Getting Started

Discussion in 'Original Property Investor Forum Archive' started by WebBoard, 26th Jun, 2001.

  1. WebBoard

    WebBoard Guest

    From: Anonymous


    Buying To Live In Or Buying To Rent Out
    From: Elsie
    Date: 9/14/99
    Time: 12:27:24 PM

    My husband and I live in Auckland and we have a deposit for a house now, but we want to stay in the area we are renting in now (which is expensive to buy).

    Also we don't particularly want to buy at the moment, we want to buy several houses over the next few years and rent them out and increase our equity this way.

    We also have a cash flow of $1,000, when I mentioned my plans to my accountant he was against us not buying our own home first but didn't really give me a satisfactory reason why he did not think I should do it my way. Do you think it is a bad idea?
     
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  2. WebBoard

    WebBoard Guest

    Les

    Reply: 1
    From: Anonymous


    Re: Buying To Live In Or Buying To Rent Out
    From: Les
    Date: 9/19/99
    Time: 11:34:11 AM

    G'day Elsie, Sounds to me like you need to buy your accountant a book (one of Jan's - any one!!) - or find another accountant. With the cashflow you already have, and extra rent coming in, And Tax benefits for "losses" (if they apply in New Zealand), AND staying where you like to be, I can't see you losing if you go your way.

    I have only recently paid out my own home, and immediately borrowed against it again for my first two investment properties - but if I had my life over, I would have done EXACTLY what you want to do - viz. buy rental FIRST, live where I want, and have the Taxman and the tenant ON MY SIDE right from the start.

    Go for it - and good luck Les (a Kiwi in Brisbane)
     
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  3. WebBoard

    WebBoard Guest

    Sue

    Reply: 1.1
    From: Anonymous


    Re: Buying To Live In Or Buying To Rent Out
    From: Sue
    Date: 9/28/99
    Time: 12:48:22 PM

    Hi Les, I am interested in your comments about renting instead of buying first. I hear other people say this as well and wonder if you would mind expanding on this.

    I cant stop seeing renting as paying off someone elses mortgage (which of course as landlords we are happy for others to do for us) and in the long run even tho I know you are paying off your house with after tax dollars, it would be free from CGT and when you are ready to retire you can downgrade to something smaller and use the realised money to pay off some of your debts.

    Still as a lot of people espouse it, there must be some merit to renting yourself, I just need someone to explain it to me. Cheers Sue
     
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  4. WebBoard

    WebBoard Guest

    Les

    Reply: 1.1.1
    From: Anonymous


    Re: Buying To Live In Or Buying To Rent Out
    From: Les
    Date: 10/3/99
    Time: 12:34:19 PM

    OK - g'day Sue

    I'll try again to get my thoughts into this forum - I hope the moderator can clean up the mess.

    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
     
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  5. WebBoard

    WebBoard Guest

    Sue

    Reply: 1.1.1.1
    From: Anonymous


    Re: Buying To Live In Or Buying To Rent Out
    From: Sue
    Date: 10/6/99
    Time: 10:52:55 PM

    Thanks Les, You've made some good points and I can see how for someone starting out and looking at years of hard slog paying off their own home first out of after tax dollars it could be advantageous to rent and invest.

    I just wonder tho if it would be sensible to consider renting out your own house (provided that you still have a mortgage on it) and actually go back to renting yourself to help speed up your investment property acquisitions. Or in the case of you being transferred etc to another town and faced with either selling your home and repurchasing in the new location would you consider going from being a home owner back to a renter in the new location and rent out your old home as I mentioned before.

    I mention this because this is something we have considered doing. Pay agents fees to sell and buy again or pay off someone else's mortgage by renting in the new location. I think it would be hard to go from being a homeowner back to a renter. But would it be financially astute?

    Cheers everyone Sue
     
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  6. WebBoard

    WebBoard Guest

    Les

    Reply: 1.1.1.1.1
    From: Anonymous


    Re: Buying To Live In Or Buying To Rent Out
    From: Les
    Date: 10/7/99
    Time: 7:48:33 PM

    The permutations and combinations can be DAUNTING - but don't be daunted ;^)

    A few points I THINK are valid (but get advice):-

    The current mortgage on your home would probably NOT be Tax deductible. But, if you borrow against the equity, then extra loans (for other rental properties) would be.

    If home is older than 1985, it is CGT exempt - could be good as a renter (but get advice).

    If home is newer than 1985 (July?) than cost of building it (on a rental property) MAY be a Tax deduction - but it wasn't purchased as a rental, so get advice.

    Jan has a great section in her "Building Wealth" book on all the costs that can be claimed - but I don't know how they are applied when the family home is turned into a rental. A good lawyer, and accountant, should provide all the answers.

    One thing I do remember hearing is "CHECK it out BEFORE you do ANYTHING" otherwise it can cost you dearly.

    And I too would love to hear the answers once you've done it - it might apply to me one day. But maybe you will have to write a book to include all of the information ;^)

    Carry on un-daunted.

    Les

    PS In answer to "Would I consider going from being a home owner back to a renter" I would say "Definitely!" I don't think I would sell my current home - I would probably rent it (and go thru all of the above CHECKING too) rather than pay Real Estate costs, and give up an Asset along with that.

    In my case, though, the only mortgages I have on our current home ARE for purchasing rentals, so they are already a Tax deduction. And as for "financially astute", I like Robert Kiyasaki's words - an Asset is something that puts $$ IN your pocket - a Liability takes $$ OUT of your pocket. So build (or keep) your Assets - and a house as a rental is an ASSET, while "your own home" shows in the ASSET column, but does it put $$ IN your pocket? For most people, it DOESN'T!!! That's a long-winded way of saying "I'd keep my home and rent it, IF that was going to put $$ IN my pocket." Cheers.
     
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  7. WebBoard

    WebBoard Guest

    Les

    Reply: 1.1.1.1.1.1
    From: Anonymous


    Re: Buying To Live In - Sue, here's another idea .....
    From: Les
    Date: 11/30/99
    Time: 6:34:31 PM

    G'day Sue,

    I stumbled on a useful CGT pointer re "renting out your home" - I have quoted it verbatim in an answer to John re "Renting your own Property", but here, in a few words, are those words.

    When renting out your old home, CGT exemption CAN REMAIN while you rent it out for UP TO 6 YEARS - after which you must stop renting it (or lose CGT exemption).

    Of course, that is only PART of the equation - the more immediate part is "Can I claim the Interest payments on this home while I live elsewhere?" - and that purely comes down to "what the ATO deems was the original purpose of the loan." If it was to buy you a home, then it's NOT deductible. But, if you BORROW against it to purchase a rental property, then rent it out, while you live elsewhere, it sounds like it could work.

    But, so many accountants, FPA's, etc. say "Don't rent out your own home - sell it, and use the proceeds to buy a rental" that I would still say BE CAREFUL. Obviously I don't have ALL of the answers here, so there may be MANY more things to consider .....

    Regards, Les
     
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  8. WebBoard

    WebBoard Guest

    Glenn

    Reply: 1.1.1.1.1.1.1
    From: Anonymous


    Re: Buying To Live In Or Buying To Rent Out (Attn: Les)
    From: Glenn
    Date: 4/4/00
    Time: 5:05:46 PM

    Les, I know that you posted this a while ago. But I'm very interested in your philosophy here. It appears that your son may have used this method (based on another article that you wrote).

    I am 26, currently living at home, but want to move out in the next few months. I have about $30,000 saved up and have found a place in the outer West of Sydney for around $170,000.

    I am thinking about purchasing this as an IP and renting elsewhere with some friends.

    You talk about IO loans, which leave greater cash flow for other IPs. However if I haven't built up any equity in the first property, I doubt that the bank will lend the entire amount for a second property, hence they will require a cash deposit. Therefore, would I be better off taking out a P&I loan and paying this off as quickly as possible to quickly build equity? Jan's books say that you should pay off your first home as quickly as possible.

    I'd love to here from anyone else who may have some ideas, as well.
     
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