Gov grants - buy to live in or invest?

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From: Mick Avery


To the forum,
I am a potential first home owner. I'm also a member of the defence force. Therefore I am entitled to a total of $18500 worth of government grants for my 1st home. I also have a $25000 deposit. Which option is smarter.... purchase a new 4 brm home to live in (and sub-rent 2 rooms to mates)therefore claiming 66% of all expenses on tax and receiving the $18500 or..... continue living in cheap rental accommodation and buy 2 investment properties with the $25K? (All loans would be interest only)
 
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Reply: 1
From: Geoff Whitfield


Mick,

I can't answer- but something you will have to consider.

The grants- from government and Defence- may well have conditions about you living in them. You might not get the full grant if you rent it out- most of all in the first 12 months.

Another option (just to confuse) may well be to buy a 2BR property which only you live in. You will be eligible for all grants. Then use equity in that home to finance an investment property at 80% (or more). It may keep things much cleaner.

Even buy a DHA property- if you can trust them!

Try to find a good accountant who can give you more specifics. You may be able to get good advice in this forum about an accountant by asking about an area. Perhaps there is even a defence financial advisor available who could tell you more about conditions for grants?
 
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Reply: 1.1
From: Roderick Aguilar


I'm with Geoff on this one.

I'd purchase well (below sworn bank valuation, established property or new in growth suburb...etc) and use the equity in this property to begin your investments in IPs.

You're lucky, you've got a good start and it shouldn't be long until you're posting on this forum with your experiences.

Good luck!

Cheers,

Roderick Aguilar.
 
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Reply: 1.1.1
From: J Parker


Mick, I would say (as the spouse of a former defence employee) that it depends too upon the rent you are paying. When we were renting in the army, rents were fairly low, much lower than private rentals. Even with TRA, we were subsidized quite heavily, leaving us with more income others would not have had. Of course, back in those days we did the wrong thing by not investing the extra (one of my regrets).
Not having rented for three years now we are out of the loop and don't know how much is being actually subsidized (though I have heard it's not as much as it once was).
Having the buying costs etc refunded, however, is a terrific bonus, whilst in the defence force, and we ourselves took full advantage of this, buying our first home and getting the free removal etc.
Whatever way you go (a good accountant will advise you wisely as well) good luck and have fun house hunting!
Cheers, Jacque :)
 
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Reply: 1.1.1.1
From: Trina Blum


Mick,

Something else to look into is the Defence Homeowner Loan. I've been out of the RAAF now for 4 years but when I took out the Defence Homeowner Loan one of the conditions was that you can not own any other property. As this loan provides subsidised interest of approx 40% you might want to check whether this still applies. Depending on how long you've been in the forces and whether you have had this loan before it may be a benefit you do not want to lose (on my loan of $80000 DHA pay approx $105 per month).

However if the rules are the same, there is nothing to stop you buying your own place (as suggested perhaps a small unit or house), take out the Defence Homeowner loan (which with the help of the subsidy you pay out as quickly as possible to build up equity) and then buy your IP's. That is what we have done.

Just make sure you look into it all very carefully - phone DHA and get them to send you out the package on the Defence Homeowner Loan.

Regards
Trina
 
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Reply: 1.1.1.1.1
From: Robert Forward


Hi Trina

There is a simple solution to that problem of not being able to own another property in your name.

You open a trust and buy it through a trust using the equity in your place and the $$$'s that you have saved as the deposit. This way you can have the best of both worlds.

Though, let me say I am not sure of the regulations with the DHA stuff, but it would certainly be worth looking into.

Cheers
Robert

The Sydney "Freestylers" Group Leader.
 
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Reply: 2
From: Miakat .


Hi Mick,

Friends of mine have been in the same situation as you and they took advantage of the grants to purchase their own homes. (why look a gift horse in the mouth?) They were young and single, so decided to share with others to help with the rent. So now, half (or two thirds) of the property is an investment and so a percentage of the costs can be claimed as tax deductible.

Because of the grants you have such a headstart, so pay off the loans and then use the equity in your home to buy investments. It has worked so well for everyone I know who has done it.

Good luck!!!

Miakat
 
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Reply: 2.1
From: Sergey Golovin


Mick,

The only two ways to get the grant -

1. Move in your self within first 12 month of settlement (this is what they call owner occupy) and claim the grant.
2. Rent it out first, but make sure it does not exceeds 12 month, and then move in and claim the grant.

So, saying all that, the simplest formula to follow - buy it, move in (within 12 month), claim the grant, make sure you get it, stay there (keep it on your name) for while (the length of it does not make any difference – legally any way) and then rent it out (share it) to/with others.

Surely if you will put your creative mind in use few other possibilities would be open to you, but people who issuing the grant generally speaking do not like to many creative ideas, so keep it simple, as they say.

Use your $25K to purchase second property (your first IP) with other bank (the Civilian one with normal interest rate different from the Defence one).

By the way I'm not an advisor of any sort, just using dead simply common sense here, so do your homework, as they say, talk to the professionals.

Good luck.

Serge.
 
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