PPOR Or Investment Property
- Thread starter getrich
- Start date
In my experience, as many IPs as you can before buying PPOR. Better cashflow, you become more used to thinking about property as an investment, less emotional attachment, etc. Especially if you're young and you don't really 'need' your own place yet. Different if you, for example, have children. But if you're young, you're more than likely to go overseas to work, want to travel, etc. Also, with IPs you're not limited to your own neighbourhood and can buy wherever.
Alex
Alex
Welcome, getrich! (Can't believe that name wasn't taken, BTW). Totally agree with Alex. It's much quicker to build wealth with deductible debt so it will be cheaper for you to own an investment property that a PPOR. If you really hate renting (My hubby is one of those people!), here's another idea for you to consider:
With a trusted friend/family member, decide to purchase a house for each other to live in. Of course, you will both have to pay market rent but you get to live in the house you want and won't get hassled by PMs every 6 mths & won't potentially have to vacate every 1-2 yrs. Cheers
With a trusted friend/family member, decide to purchase a house for each other to live in. Of course, you will both have to pay market rent but you get to live in the house you want and won't get hassled by PMs every 6 mths & won't potentially have to vacate every 1-2 yrs. Cheers
Be careful if you plan to get tax deductions as this could be seen as bordering on fraud
Others may disagree, but I think the 'value' of buying IPs first (and I'm talking about multiple IPs here, not just one and then your PPOR) is worth far more than the FHOG. It depends on your situation, but for example in my own case, I bought my first IP at 22, moved overseas at age 23 and only came back last year at age 30. Bought a couple of IPs all through the years and didn't buy my PPOR until last year.
In any case, you can still 'save' the FHOG until you eventually buy a PPOR, though your stamp duty exemptions will be affected.
Alex
GetRich, whether you buy your first property as a PPR or an IP is asked here often and firm reasons are given for why it should be an IP.
However, until one uses the discipline to sit down and nut out the calculations on a spreadsheet, you won't see the pros and cons clearly.
Herewith is a spreadsheet laying out the two scenarios to the best of my knowledge. Feel free to plug your individual circumstances into it and see whether buying as an IP gives an advantage.
Before you do so though, consider these factors which are to the best of my knowledge (and I stand to be corrected by others):
Stamp Duty
stamp duty is higher on IPs and though each state offers FHBs a stamp duty concession, I don't think it applies to your first property if it is an IP.
FHOG
There has been differing opinions on the forum as to whether a first property bought as an IP is allowed the $7000 FHOG. The grant is managed by each state independently AFAIK, and you want to check your particular state's rules.
Rent Paid to Live Elsewhere
A big advantage of buying first property as IP is to minimize rent living somewhere else. If you can live with parents or share with friends elsewhere cheaper, factor that into the spreadsheet.
Purchase Costs
AFAIK, if you buy the property as a PPR, and after one year convert it to an IP, you cannot use your purchase costs at all as deductions from your capital gain. But others might be better informed on this. Anyway, I have set the spreadsheet up accordingly.
So, with current data entry in the spreadsheet, you will see at the end of the year, buying the property as an IP is disadvantageous to the tune of $13,070.
I am happy for anyone to point out errors in my assumptions.
I have used tax rates for 2008 and stamp duty tables for Qld.
What I Suggest
When I have modelled this scenario in the past, it was most profitable to buy as a PPR and hold as such for 12 mths, then change status to IP.
Some believe 6mths is enough, but I believe either the FHOG or First Home Buyer Stamp Duty concession of some states is dependent on a full 12 mths as a PPR. I can't remember which it is. But maybe a mortgage broker or banker can advise.
And it is beneficial in the first year of ownership as a PPR that you rent out a room or two to friends, for cash of course
And finally, conversion to an IP only offers an advantage if you are able to wangle your after tax capital gains to be higher than your after tax holding cost. And for many, that means not selling until they stop working...
However, until one uses the discipline to sit down and nut out the calculations on a spreadsheet, you won't see the pros and cons clearly.
Herewith is a spreadsheet laying out the two scenarios to the best of my knowledge. Feel free to plug your individual circumstances into it and see whether buying as an IP gives an advantage.
Before you do so though, consider these factors which are to the best of my knowledge (and I stand to be corrected by others):
Stamp Duty
stamp duty is higher on IPs and though each state offers FHBs a stamp duty concession, I don't think it applies to your first property if it is an IP.
FHOG
There has been differing opinions on the forum as to whether a first property bought as an IP is allowed the $7000 FHOG. The grant is managed by each state independently AFAIK, and you want to check your particular state's rules.
Rent Paid to Live Elsewhere
A big advantage of buying first property as IP is to minimize rent living somewhere else. If you can live with parents or share with friends elsewhere cheaper, factor that into the spreadsheet.
Purchase Costs
AFAIK, if you buy the property as a PPR, and after one year convert it to an IP, you cannot use your purchase costs at all as deductions from your capital gain. But others might be better informed on this. Anyway, I have set the spreadsheet up accordingly.
So, with current data entry in the spreadsheet, you will see at the end of the year, buying the property as an IP is disadvantageous to the tune of $13,070.
I am happy for anyone to point out errors in my assumptions.
I have used tax rates for 2008 and stamp duty tables for Qld.
What I Suggest
When I have modelled this scenario in the past, it was most profitable to buy as a PPR and hold as such for 12 mths, then change status to IP.
Some believe 6mths is enough, but I believe either the FHOG or First Home Buyer Stamp Duty concession of some states is dependent on a full 12 mths as a PPR. I can't remember which it is. But maybe a mortgage broker or banker can advise.
And it is beneficial in the first year of ownership as a PPR that you rent out a room or two to friends, for cash of course
And finally, conversion to an IP only offers an advantage if you are able to wangle your after tax capital gains to be higher than your after tax holding cost. And for many, that means not selling until they stop working...
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