Hi guys,
I've been trawling around here for a little bit now and was so taken by the generousity of some of the more experienced members here, I decided to sign up and become a part of this community, hopefully one day being able to give something back. I ended up here as I am very new to the "property investment" game and am in an odd situation that I was interested to get some educated opinions on.
I am 28 and purchased my PPOR residence 5 years ago. It currently has a rough market value of $430k ish, with a debt of about $300k. We are currently paying P&I.
I have been wanting to look at adding an investment property in order to start a portfolio of buy/hold type properties (potentially with renovate fitting in there down the track as I'm handy on the tools). However, in later this year my American wife and I are moving to Los Angeles with our kids for an unknown period of time. Our current property will become our first rental as we would like to hold to build towards a portfolio of a handful of properties. We currently have a list of friends that have expressed interest in renting the property at $450 a week.
My plan at this stage to set me up heading the right direction is to switch my current loan over to interest only as I can do that and have an everyday 100% offset account attached. I have worked out that even after paying the expenses associated with keeping the property, there will still be some change from the rental income which will go into the offset as well as allocating some savings each month and putting that into the account when the exchange rates are in our favour to do so. If I was on P&I, this change from the rental income would pay the principle component. My intention is to build up this offset, which will compound and reduce the interest only payment on this property, therefore enabling the offset to build up over time which eventually will become the kitty to purchase the second investment property (which could potentially be in the USA or Australia).
I'd love any feedback anyone may one to offer on my situation and if there is any considerations I may want to think about that I may have missed!
-Rob
Hi Rob,
Well done – you and your family sound like you are in great shape, and your "trawling" on here has obviously paid off. Your ideas sound pretty good to me.
The only extra thought I had was "Do you think you might return to this home at some time in the future?" The answer to that will determine what else you need to do.
I am thinking of the "6 year rule" re CGT exemption. Have a chat with your accountant re "What if you didn't come back to that home", and what events take place should you later wish to sell, or continue renting it out. In my (non-advisory) opinion, it may be as simple as arranging a proper (paid?) valuation once you have been away nearly 6 years. This should set a "value" at that time for CGT exemption vs "ongoing rental with no CGT exemption".
Of course, you might choose to sell within 6 years anyway, so no problem. Other than that, looks good to me.
Benny
Hi Rob
All sounds pretty good to me. Only comment would be to tread carefully with renting to friends. It has to be treated like a business – which is hard to do when friends/family are in the mix.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi guys… Thanks for your feedback so far.
We are specifically enlisting a local real estate agent in the area and having them handle everything as per a "traditional arrangement", with the only difference that we are finding the tenant and sending them their way. We are going to have our tenant deal with the agent in every such way they would if the landlord was an unknown party. We believe this would definitely help keep things in check on a few different levels
-Rob
Excellent – sounds like a reasonable approach.
Enjoy your time in the states
Please check out a lakers or clippers game at the Staples centre for me.Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Benny,
This may be an ignorant question and better directed to an accountant, but I was under the impression that even if I do rent the property out for more than 6 years, pushing me out of the CGT exemption category, that a CGT event won't happen until if and when I sell the property?
Regards, -Rob
Yep – CGT is triggered once you sell.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thank you Jamie!
Hi Draytone,
Quote:I was under the impression that even if I do rent the property out for more than 6 years, pushing me out of the CGT exemption category, that a CGT event won't happen until if and when I sell the property?As Jamie said, you are quite correct. However, what WOULD change after 6 years is the CGT-exempt status. i.e. this property can remain your PPOR, thus be CGT-exempt for up to 6 years after you leave (so long as you don't nominate another property as a PPOR meantime). As such, if you then sell, no CGT is payable. But, if you wish to continue to rent it out, after 6 years (AND you haven't moved back in to "restart the clock") then it would become a CGT-payable property from that time on. My initial comment was to investigate the valuing of the place around that time, so it may be PROVED that "at the time it became CGT payable, the value was $xyz,000"
Now, that is as I understand it. I am sure there are little bits that I am not familiar with, so do take advice from your favourite adviser re the above. Forewarned is fore-armed !!
Benny
You are in the exact same situation as i am in Draytone, where are you from in aus?
My ppor is worth the same with same debt level, and im 29, looking to rent the ppor for about 450 pw
Hi Waydo!
We are in Kings Park, just between Kings Langley and Quakers Hill
…Hi all,
I've managed to get some things in place and switch my loan on this property over to interest only, and very comfortable with the fact that after the I/O payments, the associated holding costs and insurances etc, I'll still be $$$+++.
A question that I am curious about how it is approached by others, is that whilever it is cashflow positive, would most people continue to hold, unless they come up against a situation where they forsee an area with better capital growth or better cash on cash returns? Obviously as people have mentioned I have 6 years to decide if it stays or goes before the consideration of CGT. I guess my question is, for others here, what are the factors that motivate someone to sell? Better capital growth elsewere? Better cash on cash returns somewhere else? The ability to cash out and diversify?
Thanks! This forum is amazing with such an abundance of knowledge and generosity.
-Rob
Please check out a lakers or clippers game at the Staples centre for me.
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