Renting while paying off my IP?

[bob246810]

Hi all, as a first home buyer, I've been considering buying an IP to rent out, while renting in a cheaper location. The idea is that not only can I lease the IP out for more $$ than the rent I'll pay, I can also rent close to work to save more $$ on public transport tickets, and use my commute time to earn more $$ freelancing.

Has anyone done something like this before? Am I missing anything important, such as the CGT-free benefits of actually living in the property? I've heard the Victorian government is cutting the First Home bonus heavily, which seems more motivation to try this strategy. I'm going to speak with an accountant beforehand, but just wondered if anyone has opinions on this whole buy-and-rent thing.

The other alternative would be to live in the property and bring a roommate for the extra $$ and utilities savings. However, I'm a bit hesitant to go down this route (unless it works out to be a lot more lucrative!), mainly because I enjoy living on my own, and also nervous about potential nutjob roommates.

Thanks for reading. Any advice or potential disaster-scenario warnings would be appreciated!

 

[tvadera]

Hi,

I have done this before. You wont get the grant for investment property. I did this initially where investment property was given to tenants and I was sharing an apartment with friends. It worked well because I was close to work and provided me with flexibility of moving jobs in different states.

You would get tax benefits and can negatively gear if your property expenses exceed your rental income.

You would need to budget for any nasty maintenance issues. for e.g. 6th week there was a major maintenance issue I.e. heater stopped working, was out of pocket by 1600$ (thermostat replacement, electrician call out fee, etc).

You would need to budget for any vacancy periods. I would say assume property would only be let out for 46 weeks.

Good luck

Regards,
TV

Hi all, as a first home buyer, I've been considering buying an IP to rent out, while renting in a cheaper location. The idea is that not only can I lease the IP out for more $$ than the rent I'll pay, I can also rent close to work to save more $$ on public transport tickets, and use my commute time to earn more $$ freelancing.

Has anyone done something like this before? Am I missing anything important, such as the CGT-free benefits of actually living in the property? I've heard the Victorian government is cutting the First Home bonus heavily, which seems more motivation to try this strategy. I'm going to speak with an accountant beforehand, but just wondered if anyone has opinions on this whole buy-and-rent thing.

The other alternative would be to live in the property and bring a roommate for the extra $$ and utilities savings. However, I'm a bit hesitant to go down this route (unless it works out to be a lot more lucrative!), mainly because I enjoy living on my own, and also nervous about potential nutjob roommates.

Thanks for reading. Any advice or potential disaster-scenario warnings would be appreciated!

 

[D.T.]

Get FHOG
Live in it for 6 months while you give it a cosmetic reno
Return to renting and rent it out
Sell it CGT Free

I did exactly that.

 

[gottabespotless]

Great idea to live in it for 6 months to qualify for the grant before moving out and renting it to tenants. Although the first home owner's grant didn't exist back then, it's what we did. It was hard to build a nice brand new house and instantly hand the keys over to tenants before returning to our tiny 2 bedroom townhouse that we rented with another couple, but we were able to pour so much more money into it and built up equity in it quite quickly - we soon bought more IPs. Of course, if we were young and doing it again today - we'd live in it for 6 months for the grant. DO IT! And congrats on entering the property market!

 

[jenni_nextplace]

Live in it for 12 months prior to renting it out. Due to capital gains tax and stamp duty. Less stamp duty on your own home, and yeah if you can get the first home buyers grant as well that would definately be the way to go.

12 months will go quickly, and if you have someone living with you helping pay towards a few renos, you will get top rent for it in 12 months time.

 

[bob246810]

Thanks for the advice, everyone. I'll most likely live in a property for at least a year before considering renting it out, as most of the bonuses and stamp duty savings seem to require that period of time.

I've been reading about the whole negative gearing thing lately, which seems to be the main reason I could do better by renting the property out. To sum it up, is it basically the loss you make on the property (ie. if interest, property manager's fees, body corp is higher than rental income) that's written off on your taxes?

(ie. If you make a $10,000 net loss every year on the property, your income is considered to be reduced by $10K for tax purposes?)

 

[mattoc_g]

I'm in a similar situation.

I am recently married. My wife and I want to buy investment property. I currently have a First Home Saver Account with ME Bank and my wife and I have a joint RABO Direct savings account where we are putting aside extra cash.

We currently hope to buy our first home and take advantage of the $10,000 first home buyer's grant in WA as well. We will live in it for the first 6 months (to meet the criteria of the First Home Buyer's Grant, etc). Then we will move out and rent it out again.

My current plan (as the long term goal of the property is for it to actually be an investment property) is to have it with an interest only loan plus offset account so that we can build equity quickly and then get further investment properties.

Having established that, what does everyone think would be an appropriate amount to aim for for the deposit? $20,000? $30,000? $50,000?! (Not including the $10,000 WA FHOG)


Is anyone out there in a similar situation or been in a similar situation / has any advice for me?

 

[spludgey]

I've got 4 IPs now and I've never owned a home. Looking for number 5 at the moment. It's usually a smart investment decision to do it this way.

 

[Peter_Tersteeg]

I did this scenario myself almost 15 years ago, it worked well for us. Back then you only had to spend one night in the property to qualify for the grant, but we overstayed for 3 weeks whilst we completed a cosmetic reno.

 

[HD_ACE]

I'm in a similar situation.

I am recently married. My wife and I want to buy investment property. I currently have a First Home Saver Account with ME Bank and my wife and I have a joint RABO Direct savings account where we are putting aside extra cash.

We currently hope to buy our first home and take advantage of the $10,000 first home buyer's grant in WA as well. We will live in it for the first 6 months (to meet the criteria of the First Home Buyer's Grant, etc). Then we will move out and rent it out again.

My current plan (as the long term goal of the property is for it to actually be an investment property) is to have it with an interest only loan plus offset account so that we can build equity quickly and then get further investment properties.

Having established that, what does everyone think would be an appropriate amount to aim for for the deposit? $20,000? $30,000? $50,000?! (Not including the $10,000 WA FHOG)


Is anyone out there in a similar situation or been in a similar situation / has any advice for me?

I have done this. Because it did not matter where i lived at the time. Good strategy.

Just make sure you base your purchase purely as an investment and all the investment fundamentals. And not as a ppor with an emotional attachment.

Cheers