A mate of mine has just put an offer down on a unit at ~140k and plans on borrowing the maximum amount.
He plans to live in it, but probably not until the beginning of the next financial year. I will probably be renting the unit from him at a "mates rate" of anywhere between 75 – 120 a week. When June/July rolls around he will be moving in with me and I will then most likely pay my rent in cash.
His current wage is ~30k a year and a recent sale on an investment has GROSSED him ~70k (he has owned longer than 12months so only 1/2 CGT Payable)*. He owns a dual key apartment NETTING an average of $2,500 a month (there are 2 separate rooms). There are also 2 blocks of land, one purchased with the redraw on his original Dual key Loan, and another with an entirely separate loan of ~100k.
So to my understanding his position is as follows.
Working a 30k a year job under probation as he has just started the job. He has however had previous experience in the field for at least 7 years.
1 x Dual key apartment (valued ~500k): +$2,500 p/m
1 x Land (valued ~140k) paid off: +$0
Recent sale of investment GROSS 70k: + ~$35,000*1 x Block of land with ~100k loan: -$550 p/m
Wants to borrow 100% for a 140k unit.
The question he has posed to me, is that if he buys as IP and claims all expenses until the end of the current financial year, is he better off than simply buying as PPoR and having me pay him cash as rent.
I do apologize as I got somewhat distracted from the original subject title of my post.
There were a few questions I had about converting a property from one to the other.
1.) If you buy as an IP and at a later point convert to PPoR, is the conversion process as simple as not claiming any expenses from the time you start living in it?
2.) Pretty much the same in reverse. PPoR to IP, you simply start claiming all expenses?
I forgot also to mention that he will be using the 70k to pay off the Loan on the Dual Key and 1x block of land
Me and my mate are just discussing the possibilities as he wishes to live there at some point anyway. The 2 scenarios we're playing around with are (using the numbers in the previous post as reference)
1.) To offset the larger income that he will be making this year through the sale of the block of land, is it best to have him buy as an IP while I rent from him. This allows him to claim all the buying expenses, interest, etc for ~7 months. It however means he will also be claiming my "mates rate" rent of ~$120 p/w
2.) To simply buy as PPoR and both of us move in, while I pay him cash in hand ~$75 p/w
When you change from PPOR to IP vice-versa you need to have a valuation done so you can correctly apportion CGT when/if you ever sell property.
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