Sacrifice FHOG for a more feasible purchase

[lostis]

Hi All,

Just wanted to get people's feedback or thoughts on a little conundrum I have at the moment.

I currently live in Sydney and am looking at purchasing an IP.

As I work in the Sydney CBD my original idea was to buy within Sydney, live there for a period of time (more than 6 months) than start renting it out afterward, but now it is just not cost/time effective for me to buy anywhere in Sydney without having to travel hours on end each day, which includes night classes at uni 3 times a week.

At this point in time I don't find the prices in and around Sydney justifiable and are just too high for me to purchase as well. So, I was considering purchasing either somewhere regional with better returns or possibly even in a different state. Ideally something that would get me as close to being positively geared as possible.
In order to do this I would have to sacrifice the FHOG and all the additional benefits that go with it.

I was just wondering if anyone else has done such a thing? How did the come to the decision to do it? Are there any feelings of regrets at the moment?

Also before anyone says buy cheaper and further out, I am looking at not forking out more than $250K at this time.

 

[alexlee]

You're aware that by doing this (buying IP), you can still claim the FHOG for a future PPOR purchase? Though the stamp duty concessions are likely lost.

 

[sfulop]

Hi All,

Just wanted to get people's feedback or thoughts on a little conundrum I have at the moment.

I currently live in Sydney and am looking at purchasing an IP.

As I work in the Sydney CBD my original idea was to buy within Sydney, live there for a period of time (more than 6 months) than start renting it out afterward, but now it is just not cost/time effective for me to buy anywhere in Sydney without having to travel hours on end each day, which includes night classes at uni 3 times a week.

At this point in time I don't find the prices in and around Sydney justifiable and are just too high for me to purchase as well. So, I was considering purchasing either somewhere regional with better returns or possibly even in a different state. Ideally something that would get me as close to being positively geared as possible.
In order to do this I would have to sacrifice the FHOG and all the additional benefits that go with it.

I was just wondering if anyone else has done such a thing? How did the come to the decision to do it? Are there any feelings of regrets at the moment?

Also before anyone says buy cheaper and further out, I am looking at not forking out more than $250K at this time.

We're currently in a very similar situation to you. The girlfriend and I have decided to purchase two separate properties as investments and not use the FHOG for either. We found that it was much more cost effective to remain living at home and miss the stamp duty concessions as opposed to living in the property for 6 months and incurring the mortgage repayments, living expenses and general travel costs into the CBD everyday. We will use it in time when we decide to buy our first home to live in together. In terms of general advice, I'd be looking Western Sydney if I was you. There are several people on this forum that I suggest you PM who know the area like the back of their hands. PM me for details. Well within your budget too.

Also, Alex is 100% correct in saying what he did - you will lose the stamp duty concession. You must live in the property for 6 of the first 12 months to satisfy the eligibility requirement.

Best of luck,
Steve

 

[alexlee]

Also, Alex is 100% correct in saying what he did - you will lose the stamp duty concession. You must live in the property for 6 of the first 12 months to satisfy the eligibility requirement.

Steve, you interpreted my post incorrectly. Yours is just an explanation of why you don't get stamp duty concessions (or the FHOG) for an IP. That is NOT the reason why the stamp duty concession might be lost forever.

For the FHOG, for example, there is an explicit rule that says if you bought IP after July 2000, you're still eligible to use the FHOG for a PPOR purchase. The FHOG rules make a distinction between PPOR and IPs purchased after July 2000. I don't see that explicit rule in the stamp duty concessions.

In your case, you can buy the IPs, and then when you buy a PPOR in the future, you can still claim the FHOG, given the rules as they are.

My point is that buying IPs first can preserve the FHOG for a future purchase. But by buying IPs first you might never be able to claim stamp duty concessions.

 

[sfulop]

My point is that buying IPs first can preserve the FHOG for a future purchase. But by buying IPs first you might never be able to claim stamp duty concessions.

Your right, I did mis-read what you wrote in your previous post.

It's just important that the OP budgets for the stamp duty prior to moving with the deal. It effectively becomes a cost of doing business (like it is for 95% of investors on this forum).

S

 

[lostis]

Thanks for the responses guys.

Just to make sure I understand what has been said. Sorry if it is just a re-iteration.

If I purchase an IP (and the FHOG remain as is in the future):
1. I am still eligible to receive the $7K for purchase of a PPoR in the future.
2. I will (or may) lose the stamp duty concession.

Is the loss of stamp duty concession just a clause financially factored in by the Government as part of the Grant or is there an underlying reason why I'd lose it while still keeping the $7K?

 

[sfulop]

Thanks for the responses guys.

Just to make sure I understand what has been said. Sorry if it is just a re-iteration.

If I purchase an IP (and the FHOG remain as is in the future):
1. I am still eligible to receive the $7K for purchase of a PPoR in the future.
2. I will (or may) lose the stamp duty concession.

Ill answer this first part.
(1) Yes, provided as you said it's still available at the time of PPOR purchase.
(2) Yes.

S

 

[alexlee]

Is the loss of stamp duty concession just a clause financially factored in by the Government as part of the Grant or is there an underlying reason why I'd lose it while still keeping the $7K?

The FHOG and stamp duty concessions are separate things. If you read the FHOG rules, it specifically states that if you buy only IPs after July 2000, you're still eligible for the FHOG on the future PPOR purchase. The stamp duty concessions for first home buyers is a totally separate thing and does not have the same explicit rule.

 

[travelbug]

With the view to buying further out in Sydney- is it possible to crash with someone a few nights a week while still "living" at the place you buy?
I understand with working in the CBD plus studying living out west would be difficult. Just trying to give you more options.

Are you looking to buy a unit or a house?

 

[sfulop]

I think it's also best to sit down and review the finances involved.

Side A: Live in property for 6 months
* What are 6 months mortgage repayments going to be worth?
* What are 6 months living expenses going to be worth? Travel expenses?
* Are you going to be renovating the property? If so, what's the budget?
* Additional expenses?
* What are yearly rates? This will be the same for both sides of the argument.
* What are your savings going to be like during this 6 month period?

VS

Side B: Rent out from Day 1
* 6 month mortgage repayments after rental income considered?
* Weekly costs incurred remaining where you currently live? Travel costs?
* Yearly rates - same as Side A
* Savings whilst living where currently living?


For me, if Side B outweighs side A by more then the stamp duty concession value AND FHOG, then the decision isn't difficult IMO. Others may disagree.

S

 

[lostis]

With the view to buying further out in Sydney- is it possible to crash with someone a few nights a week while still "living" at the place you buy?
I understand with working in the CBD plus studying living out west would be difficult. Just trying to give you more options.

Are you looking to buy a unit or a house?

That thought of staying closer in Sydney whilst still "living" in the purchased property was an idea that I threw around quite a bit, until a couple of friends who did the same thing got caught out and had to go through a whole heap of time wasting problems to get it sorted out, so i've decided to do it the legitimate way for the time being

I guess what ever seems most feasible at the time, but a unit is most likely the option at the moment.

 

[lostis]

I think it's also best to sit down and review the finances involved.

Side A: Live in property for 6 months
* What are 6 months mortgage repayments going to be worth?
* What are 6 months living expenses going to be worth? Travel expenses?
* Are you going to be renovating the property? If so, what's the budget?
* Additional expenses?
* What are yearly rates? This will be the same for both sides of the argument.
* What are your savings going to be like during this 6 month period?

VS

Side B: Rent out from Day 1
* 6 month mortgage repayments after rental income considered?
* Weekly costs incurred remaining where you currently live? Travel costs?
* Yearly rates - same as Side A
* Savings whilst living where currently living?


For me, if Side B outweighs side A by more then the stamp duty concession value AND FHOG, then the decision isn't difficult IMO. Others may disagree.

S

Definitely need to make some of these comparisons and go from there, I just know that Stamp Duty can make a difference on the purchase and you don't really know how much of a saving your making until you actually find the property you are going to buy. If that makes sense.

 

[ashalim]

Hi Lostis,

I recently did what was mentioned above. I just bought an IP in Kogarah, originally I wanted to stay there for 6 months to get the FHOG and stamp duty exemptions but decide to move back home and rent out the property straight away. I confirmed what Alex and Steven said above with OSR. I can still get my $7k but not the stamp duty exemptions.

I am getting $440/week for my property now, so 26 weeks (6 months), I can get $11440 in rent, plus all the depriciation and interest deductions AND I dont have to pay bills except for water and body corporate.

My stamp duty was calculated at $14600ish...so the difference is not that much.

With this, I will have another 10% deposit saved up in about 6 months and will be looking for another IP...I'm pretty confident that if I am living in the Kogarah unit, I would not be able to get finance for my 2nd IP so soon.

ASH

 

[Travelling]

Sorry to interupt a thread, but I'm new, want to say hi, and can't figure out how to start a new post. Can anyone help....I know the icon thingie must be somewhere on the page but a dose of selective blindness has obviously set in. Thanks.