Hello Somesoft! IP or PPOR for first purchase?

F

FirstTimeBuyer

Hello Somersoft!

Let me introduce myself. I am a 30 year old Australia who worked in the US for the past 2 years and have recently relocated back. My wife and I are currently living with parents for the time being but looking to purchase either an IP or a PPOR in ~6 months. We have about ~200k in savings, currently unemployed but estimating to have a combined income of about ~230k in a month or two. We will eventually move out to the PPOR or rent in about 6 months time and plan to have kids in 1-2 years time.

Our medium term goal is to have about 100k in passive income in 13 years and grow this to about 200k in 26 years. Our strategy is more buy and hold as we'd like to continue focusing on our current career as the main source of income/cash flow.

With the end goal in mind, would it be wiser for our first purchase to be an IP or a PPOR? I believe the numbers work better with a IP for various reasons. We live in Sydney and so finding a PPOR that meets our requirements of being fairly close to the city and close to amenities is outrageously expensive and the mortgage we'd have would lock us down. Also we would most likely only be able to afford an apartment/unit than a house. Tax benefits also work more in favour of an IP (we're in for the long haul so I'd like to dismiss GC exemption). Would the wise members of SS agree with this? Or could it make sense to make our first purchase as our PPOR?

Thanks!
FTB
 
Why not do both. Buy a PPOR and live in it for a short period and then move out and rent it. This way you can keep it CGT free yet still maintain all the usual deductions while it is rented. Once it turns cashflow positive you can move back in.
 
FirstTimeBuyer said:
Hello Somersoft!

Let me introduce myself. I am a 30 year old Australia who worked in the US for the past 2 years and have recently relocated back. My wife and I are currently living with parents for the time being but looking to purchase either an IP or a PPOR in ~6 months. We have about ~200k in savings, currently unemployed but estimating to have a combined income of about ~230k in a month or two. We will eventually move out to the PPOR or rent in about 6 months time and plan to have kids in 1-2 years time.

Our medium term goal is to have about 100k in passive income in 13 years and grow this to about 200k in 26 years. Our strategy is more buy and hold as we'd like to continue focusing on our current career as the main source of income/cash flow.

With the end goal in mind, would it be wiser for our first purchase to be an IP or a PPOR? I believe the numbers work better with a IP for various reasons. We live in Sydney and so finding a PPOR that meets our requirements of being fairly close to the city and close to amenities is outrageously expensive and the mortgage we'd have would lock us down. Also we would most likely only be able to afford an apartment/unit than a house. Tax benefits also work more in favour of an IP (we're in for the long haul so I'd like to dismiss GC exemption). Would the wise members of SS agree with this? Or could it make sense to make our first purchase as our PPOR?

Thanks!
FTB
Click to expand...

Hi FTB,

Sounds like an achievable goal. With 200k, you've got plenty of options.

As mentioned in the finance thread, you'll need to wait until you have a signed employment contract (full time, PAYG) to borrow. Once you have that in place, your pretty much set to go and buy your PPOR.

If you go down the IP route and you want 100k C/F - and don't have the time in manufacturing equity, consider pretty solid cash flow plays.

I know NRAS works pretty potently in this situation, positive cash flow and negative gearing tax benefits which may be pretty useful for a couple on your income - it's brought me and my partner half way to that goal with around 200k in equity/cash. Given that we're both extremely time poor and don't need the cash flow now, we'll use the cash received every year (~40-50k in tax returns) to fund future deposits and accumulate an additional property every year.

Note the above 'plan' has plenty of pit-fulls that require much more research and DD to master, e.g. financing issues need to be well considered, finding stock, etc. But the above, well implemented can get you to pretty close to your goal pretty quickly.

Cheers,
Redom
 
IP all the way! You might as well expand the portfolio as far and wide as possible, therefore expanding your empire, and there are potentially more gains to be made.. If bought well in the right spot of course.. Also whomever is living there is helping or just straight up paying to live there, (if positively or neutrally geared, which is still achievable) which gives you the capability to buy more IP and hopefully someday soon, the freedom and comfort to buy your own PPOR! But I have not read jan somers book which I have heard on the grape vine, she says have your own fully paid off PPOR first haha! Enjoy the advice off a 22 y/o with one prop but big dreams ha. My 2c
 
The Syd market is hard one to break into for first home buyers - particularly if you want to live close to the CBD.

Sounds like renting where you want to live and investing elsewhere might be a good option.

Cheers

Jamie
 
Jamie M said:
The Syd market is hard one to break into for first home buyers - particularly if you want to live close to the CBD.

Sounds like renting where you want to live and investing elsewhere might be a good option.

Cheers

Jamie
Click to expand...

+1

If more people did this there would be less people out there complaining they can't get started on the property ladder.

We've owned properties since 2001 and still buying more - and we currently rent, it's cheaper, more flexible, easier to move around, a better location for work, and more tax effective. It's also better for loan application serviceability (if you want to live somewhere that's cheaper to rent).

PPOR can be done later if you need stability ie if you have children and want to ensure you stay in a certain school area etc.
 
Thanks for all the replies!

I have thought about buying a PPOR first with the option of renting it out later on. The biggest hurdle is finding something affordable yet meets our criteria for living in. For the moment I am leaning towards a small IP (maybe in Brisbane) to get my feet wet.

Thanks Redom. I'll take a look into NRAS.

Are there books/links on a buy/hold investment strategies that is highly recommended?
 
Hi monalisa,

If we were to buy a PPOR it'd be within a 30ish minute drive from the city with easy access to public transport to commute to the CBD. The general consensus seems to be that Sydney is at the peak of the cycle and so I feel that the wiser investment would be Brisbane than Sydney as of now.
 
I always mention the benefits of living in the property first (due to CGT) and then converting it to an investment property.

You mentioned that you expect to earn a decent income in the other post so one of the added benefits of using the property as an investment is negative gearing.

Consider the tax benefits and implications before deciding.
 
rizzle said:
Is it one year to get CGT exemption? What are the implications if I rent out a spare room and continue living there?
Click to expand...

No there is no set time frame..but obviously, you want to establish the place as your principal place of residence.

Tax will come into play if you rent a room out.

Best would be to check with your accountant.
 
rizzle said:
Is it one year to get CGT exemption? What are the implications if I rent out a spare room and continue living there?
Click to expand...

No it is not 1 year. But making the property as your main residence.

If you rent part of your main residence out it will be subject to CGT.
 
I think buy the IP then rent in a good area where you can ejoy your life. You need to hang around a good neighborhood to meet nice people

Brisbane is excellent for IP, as well as Sunshine Coast and Toowoomba.

Also it sounds like you are going to get smacked with a big tax bill (welcome to Australia) especially if you are PAYE.

The IP will help there.

Also talk to your accountant about a structure. Maybe personal name at the beginning to soak up your pending tax bill, after that SMSF and Trusts as you build a portfolio.

Jerry Parker
 
FirstTimeBuyer said:
Hello Somersoft!

Let me introduce myself. I am a 30 year old Australia who worked in the US for the past 2 years and have recently relocated back. My wife and I are currently living with parents for the time being but looking to purchase either an IP or a PPOR in ~6 months. We have about ~200k in savings, currently unemployed but estimating to have a combined income of about ~230k in a month or two. We will eventually move out to the PPOR or rent in about 6 months time and plan to have kids in 1-2 years time.

Our medium term goal is to have about 100k in passive income in 13 years and grow this to about 200k in 26 years. Our strategy is more buy and hold as we'd like to continue focusing on our current career as the main source of income/cash flow.

With the end goal in mind, would it be wiser for our first purchase to be an IP or a PPOR? I believe the numbers work better with a IP for various reasons. We live in Sydney and so finding a PPOR that meets our requirements of being fairly close to the city and close to amenities is outrageously expensive and the mortgage we'd have would lock us down. Also we would most likely only be able to afford an apartment/unit than a house. Tax benefits also work more in favour of an IP (we're in for the long haul so I'd like to dismiss GC exemption). Would the wise members of SS agree with this? Or could it make sense to make our first purchase as our PPOR?

Thanks!
FTB
Click to expand...

Hi - some great responses esp TerryW as usual.

I understand you might be better of financially but just renting but check yourselves out (I mean real navel gazing - be honest) to see if either of you want the feeling of ownership. If you do, you will be frustrated by not owning. In that case follow Terry's advice, buy something in the area you want to live (even if it is a unit) and then borrow, leverage off to get the investments going. If not, find the most affordable rental you can tolerate and invest away! You can spread locations to minimise location risk, get a few different yield profile, minimise future land tax etc etc. Make sure you target locations to catch the ripple and don't buy at the end of a bull run in the market.
 
MichaelMik said:
But I have not read jan somers book which I have heard on the grape vine, she says have your own fully paid off PPOR first haha! Enjoy the advice off a 22 y/o with one prop but big dreams ha. My 2c
Click to expand...

From memory, I think Jan also clarifies this by stating it is not necessary to have paid off your PPOR before you begin investing.
 
Given you are 30, I suggest purchasing an IP or even two and continue to rent. As others have said, it will give you a lot of flexibility and you can always upgrade to a nice PPOR down the track. That's what my intention is.
 
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