PPOR or IP ?

Note: Mods you can close my previous similar thread if you want as in this I have another thought to discuss on similar topic
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I am currently renting one bedroom unit.

What should buy first PPOR or IP ?

- I don't want to loose FHOG + Stamp Duty exemption (7k+(11k - 15k) =18k - 22k )
- But my primary plan is to build MAX portfolio as much as I can. I don't know the exact reason yet, but people say if you want focus on maximizing your portfolio then go for IPs, IPs, IPs

I thought and discussed various things on this aspect. Now, I am thinking to buy house + flat(granny) and live in granny and rent out house. This way I can buy bigger house compared to 1bdr unit and get max stamp duty exemption and have a stable flat to live possibly.

My wish is to buy in Inner West or as much as close (livable suburb) possible to city, but with my budget of 350k I think need to go towards West (Merrylands, Guildford etc). And later down the line after 6 months probably I buy uni accomo in which I have interest.

Pls suggest on above strategy of buying house+flat and living in flat and rent out house. If I like staying there I will continue. In this way instead of paying rent to someone else property. I will be paying EMI on building my own property.

I just don't want to keep chaining the flats, buying a PPOR and live there for 6 moths and then rent it out.
 
Have you considered buying a PPoR and renting out some of the rooms in it, sharehouse style? If I was single and wanting to get ahead in property, that's what I'd do. There can't be *that* many houses with granny flats available to buy either, which will limit your market somewhat.
 
My wish is to buy in Inner West or as much as close (livable suburb) possible to city,
You will not be able to buy a house + flat in the Inner West or your budget of $350K. You can barely buy a 2brm unit there for an extra $100K

but with my budget of 350k I think need to go towards West (Merrylands, Guildford etc).
You will not be ale to buy a house + flat in those areas either for your budet of $350K. We have been buying them for around $400-450K about 6 months ago and the market has moved up since then.
You will need to go much further out West or up to the Central Coast.

And later down the line after 6 months probably I buy uni accomo in which I have interest.
You can buy student accom for you budget near the Newcastle Uni - but not the Sydney ones. Unless it is the very Western campuses.

Pls suggest on above strategy of buying house+flat and living in flat and rent out house.
You will not be able to rent out the house & live in the flat until after the expiry of 6 months if you are going to be claiming the FHOG. It has to be your PPOR not an IP or 1/2 an IP.
 
. In this way instead of paying rent to someone else property.

What's wrong with paying rent? Often you can rent for cheaper than you can buy a place. Financially, it makes a lot of sense to rent and buy ips. While the stamp duty exemption may be lost if you buy an ip first, remember if you take the fhog, you can't rent it out for at least 6 months. That means 6 months of interest, rates, etc that you can't deduct, not to mention the rent you won't get less what you save on your own rent.

Don't be too hung up on the 'I might lose out on the stamp duty exemption'. While stamp duty is a lot, you need to calculate how much you lose out by not being able to rent out a place and negatively gear it.

I will be paying EMI on building my own property.

What's EMI?
 
Have you considered buying a PPoR and renting out some of the rooms in it, sharehouse style? If I was single and wanting to get ahead in property, that's what I'd do. There can't be *that* many houses with granny flats available to buy either, which will limit your market somewhat.

Yes, I may think if that is the last option. In general I don't like to share house/flat etc.

You will not be able to rent out the house & live in the flat until after the expiry of 6 months if you are going to be claiming the FHOG. It has to be your PPOR not an IP or 1/2 an IP.

So this means following scenario's are different
a) House+Granny -> Rent out house, live in flat - No to Stamp duty exemption
b) House or Unit -> Rent out room's, live in one room - Yes to Stamp duty exemption

I confirmed about 'b' from FHOG dept. I was thinking in similar patter for option 'a' as well.

Thanks for redirecting my thoughts in correct path. Any recommendation for PPOR or IP ?

What's wrong with paying rent? Often you can rent for cheaper than you can buy a place.
In terms of what is wrong in paying rent is, I think like as per below calculation - I am paying the same rent amount for someone else property. If I pay similar rent I only get one benefit that I am getting place to live and that 12k / yr is gone.

But if I buy and pay similar amount for monthly installment of loan - I will get two benefit - I have a my OWN place to live and the monthly payment is going for building my own property.

I am not sure, if there is loop hole in above thinking but at present I think in that way.

Example / Calculation / Rent is little cheap then buying NOT much
I am currently paying rent around 1180$ pm. If I buy 1bdr in eastern suburb, I can get that for 250k. Monthly payment will come around 1270$. So, it is 100$ approx I have to pay extra if I buy. And in 6month - 1year my LL will increase rent and then this 100$ extra will reduce 40$ probably.

Suggestion's pls.

Financially, it makes a lot of sense to rent and buy ips. While the stamp duty exemption may be lost if you buy an ip first, remember if you take the fhog, you can't rent it out for at least 6 months. That means 6 months of interest, rates, etc that you can't deduct, not to mention the rent you won't get less what you save on your own rent.

Don't be too hung up on the 'I might lose out on the stamp duty exemption'. While stamp duty is a lot, you need to calculate how much you lose out by not being able to rent out a place and negatively gear it.

Agreed, If I don't rent out I willn't be able to take the advantage of deduction. But my other concern is discussed above. I shall calculate how much I loose if I don't rent out, but my property is going to be +ve geared.

What's EMI?

Monthly installment or Equated monthly installment. (Monthly loan payment)
 
I am currently paying rent around 1180$ pm. If I buy 1bdr in eastern suburb, I can get that for 250k. Monthly payment will come around 1270$. So, it is 100$ approx I have to pay extra if I buy.
You're missing something important here. Buying a house doesn't just come with one charge - the mortgage repayments. There are council rates and water on a house and body corporate or strata fees on a unit, and maintainence on any property. Strata fees can be quite high. Maintainence can really catch you out by how expensive some things are if you haven't had to pay them before.

Also if you are living alone, you have to pay all your utility bills yourself. If you share, they get split or you charge board and include them in the board. The most important trick to sharing is to make sure you have more than one bathroom :)

Work out what is financially best for *you*. For me, this is owning, as we currently pay $35pw for a house we couldn't rent for less than $200pw. Just don't forget all the other expenses beyond the loan repayments!
 
You're missing something important here. Buying a house doesn't just come with one charge - the mortgage repayments. There are council rates and water on a house and body corporate or strata fees on a unit, and maintainence on any property. Strata fees can be quite high. Maintainence can really catch you out by how expensive some things are if you haven't had to pay them before.

council rates - 325pq
strata fees - 350pq
Water - 130pq
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Total - 805/3 = 268 pm
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Regarding maintenance, it is almost a year in this unit and LL did only few repair for total cost of 150 - 200 that too before I move and I asked for those. And it is more than 50years old unit.
I do understand above maintenance is just an example, sometime it can be very high maintenance cost.

268 + 100 ( diff in loan payment and current) = 368$ - 400$

So, do you think better rent out rather then paying 350-400 extra pm for OWN house.


Also if you are living alone, you have to pay all your utility bills yourself. If you share, they get split or you charge board and include them in the board. The most important trick to sharing is to make sure you have more than one bathroom :)

Work out what is financially best for *you*. For me, this is owning, as we currently pay $35pw for a house we couldn't rent for less than $200pw. Just don't forget all the other expenses beyond the loan repayments!

Hmmm, shall workout further after finishing this discussion.
 
You keep pushing the OWN home angle rather than the financial angle. You're coming up with justifications on why you should buy your own unit, for yourself.

Thus, for you, you probably really do want to own a PPoR for stability and you want someone to tell you its a good idea.

So just go buy a small PPoR you can afford then! You can always upgrade to a bigger place if you get hitched and want kids, and keep your original one as an IP down the track. End of this year I'll have two ex-PPoRs rented out and a brand new family size PPoR and I have to say, its not the best way to do it from a tax/accounting perspective but it still works just fine.
 
You keep pushing the OWN home angle rather than the financial angle. You're coming up with justifications on why you should buy your own unit, for yourself.

Thus, for you, you probably really do want to own a PPoR for stability and you want someone to tell you its a good idea.

Don't get me wrong. I am trying understand the things exactly (with almost exact calculation on paper). I believe it is better to understand things on ground reality before taking any step and specially big step like buying a property going to biggest purchase of life.
 
In terms of what is wrong in paying rent is, I think like as per below calculation - I am paying the same rent amount for someone else property. If I pay similar rent I only get one benefit that I am getting place to live and that 12k / yr is gone.

I would prefer to think of the 12k as an oppotunity cost. What are you getting in return? An ip that you can deduct against income. More imporantly, an asset that will appreciate, and you can use as a base to buy more assets. Contrary to 'conventional wisdom', I don't think rent is dead money. It's a cost, but you have to look at the return as well.

But if I buy and pay similar amount for monthly installment of loan - I will get two benefit - I have a my OWN place to live and the monthly payment is going for building my own property.

I'm assuming you're thinking about paying off capital here, but if you're using an IO loan, you're not paying off capital. Besides, what's your plan here? If, like many, you're planning to refinance and buy more, then paying off the loan really isn't an objective.

Example / Calculation / Rent is little cheap then buying NOT much
I am currently paying rent around 1180$ pm. If I buy 1bdr in eastern suburb, I can get that for 250k. Monthly payment will come around 1270$. So, it is 100$ approx I have to pay extra if I buy. And in 6month - 1year my LL will increase rent and then this 100$ extra will reduce 40$ probably.

Ok, but if you buy that 1 bedroom as an IP, how much rent can you charge? You would also be able to raise the rent on your tenant, potentially cancelling out the extra your landlord charges you.

If your objective is to buy multiple properties, then it's a mistake to think of it as 'the place I rent versus the place I buy'. Done well, it's not a one v one comparison. What you should be thinking about is 'the place I rent versus the (insert number) places that I own'.

The other thing to consider is flexibility. Renting is a lot more flexible than buying. If, for example, there are better opportunities for work in another city or country, then you might want the flexibility of renting so you can move easily.

The trap from buying your own place is that you tend to overcapitalise and you are too focused on paying it off and forget about expanding your portfolio.

Rent is dead money and building equity by paying off your loan are 'conventional' ideas that in fact may not be correct. I rented for years, buying IPs along the way. When you have more than one IP, the 'should I rent it out or live in it' question becomes irrelevant.
 
I believe it is better to understand things on ground reality before taking any step and specially big step like buying a property going to biggest purchase of life.

You really have to get past that. If you want to do this property investing thing, you really have to start thinking about buying a property as just another transaction. Like buying a car, say. Analyse the fundamentals and the numbers. Don't get clouded by how big it seems to you now.

Let me ask. Say you have TWO properties. How does your thinking change? You can't live in both, so you would HAVE to treat at least one of them as an investment property. How would you view it if you cannot live in a property. Say it's in a different city.
 
Generally the advice is to rent and buy IPs, as it works better for tax and cashflow. This doesn't sit well with everyone, some people prefer the stability of owning over renting and there's also the benefit of having that equity in your PPoR you don't get when you rent.

Now remember you're on Somersoft. The first purchase might be the 'biggest purchase of your life' and a huge deal, but then you buy another and it costs more and its not so big a deal. Then another. Then its like "whatever, I just bought another house".

If you intend to keep your first to turn into an IP later, don't pay any extra on it. Get an offset account (MISA at Commonwealth) and put any extra in there instead. Saves you money and avoids accounting problems down the track. Wish I knew that several years ago.

Edit: Alex is going to give you the totally unemotional lowdown :)
 
Don't get me wrong. I am trying understand the things exactly (with almost exact calculation on paper). I believe it is better to understand things on ground reality before taking any step and specially big step like buying a property going to biggest purchase of life.

What you're not including in your calculation is the FUTURE. Your calculation is still based on do I rent or do I buy a place to live in. How does having multiple IPs worth 1m, 3m, 5m change your thinking?

Ideas like 'rent is dead money' and 'buying property is the biggest purchase of your life' and 'your own home is your biggest asset' are conventional wisdoms that are true, FOR MOST PEOPLE. Most people can't save, they don't make financial plans and don't like debt. Most of the people here can save, they make financial plans and understand that debt is risky but can be partly managed, and they look at the return as well.
 
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