No PPOR but investment properties owner

[Gatoblanco]

How many peops have more than one IP but no PPOR.
If so, what are the advantages and disadvantages?
i am not so interested in hearing from people who are living at home as that is not an option for me
Thanks
jesse

 

[The Y-man]

How many peops have more than one IP but no PPOR.
If so, what are the advantages and disadvantages?
i am not so interested in hearing from people who are living at home as that is not an option for me
Thanks
jesse

I think we had a poll on this recently....

Cheers,

The Y-Man

 

[Gatoblanco]

I think we had a poll on this recently....

Cheers,

The Y-Man

Anyone got the link?

 

[troyhunt]

Advantage: the yield our landlord achieves on the property we rent is less than half what we'd be paying in interest alone if we were to buy it (which would be paid with post tax dollars). This frees funds to invest in IP and the interest paid on this is done so with pre tax dollars.

Disadvantage: you don't get that warm and fuzzy of living in your PPOR plus you're at the whim of your landlord. Also, there's the potential for the FHOG if you're buying a PPOR plus there is no CGT when you sell.

This works when you're disciplined enough to make wise decisions with the money you save. For many people, owning (or at least repaying) their PPOR is a forced savings plan. It also works out better in areas with a lower yield as the cost compared to purchasing is much less.

I've gone through the maths personally and with other people many times and in my mind there is no competition from a pure financial perspective. For most people though, buying a PPOR is an emotional experience and the pure economics of the decision are often overlooked.

 

[jimlenno]

Similar to the above, we own two IPs, and we rent.

The major advantages are:

We get to wake up to million dollar views each day but it only costs us a fraction of the price.

I spend less time doing maintenance jobs around the house, LL is responsible for this.

The main downsides are:

We could get asked to move on when it is not convenient etc, if our lease is not up to date.

Have to ask permission to hang pictures on the walls or change the curtains.

Our friends who live in their PPOR are envious of our accommodation, but keep telling us that rent money is dead money?

 

[jaycee]

Advantage: the yield our landlord achieves on the property we rent is less than half what we'd be paying in interest alone if we were to buy it (which would be paid with post tax dollars). This frees funds to invest in IP and the interest paid on this is done so with pre tax dollars.

Disadvantage: you don't get that warm and fuzzy of living in your PPOR plus you're at the whim of your landlord. Also, there's the potential for the FHOG if you're buying a PPOR plus there is no CGT when you sell.

This works when you're disciplined enough to make wise decisions with the money you save. For many people, owning (or at least repaying) their PPOR is a forced savings plan. It also works out better in areas with a lower yield as the cost compared to purchasing is much less.

I've gone through the maths personally and with other people many times and in my mind there is no competition from a pure financial perspective. For most people though, buying a PPOR is an emotional experience and the pure economics of the decision are often overlooked.

Possbily tells you that there is more to life than just economic sense of decisions to me.. so perhaps some people don;t just overlook but decide to do anyway (just a thought)

 

[Lukey13]

Advantage: the yield our landlord achieves on the property we rent is less than half what we'd be paying in interest alone if we were to buy it (which would be paid with post tax dollars). This frees funds to invest in IP and the interest paid on this is done so with pre tax dollars.
It also works out better in areas with a lower yield as the cost compared to purchasing is much less.

Sounds like a decent idea for more expensive houses which tend to have pretty low yield/rent compared to purchase price.

However being at the whims of a 1% vacancy rate and serious housing shortage (in my area at least) doesn't sound quite so attractive.

I suppose 12 month or even 24 month leases (do they exist?) would be safest.

 

[Gatoblanco]

I had wondered whether it was more economical NOT to live in a property one owns (even with no other PPOR that one owns) and it seems that that is the case.
Rents are to go up though. Especially in BNE. Does that change the maths?

 

[JIT]

I'm in this category - never owned a PPOR, multi-IP owner, and renting a place to live in .

Far better $ wise.

It's ridiculously expensive to own a PPOR these days even at interest only repayments .

If you have a big enough cash deposit and buy a PPOR at a very low LVR it might be less painful though.

But there's plenty of soft landlords renting IP's out at below market rates too, looking for secure, reliable, long-term tenants.

 

[boomtown]

I dont think I could afford 2 IPs if I had a PPOR.

Its a no brainer.

 

[exstatic]

Interesting thread...

At what point do you guys who are renting and have IPs decide that you want a PPOR ? Or can you see yourself in the foreseeable future always renting and collecting more IPs?

 

[asdf]

Interesting thread...

At what point do you guys who are renting and have IPs decide that you want a PPOR ?

Never until your other half gets fed up with packing up and moving every 6 months. Or when you find a screamer deal which you can move into, reno for next to no cost and flip for 100% profit tax free.

 

[JIT]

Never until your other half gets fed up...

That's my position too!

 

[jaycee]

Don't you get sick of moving 6 monthly though (as you said) ? How does that work with kids & schools etc for you guys ?

 

[Deepmarine]

At this stage of the investment process, I can hold around 2-4 extra IP's while renting where I live than if servicing the PPOR debt for the same place. I believe that I'll be better off in say 5 years by doing that, and then might buy a PPOR for sentimental reasons.

 

[boomtown]

I had wondered whether it was more economical NOT to live in a property one owns (even with no other PPOR that one owns) and it seems that that is the case.
Rents are to go up though. Especially in BNE. Does that change the maths?

I rent in Brisbane and both my IPs are in Brisbane so Im not fussed about it. Particularly as I try to rent a lower class of housing than my IPs....

 

[troyhunt]

If you have a big enough cash deposit and buy a PPOR at a very low LVR it might be less painful though.

It's not quite that black and white though. A low LVR means you're pulling cash from somewhere else which would be earning somewhere in the order of 8% these days (although you'll pay tax on the interest). You may not be paying more on the home loan but you're losing out from somewhere else - there is still on opportunity cost.

 

[Gatoblanco]

renting rooms

What about the situation where you are renting out room/s in your PPOR that you are paying off (and you dont mind doing that)

 

[troyhunt]

Possbily tells you that there is more to life than just economic sense of decisions to me.. so perhaps some people don;t just overlook but decide to do anyway (just a thought)

I think it's great that it's important to so many people. From a simple financial education perspective though, most people don't realise how much that emotional decision is costing them. I don't think it's so much a matter of overlooking the cost implications, it's a matter of assessing and making an informed decision (probably why this thread was started to begin with).

I spoke to a friend recently who was fed up with inspections from his landlord and wanted to buy. When I asked if quarterly inspections were worth paying an additional $25k for each year (let's not speculate on all the other variables), he changed his tune.

I suspect I'll buy a PPOR somewhere in the future (largely for emotional reasons) but I'll do so with full cognisance of the financial impact.

 

[BayView]

I suppose 12 month or even 24 month leases (do they exist?) would be safest.

You can get 24 month lease - we have one, and there is a $10 p/w increase written into the lease after 12 months.

Technically, we don't qualify for this thread because we own our own PPoR, but it is now an IP and we are renting, so we have more than one IP and are renters.

It is economically more sense for most people to rent and own an IP, because the holding costs of the IP are tax deductible, and in most cases the rent they pay for their rented premises will be a good deal less than their mortgage repayments would be.

The combination of the lower rent and tax benefits from this scenario (especially if the IP was built after 1987) can accelerate your wealth building enormously, and wipe out much of the rent you need to pay yourself.

In our case, we have no mortgage on the PPoR, and the rent we are paying is $80 per week less than the rent we receive from our PPoR. This negates a neg cashflow IP we own, but the others are pos cashflow, so the rent we pay is pretty much covered.