How to purchase PPOR once investmens are bought?

[Moneyman_85]

How to purchase PPOR once investments are bought?

Hi All,

Sorry if this is in the wrong section...but here goes

I am wondering, for someone without their own property (PPOR).

and is looking to buy investments first.

How would you buy a home to live in once these investments are purchased.

Apart from the obvious answer 'sell investment properties' as I am looking at a shorter time frame than 10yrs to buy a PPOR

John.

 

[Terry_w]

You could borrow against the equity in the investment property. However, keep in mind that this loan won't be deductible.

 

[Ninga cat]

I've been thinking about this too... A few years down the track for us but so far have figured out that we will need to separate deductable investment debt from non deductable debt via an offset account. Then stash extra $ and savings into offset to be used as deposit and costs for new PPOR. Then I was thinking of working out approx how much to loan for PPOR e.g 500K at 90%LVR would be $450K (need 50K plus costs as deposit from offset account). Calculate monthly repayments PI on $450K then work out difference in repayments compared to monthly rent paid and for 6 -12 months continue to pay rent and divert additional difference on PI loan into offset account to demonstrate that you can manage repayments of the whole PI amount as when you have your own place you won't need to pay rent? I have worked this scenario though if we don't sell or refinance any IP's..... Some more experienced members might have some better strategies though...

 

[Moneyman_85]

Or would a few quick fix and flick renos be in order to have big chunks of money to pay down a loan

 

[natedog]

Hey Moneyman,

A very smart person once drew this below for me....

A...............................B

"A" is where you are now

"B" is the end goal, whatever it is you want to get to in whatever timeframe you choose.

Once you have decided what "B" is, work backwards and fill in the steps back to "A".

Then put the plan into action.

no doubt it will get tweaked along the way, but "start with the end in mind" i think the saying goes,

Nath

 

[jingo]

Hi All,

Sorry if this is in the wrong section...but here goes

I am wondering, for someone without their own property (PPOR).

and is looking to buy investments first.

How would you buy a home to live in once these investments are purchased.

Apart from the obvious answer 'sell investment properties' as I am looking at a shorter time frame than 10yrs to buy a PPOR

John.

Aim to build a property portfolio that is neutrally geared. Establish loans/Loc's from the equity that is built up over time. Use the Loc's to pay the interest bill and expenses from the portfolio and the rent money /cash to pay down ppor loan. You have to be careful how you set this up and would need advise from an accountant to make sure you are not breaking tax laws.

 

[Moneyman_85]

Thanks to you both,

That sounds doable Jingo - i guess the next question would be

-What if equity in each investment (say 20 IP's) is used up in each property as a deposit

or do you wait another decade to release more?

Plus I guess I would need positive cashflow IP's so I can pay off interest/expenses and pay down loan and to live on

 

[Terry_w]

Thanks to you both,

That sounds doable Jingo - i guess the next question would be

-What if equity in each investment (say 20 IP's) is used up in each property as a deposit

or do you wait another decade to release more?

Plus I guess I would need positive cashflow IP's so I can pay off interest/expenses and pay down loan and to live on

If you have no equity then you are not going to be able to put down a deposit to buy the new PPOR - unless you have saved up cash in an offset account perhaps.

Also, you would be paying tax on your rental income and have a large loan on your PPOR, assuming you get one, and the interest on this won't be deductible.

 

[Moneyman_85]

Thanks Terry,

So i guess rent till im ready to sell down half the investments and claim rent paid as a business expense? (is this possible)

 

[Terry_w]

The rent for your home would be a private expense and not deductible.

What about buying an investment property, but living in it temporarily, then claim the absence from main residence CGT exemption. This could be your future intended main residence or just a temporary purchase which could be sold, CGT free in some situations, and the proceeds used to pay for part of your PPOR.

If you have property in VIC there is also the ability to transfer between spouses and avoid stamp duty. Done right this can release funds and increase tax deductions.

 

[Trogdor]

The rent for your home would be a private expense and not deductible.

What about buying an investment property, but living in it temporarily, then claim the absence from main residence CGT exemption. This could be your future intended main residence or just a temporary purchase which could be sold, CGT free in some situations, and the proceeds used to pay for part of your PPOR.

If you have property in VIC there is also the ability to transfer between spouses and avoid stamp duty. Done right this can release funds and increase tax deductions.

Terry - no posts on trusts and the refi principle forthcoming to help out the OP? I would have thought this was a strategy which would be applicable here.

 

[Moneyman_85]

seems complicated...

But "Success comes from doing things differently"...

 

[jingo]

The rent for your home would be a private expense and not deductible.

What about buying an investment property, but living in it temporarily, then claim the absence from main residence CGT exemption. This could be your future intended main residence or just a temporary purchase which could be sold, CGT free in some situations, and the proceeds used to pay for part of your PPOR.

If you have property in VIC there is also the ability to transfer between spouses and avoid stamp duty. Done right this can release funds and increase tax deductions.

Hi Moneyman,

This sounds like a good idea to get started. Either that, or buy your first property as an IP. Pay it down fast (ie buy a cheaper one with a smaller loan) then move onto the next one, etc.

Start small and build up. Eg. Buy an IP for around $350,000 or so, then set up an offset account. Stash as much cash into the offset as you can. Then, you could use the cash in the offset to fund a PPOR and perhaps keep the investment property, which after some time should be supporting itself.

After a while, there should be surplus rent coming from the IP to pump into the PPOR loan (or offset is better) and keep going this way.

Go one step at a time and this way you won't become overwhelmed.

Regards Jason.

 

[Moneyman_85]

I just dont get the "then claim the absence from main residence CGT exemption"

Do you mean buy investment, renovate the place (generate equity) and live in for say 6 months (less maybe?). then move back with parents.

Then i would be entitled to claim/use absence from main residence CGT?

Is this a whole new CGT exemption

time for google me thinks

Thank you all for your replies.

I'll be back tomorrow lol

 

[Terry_w]

Terry - no posts on trusts and the refi principle forthcoming to help out the OP? I would have thought this was a strategy which would be applicable here.

Trogdor, thanks for reminding me.

Moneyman could set up a unit trust to buy property in. After a few years of capital growth the trustee of the trust could redeem the units buy purchasing them from the unit holder. The trust could convert into a discretionary trust and the money used to pay for the units could do towards the purchase of the new main residence. Since the units are income producing the loan to purchase them could be deductible.

Combine this with one main residence exemption and you could have a good strategy.

 

[Terry_w]

I just dont get the "then claim the absence from main residence CGT exemption"

Do you mean buy investment, renovate the place (generate equity) and live in for say 6 months (less maybe?). then move back with parents.

Then i would be entitled to claim/use absence from main residence CGT?

Is this a whole new CGT exemption

time for google me thinks

Thank you all for your replies.

I'll be back tomorrow lol

Under s118-145 of the ITAA 1997 a person can be absent from their main residence and still have the property as the main residence. Main residences are usually exempt from CGT. If you rent out your main residence and do not have another property as your main residence during this period then you can keep it CGT free for up to 6 years. You can rent it and claim all associated expenses including depreciation etc.

To do this and claim the full exemption you would need to live in the house before renting it out.

 

[BMan]

buy one live it in for a few days then rent it out
keep buying however many your after
only pay IO, but all extra funds into offset account
try to only use equity for future purchases so the cash can be used against your PPOR when you do buy it

 

[Terry_w]

buy one live it in for a few days then rent it out

I would get advice before doing this.

 

[DaveM]

Moneyman could set up a unit trust to buy property in. After a few years of capital growth the trustee of the trust could redeem the units buy purchasing them from the unit holder. The trust could convert into a discretionary trust and the money used to pay for the units could do towards the purchase of the new main residence. Since the units are income producing the loan to purchase them could be deductible..

Terry do unit trusts incur land tax from day 1?

 

[Terry_w]

Terry do unit trusts incur land tax from day 1?

Depends on:
1. type of unit trust
2. State

In NSW fixed unit trusts are able to access the land tax threshold.