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From: Mike .


Should I sell my house/rent & buy rental properties
From: Darren
Date: 6/14/00
Time: 9:40:37 PM

While I'm not a member of the Investors club, I still get their monthly newsletter, which has some good info. In this months edition, the club president Kevin Young, says he rents his residence and owns heaps of rental properties. I'm thinking of doing it myself and just wanted the opinions of other seasoned property investors.

My current residence is worth around $250,000 with roughly $75,000 equity and I pay $1,470 per month ($250 extra). Should I sell and buy/leverage 3 to 4 investment properties or even a block of flats/units. I could rent a house, similar to what I'm living in for $820.00 per month. Is this a good strategy?

I've been reading Robert Kiyosaki's books and he says your house is not an asset, but a liability. I agree with this and feel I'm better of selling and getting other people to pay for my investments. Anyone else feel the same.

Regards, Darren
 
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David

Reply: 1
From: Mike .


Re: Should I sell my house/rent & buy rental properties
From: David
Date: 6/14/00
Time: 11:08:37 PM

Darren

I wouldn't call myself a "seasoned investor" but I agree 100% with your idea, and intend to do the same once I move out of home. Like you said, you can live in the same sort of place for much less because:

1. You are not paying off capital, and

2. The Government is subsidising your rent by giving the landlord tax savings - meanwhile you can go and spend that extra money to easily service two IP's instead the one that you were paying off before BECAUSE of the tax advantages that you get as a landlord.

Ive done the sums and worked out that based on the same budget, you would be substantially better off in 10 years time by renting and investing rather than buying to live in.

May as well let the government help you in as many ways as they want.

Regards, David
 
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Glenn

Reply: 1.1
From: Mike .


Re: Should I sell my house/rent & buy rental properties
From: Glenn
Date: 6/15/00
Time: 4:29:31 PM

David,

I'm in the same position as you, very close to diving into this property game.

I'm not sure whether to follow your philosophy, or buy to live in first. The $7000 cash back + no stamp duty for first home buyers, is swaying me a little towards buying as residence. That's a saving of $13,000. This way I would pay off as quickly as possible to build equity for IPs.

If I follow your philosophy I could probably afford to buy 2 IPs in an area with potential capital growth and +ve cash flow. Sydney has really peaked, so I could look elsewhere.

If I buy to live in then it has to be Sydney.

Appreciate any comments. PS Les, I already know you're opinion on this. But any advice would be appreciated.
 
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Les

Reply: 1.1.1
From: Mike .


Re: Should I sell my house/rent & buy rental properties
From: Les
Date: 6/17/00
Time: 3:45:57 PM

G'day Glenn,

For a perspective on Rent vs Buy, re-read Story #79 "The Swap" in Jan's "Story By Story". I think this story goes quite some way toward explaining the merits of renting vs buying.

But, in the end, you (and your partner) need to sleep at night. So do what is comfortable - just watch out for that comfortable "rut" though - sometimes we need to step out of our comfort zones for our own good. In the end, if you can't convince YOURSELF that renting is better, then you should probably not do it - your heart won't be in it.

Good luck with your decision, whatever it is.

Regards, Les

PS - "We pay a hefty PREMIUM for wanting to live in our own home!" (from a VERY early forum posting)
 
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Bob

Reply: 1.1.1.1
From: Mike .


Re: Should I sell my house/rent & buy rental properties
From: Bob
Date: 6/15/00
Time: 8:33:28 PM

For those who own their first property, why sell? Move out, rent it out (ensure positive cashflow including the rent that you pay) and at the same time borrow using the equity in the house to buy several more properties! Selling makes money for others, borrowing leaves you with an extra property. Just my thoughts.
 
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Owen

Reply: 1.1.1.1.1
From: Mike .


Re: Should I sell my house/rent & buy rental properties
From: Owen
Date: 6/16/00
Time: 2:36:02 PM

My partner and I are thinking of doing exactly that. We have just paid off our house and are thinking of letting it out and renting something cheaper for ourselves. This idea only came up the other week when I read in this forum somewhere that you can rent out your own home for 6 years before it becomes eligible for CGT. I'm thinking rent it for 6 years and then sell it and buy a new home to live in. In the mean time for 6 years we have an income, lots of equity to use and no CGT at the end. In a 6 year period we can get together plenty of +ve geared IP's to help pay off a new house if there is a mortgage on it at all.

The only catch is with our house paid off we have a very cheap cost of living. Although our new rent would be paid by the income earned by our house, I'm not sure it is worth the effort. The only real benefit to the plan above would be the income difference between rent earned and rent paid. Using the equity and no CGT still remains.

Has anyone let their freehold house out and rented somewhere else? I'd be interested to know.

Cheers, Owen
 
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Terry A

Reply: 1.1.1.1.1.1
From: Mike .


Re: Should I sell my house/rent & buy rental properties
From: Terry A
Date: 6/16/00
Time: 9:19:48 PM

If you own your own house why not borrow against your equity in it to buy an IP or two. You then don't have to pay rent and don't have to move (which will cost you as well).

If you move into rented accommodation and rent your own house out you will get very few deductions to offset the rent so you will pay tax on the rent and have to fork out for rent as well - a double hit!!

Better to get a loan on an IP using part of your equity in your own home. The loan and the IP will give enough deductions to reduce the tax on the rent and hopefully be positively geared while you continue to live rent free.

Don't be frightened to pay some tax on making a profit. I can't understand why some people try to avoid tax by making losses. Better to have tax effective structures and pay some tax and have money in your pocket.

Only move out of your own home and rent if you want to upgrade to a better house and even then do your sums carefully for all possible combinations.
 
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Owen

Reply: 1.1.1.1.1.1.1
From: Mike .


Thanks for confirming my thoughts Terry (nm)
From: Owen
Date: 6/19/00
Time: 5:08:34 PM
 
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Les

Reply: 1.1.1.1.1.1.1.1
From: Mike .


Don't forget the BFO !!!!
From: Les
Date: 7/2/00
Time: 2:23:42 PM

G'day all,

For those reading this later, do check out the "Blinding Flash of the Obvious" replies to an entry dated 5 Jun (6/5/00) titled "Time to Move").


The major point in "BFO" being that many advisers tell you to "Sell your old home - don't rent it out". In "BFO" we dig deeper into WHY they say this, and identify that in some cases, the advice is DEAD WRONG!!!

Whether to stay in your home and purchase IP's or rent your old home and rent elsewhere is a vast question. The "BFO" reply goes someway down the track toward making the decision easier. But (as one of the previous respondents to this note said) "It costs money to move out of home" and this cost needs to be considered. But since the original poster was wanting to move closer to work, maybe renting the old home IS the best. Use BFO's information to assist you in making your decision.

Les
 
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