Should I "PPoR" or "IP" first!? (Question on costs.)

Hello folks.

I have a question regarding a possible long-term plan I have...

I am considering purchasing a $390,000 PPoR. While I live there, I would rent one room to a border. I expect to fully repay the loan in about 6 years.

If I then buy a second PPoR, move out of the first property, and rent all the remaining rooms - thus turning the first property into an IP... What costs am I up for in order to change that first property from my PPoR to an IP?

Basically I'm trying to work out if it's better to claim the FHOG while it's available and live in the property first, or, buy it as an IP and rent all the rooms to begin with.

Thanks for reading... :)
 
Hi FamilyMan,

Firstly, welcome to the forum! I know you've had a few posts now, but I haven't formally welcomed you yet so thought I better get that out there...

As for costs, not many in swapping over. This concept has been covered a few times and you'll no doubt get a lot of replies. The only thing I'd caution would be around loan structure. Try and get a mortgage with an offset account option. That way you can "pay down" the mortgage but retain loan flexibility by using the offset account. If you then move to a new PPOR you can pull the cash in the offset account out and move it to the new offset against the new PPOR mortgage. In that way, the old mortgage is fully "exposed" to interest which is fully deductible as its now an IP. If you didn't use an offset account but redrew the repayments then it wouldn't be deductible as the "purpose" of the redraw would be to offset a PPOR (the new one) which is non-deductible debt. Hope that isn't too confusing...

Otherwise, great strategy! Get that grant while you can!!

Cheers,
Michael
 
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