly enjoying this infortmative forum....this is great !

 

[hysterical]

Further to this, what are the CG implications to this if i chose to sell in the future and if increase my loan on the old PPOR/new IP to fund the new PPOR, is this fully tax deductable or only the additional portion. ie 200k + 180k = 380k IP loan where 200k used as a deposit on new PPOR. Is only the 200k tax deductable, not the entire amount??

Also, appreciate any other critical elements I should be aware of.

Thanks - I am thorougly enjoying this infortmative forum....this is great !

The 200k increase in loan to fund your PPOR will NOT be tax deductible. Tax deduction is only allowed if that 200k is used to purchase an IP not PPOR.

Cheers

 

[bbbala]

thks

so no real benefit using my equity in my existing PPOR to fund my next PPOR without selling? I believe in the mantra, the best time to sell is never !

Unfortunately we dont have the cashflow at present (1 salary) to service the new PPOR and further 200k of non tax deductable debt


I am thinking i will have to sell...

 

[hysterical]

thks

so no real benefit using my equity in my existing PPOR to fund my next PPOR without selling? I believe in the mantra, the best time to sell is never !

Unfortunately we dont have the cashflow at present (1 salary) to service the new PPOR and further 200k of non tax deductable debt


I am thinking i will have to sell...

What about staying put in current PPOR and use the 200k to fund an IP ?

Cheers

 

[bbbala]

Agreed, but we are growing out of our existing place with a new arrival and planning for another.... hence the reason looking at a new PPOR.