PPOR > IP > Renting - Other Points to Consider

[parlayman]

Hello,

We're entertaining the idea of converting our current PPOR to an IP and renting a bigger place to live in. Just doing a very high-level number crunching and this is how it's looking at:

We do want a bigger place but cannot afford to purchase. Thus, the idea of getting back into the rental market came about.

What other things do we need to seriously consider when entertaining this type of idea? We're pretty much after a set of strong check list that will hopefully help us make a much more informed decision.

Appreciate all your thoughts/inputs.

Thanks!

 

[Edge7]

At first glance, I can't understand how creating a shortfall of $39.69 + $580 per week will help you in the long run.

Perhaps understanding the motivation for wanting a bigger place may help paint a better picture.

Depending on your motivation (assuming a growing family), it might serve you to sell both properties and put all your equity into one larger property. This suggestion might be anathema on a property investing forum however, it might serve your life purpose better.

 

[poidda]

We did exactly this a few years ago. We lived in one of the units we own, but then moved into a rented house because we wanted more space.

Financially it was a great option for us. Everything in the PPOR now became a tax deduction, so the tax return covered most of the difference in between rent.

 

[parlayman]

I should put more info on the spread sheet...

IP1 is recently acquired so there's really no valuable equity yet.
And for the current PPOR, even if we sell it, the profit will not be "huge" enough for a deposit on a house that we would want.

So the shortfall really is:

Current weekly expense: $78.58 + $459.69 (current mortgage) = $538.27
This will become: $698.27
So additional $160 per week implementing this plan.

And with the plan, 2 IPs will translate to higher tax deduction which should shoulder at least part of the $160 additional expense....

I guess our concern is paying CGT if we decide to sell IP2 later on. While if we continue making it as our PPOR, selling it will not incur CGT... Is that correct?

 

[Rolf Latham]

Hello,

We're entertaining the idea of converting our current PPOR to an IP and renting a bigger place to live in. Just doing a very high-level number crunching and this is how it's looking at:

We do want a bigger place but cannot afford to purchase. Thus, the idea of getting back into the rental market came about.

What other things do we need to seriously consider when entertaining this type of idea? We're pretty much after a set of strong check list that will hopefully help us make a much more informed decision.

Appreciate all your thoughts/inputs.

Thanks!

Ensure all loans IO

ensure that you dont repay any loans, but place ur cash into a tax paid offset acct.

ta
rolf

 

[travelbug]

There are also the other costs of rates etc (which you are already paying) but they will now be tax deductable. With depreciation also you may not be out of pocket that much.
If you changed the loans to IO you would be no worse off each week.

Correct- if you keep it as your PPOR you can rent for up to 6 years and not pay CGT (as you are not claiming another PPOR).

 

[parlayman]

Ensure all loans IO

ensure that you dont repay any loans, but place ur cash into a tax paid offset acct.

ta
rolf

Thanks Rolf.
Both loans are currently IO. IP has no offset account for now while our PPOR has. And if we convert PPOR to IP2, no need to keep offset for it. Is that right?

 

[parlayman]

Correct- if you keep it as your PPOR you can rent for up to 6 years and not pay CGT (as you are not claiming another PPOR).

I'm still confuse on this 6yr CGT rule...
We've had our current PPOR for around 4years. If we convert this to IP2 then sell it, say 2 years later, what's the CGT situation on this?

Thanks.

 

[Terry_w]

I'm still confuse on this 6yr CGT rule...
We've had our current PPOR for around 4years. If we convert this to IP2 then sell it, say 2 years later, what's the CGT situation on this?

Thanks.

Possibly nil. But would you be claiming any other property as main residence at the same time?

see s118-145 ITAA 97
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.html

 

[Terry_w]

You should also probably get a valuation done when you move out in case you do not apply the 6 year exemption (circumstances may change).

 

[parlayman]

Possibly nil. But would you be claiming any other property as main residence at the same time?

see s118-145 ITAA 97
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.145.html

Thanks Terry.
We will not be purchasing at the same time - only renting.
And it's highly unlikely that we will move back into this converted property to make it our PPOR again.