Girlfriend buying house scenario – Advice wanted
Hi guys, this is a really long post but it has actually helped writing it all down to get my head around it. If you can manage to make it to the end I would really appreciate any opinions with those with greater understanding and experience. I wasn’t really sure where to chuck it so I put it in innovative techniques!
I was wondering if I could have some advice about the following scenario and any corrections if any of my assumptions are inaccurate.
I currently own a PPOR that I live in and my girlfriend does 4 days a week (not de facto).
We want to consider the option of my girlfriend buying and building her own first house. In the early stages I have been bargaining hard with some builders for pricing on a 3 bed 2 bath 2 garage house. I am fairly confident I can get this for $170,000 with some nice finishes chuck in such as stone bench tops, porcelain tiles and rendering (rendering required by estate covenant). I am also hoping that I can purchase a block of land in an estate for 190,000-195,000 that is currently for sale at sales office. Land specs are 750sqm with 17m frontage and completely level.
Basically, aiming for a total price of $365,000 for a turnkey house (excluding landscaping which we can do ourselves).
This is why I believe we should do this. My girlfriend can claim the $15,000 first home buyers construction grant currently being offered by the QLD government which will take the price down to $350,000. She is also saving $5,000 stamp duty as she won’t have to pay this as first home buyer. Once we were to get married in say 2-4 years she would no longer be eligible for the first home owners grant as I have already received that. And any house she bought after marriage she would have to pay stamp duty on. So the way I see if, we are making the most of a $20,000 incentive of free money. I also believe that through hard bargaining we can save $5,000-10,000 from the build price (already included in the calc of total costs of $365,000) and that surely the free upgrades of stone bench tops, porcelain tiles and rendering should contribute to this.
The PPOR that I live in was built by the same builder to a very high standard and I was happy with them and the site manager and would recommend them, I am hoping that going through the effort of building can add slight value. So maybe I am being optimistic but I believe we can build a house for $350,000 that would really be worth $375,000-$380,000. I believe the finished product would rent for $370-390 (gross yield of 5.75%).
Please take the following assumption in and I know that some people will disagree with this, but please just accept it for theory. My girlfriend and I have been together for 5 years and we are both absolutely certain that one day we will be married. We want to come up with a deposit of 20% ($70,000) of this I want to give my girlfriend $40,000 cash (not entirely sure how this can be done) and she comes up with $30,000. She currently earns approximately $60,000 per year. Obviously for the requirements of the $15k grant she has to live in the property for 6 months but after that we would turn it into an investment property for 2-4 years and sell it just before we get married. So that she can still claim it within the 6 year GCT rule and receive any profits tax free.
Lets assume that the property increases at 2% per annum (I know this is low and would obviously be hoping for more but by working with the lower end of the scale anything above this would be great) it would increase by approx. $22,000 over 3 years. $375,000 + $22,000 = $397,000. When we minus $10k or so in selling costs and pay down mortgage she would then be left with a total of $107,000 and a profit of $37,000 tax free cash.
During the holding period of the loan after the initial 6 months it would be set up as an IO loan with a 100% offset account attached to my girlfriends loan/savings account. I am assuming loan repayments to be around $365 per week. Once you take expenses into consideration she would probably be out of pocket $50-$100 dollars per week to hold the property, which she should easily be able to sustain (assuming the property is being rented).
Can someone tell me if my depreciation/tax/income calculations are correct, I am still fairly new and trying to get a better idea of things?
Income:
GF Income: $60,000
Rental Income: $20,000
Total income: $80,000
Tax Deductions
Interest: $19,000
Rates, management, insurances and other fees: $4,000
Depreciation: $10,000 (anybody know if this figure is correct? I read it online)
Total deductions:$33,000
Taxable income: $80,000 - $33,000 = $47,000
So total tax payable would be $7232 with weekly net income of $765.
http://www.taxcalc.com.au/#results
Obviously if we are going to follow through with this we will do some serious due diligence. But initial thoughts are that the four biggest risks that I have outlined are as follows and could even be a combination of a couple, feel free to add any that are significant:
• Girlfriend loses her job and therefore no income
• Builder goes bankrupt and does a crap job with extended delays, etc.
• The property sits vacant for a long period of time
• Property located in northern gold coast where there is going to be a hell of a lot of supply over the next few decades with the huge number of greenfield sites yet to be developed.
On the positive side I see:
• Property within 1km of shopping centre, coles, ALDI, Masters hardware, McDonalds, restaurants, news agency, medical centre, business offices, etc.
• Future Coomera Town Centre Site within 3km (although this looks like it will take a long time with a fair few troubles to get off the ground)
• 6 schools within 5km
• 45 min to Brisbane 20 min to GC beaches
• No body corporate in estate with new homes which follow covenant rules to a certain level
• Good open space areas within estate with facilities
Basically, I feel that this plan may be a good option as:
• It uses the system to make money
• Uses other peoples money
• Makes our money work for us
• Good tax incentives and government incentives to do this
• I believe it is a fairly low risk strategy
• Depreciation of new build
• Tax deductions
• Sell within 6 year/or before we get married = GCT tax free on profits. Otherwise we get married and these opportunities are no longer available to her.
Geez, we made it to the end.
Thanks to those who stuck it out and please leave me any comments or advice and even constructive criticism.
Thanks a lot.
Hi guys, this is a really long post but it has actually helped writing it all down to get my head around it. If you can manage to make it to the end I would really appreciate any opinions with those with greater understanding and experience. I wasn’t really sure where to chuck it so I put it in innovative techniques!
I was wondering if I could have some advice about the following scenario and any corrections if any of my assumptions are inaccurate.
I currently own a PPOR that I live in and my girlfriend does 4 days a week (not de facto).
We want to consider the option of my girlfriend buying and building her own first house. In the early stages I have been bargaining hard with some builders for pricing on a 3 bed 2 bath 2 garage house. I am fairly confident I can get this for $170,000 with some nice finishes chuck in such as stone bench tops, porcelain tiles and rendering (rendering required by estate covenant). I am also hoping that I can purchase a block of land in an estate for 190,000-195,000 that is currently for sale at sales office. Land specs are 750sqm with 17m frontage and completely level.
Basically, aiming for a total price of $365,000 for a turnkey house (excluding landscaping which we can do ourselves).
This is why I believe we should do this. My girlfriend can claim the $15,000 first home buyers construction grant currently being offered by the QLD government which will take the price down to $350,000. She is also saving $5,000 stamp duty as she won’t have to pay this as first home buyer. Once we were to get married in say 2-4 years she would no longer be eligible for the first home owners grant as I have already received that. And any house she bought after marriage she would have to pay stamp duty on. So the way I see if, we are making the most of a $20,000 incentive of free money. I also believe that through hard bargaining we can save $5,000-10,000 from the build price (already included in the calc of total costs of $365,000) and that surely the free upgrades of stone bench tops, porcelain tiles and rendering should contribute to this.
The PPOR that I live in was built by the same builder to a very high standard and I was happy with them and the site manager and would recommend them, I am hoping that going through the effort of building can add slight value. So maybe I am being optimistic but I believe we can build a house for $350,000 that would really be worth $375,000-$380,000. I believe the finished product would rent for $370-390 (gross yield of 5.75%).
Please take the following assumption in and I know that some people will disagree with this, but please just accept it for theory. My girlfriend and I have been together for 5 years and we are both absolutely certain that one day we will be married. We want to come up with a deposit of 20% ($70,000) of this I want to give my girlfriend $40,000 cash (not entirely sure how this can be done) and she comes up with $30,000. She currently earns approximately $60,000 per year. Obviously for the requirements of the $15k grant she has to live in the property for 6 months but after that we would turn it into an investment property for 2-4 years and sell it just before we get married. So that she can still claim it within the 6 year GCT rule and receive any profits tax free.
Lets assume that the property increases at 2% per annum (I know this is low and would obviously be hoping for more but by working with the lower end of the scale anything above this would be great) it would increase by approx. $22,000 over 3 years. $375,000 + $22,000 = $397,000. When we minus $10k or so in selling costs and pay down mortgage she would then be left with a total of $107,000 and a profit of $37,000 tax free cash.
During the holding period of the loan after the initial 6 months it would be set up as an IO loan with a 100% offset account attached to my girlfriends loan/savings account. I am assuming loan repayments to be around $365 per week. Once you take expenses into consideration she would probably be out of pocket $50-$100 dollars per week to hold the property, which she should easily be able to sustain (assuming the property is being rented).
Can someone tell me if my depreciation/tax/income calculations are correct, I am still fairly new and trying to get a better idea of things?
Income:
GF Income: $60,000
Rental Income: $20,000
Total income: $80,000
Tax Deductions
Interest: $19,000
Rates, management, insurances and other fees: $4,000
Depreciation: $10,000 (anybody know if this figure is correct? I read it online)
Total deductions:$33,000
Taxable income: $80,000 - $33,000 = $47,000
So total tax payable would be $7232 with weekly net income of $765.
http://www.taxcalc.com.au/#results
Obviously if we are going to follow through with this we will do some serious due diligence. But initial thoughts are that the four biggest risks that I have outlined are as follows and could even be a combination of a couple, feel free to add any that are significant:
• Girlfriend loses her job and therefore no income
• Builder goes bankrupt and does a crap job with extended delays, etc.
• The property sits vacant for a long period of time
• Property located in northern gold coast where there is going to be a hell of a lot of supply over the next few decades with the huge number of greenfield sites yet to be developed.
On the positive side I see:
• Property within 1km of shopping centre, coles, ALDI, Masters hardware, McDonalds, restaurants, news agency, medical centre, business offices, etc.
• Future Coomera Town Centre Site within 3km (although this looks like it will take a long time with a fair few troubles to get off the ground)
• 6 schools within 5km
• 45 min to Brisbane 20 min to GC beaches
• No body corporate in estate with new homes which follow covenant rules to a certain level
• Good open space areas within estate with facilities
Basically, I feel that this plan may be a good option as:
• It uses the system to make money
• Uses other peoples money
• Makes our money work for us
• Good tax incentives and government incentives to do this
• I believe it is a fairly low risk strategy
• Depreciation of new build
• Tax deductions
• Sell within 6 year/or before we get married = GCT tax free on profits. Otherwise we get married and these opportunities are no longer available to her.
Geez, we made it to the end.
Thanks to those who stuck it out and please leave me any comments or advice and even constructive criticism.
Thanks a lot.
