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  • Profile photo of BeekewalkerBeekewalker
    Participant
    @beekewalker
    Join Date: 2017
    Post Count: 1

    Hi all,
    I would like to ask you about rentvesting. Can anyone explain it?
    Thank you.

    • This topic was modified 2 years, 6 months ago by Profile photo of Benny Benny. Reason: Fixed the title
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Renting where you live and investing in property.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of LittleFishLittleFish
    Participant
    @kat1809
    Join Date: 2017
    Post Count: 2

    Terryw is correct. Rentvesting is what many are doing at the moment. They can’t afford to buy where they’d like to live, so purchase in an area that is affordable (and receives a decent rental return) and rent that out while renting in the area/place they’d like to live.

    LittleFish

    Aspiring investor

    Profile photo of Brett MBrett M
    Participant
    @brettmesser1
    Join Date: 2016
    Post Count: 14

    I have seen rentvesting work particularly well when you rent in a share house with 3-4 others. Had a number of friends do this to get their first IP. If you’re splitting a nice place in an (expensive) inner city location with a few others, and buy a property elsewhere to lease out the numbers often add up nicely.

    However not sure if it works as well when you’re buying an investment property and paying 100% rent elsewhere as well – that is a fully loaded risk profile and a lot of money going out the door each month. Might be better to just take the hit and move out to where you can afford to live.

    Question for everyone else though – if you eventually move into the property you purchased as an investment, can you theoretically never pay the capital gains tax, or do you have to claim a taxable event when you switch it over to an owner-occupier residence? Maybe someone here might know the answer to that. It might be a decent way to get into a property while renting – set it up as an IP, get the tax deductions for a few years while sharing your rent and living expenses are minimal, and then switch over to a owner occupier loan and not pay the CGT until you sell it (which may be never if it becomes the family home).

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,376

    Hi Brett,

    Question for everyone else though – if you eventually move into the property you purchased as an investment, can you theoretically never pay the capital gains tax, or do you have to claim a taxable event when you switch it over to an owner-occupier residence? Maybe someone here might know the answer to that. It might be a decent way to get into a property while renting – set it up as an IP, get the tax deductions for a few years while sharing your rent and living expenses are minimal, and then switch over to a owner occupier loan and not pay the CGT until you sell it (which may be never if it becomes the family home).

    AFAIK, this can only work if you move into the house FIRST to make it your PPOR. THEN, you can move out (and go renting – just don’t take on another PPOR) and the house can then be made an IP for up to 6 years with no penalty (and no CGT on sale).

    If you set it up as an IP before making it your PPOR, then any gains will trigger a CGT event, but any CG is only for the period from purchase until you moved in (e.g. buy in 2017, move in as PPOR in 2021 – first 4 years of growth is a Capital Gain – then it is your PPOR until it is sold).

    There “might” be more to this (and I am not an accredited adviser, so the above is my opinion only) so DO check the above with your adviser. Like, WHEN exactly is that CGT owed? Is it only after you sell the PPOR (could be 40 years in the future), or does the “trigger” bring on the CGT action and you must pay it at the time you move into it as your PPOR? I don’t know this level of detail…..

    Benny

    PS I rather like that idea of living in a “shared house” if can work in your situation. Certainly it can be a neat way to save money while you get your investing “up and running”.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    AS Benny says best to move into it straight after purchase and then rent it out. This way you can claim the 6 year absence rule to treat it as your main residence while it is rented out – which could mean you are keeping it CGT free.

    But if you didn’t do this all is not lost because the CGT will be worked out on a time basis if you later move in. The longer you live there the lower the % subject to CGT will be. Furthermore you can claim most expenses incurred while you live there off the capital gains when you eventually sell – this includes interest, insurance, rates etc. So although CGT may apply there may be no or little tax payable in the end.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of ChauChau
    Participant
    @chauunihotmail-com
    Join Date: 2017
    Post Count: 1

    Hi everyone,
    Can I ask what should I watch out for if I choose to do rentvesting ie.tenant, laws?
    Thanks

    Profile photo of JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 282

    Hey Chau,

    Many things but IP is for profit, so first and foremost do your research on the expected return, any ways to boost rental return and cover your ass.
    -home/content insurance
    -rental agreement with suitable clauses.
    -good tenants

    Profile photo of MaineMaine
    Participant
    @mainecollinz
    Join Date: 2017
    Post Count: 6

    Rentvesting is a good way of earning money and at the same time making use of the earned money by investing. Keep them coming. Thanks for sharing this. :)

    Profile photo of Luke TaylorLuke Taylor
    Participant
    @world-changer
    Join Date: 2005
    Post Count: 415

    Great thread guys,
    I have rentvested for 20 years+ and it has been a great help to get ahead and build momentum on a portfolio.It does take some sacrifice though.
    The more you are willing to sacrifice the quicker you can get ahead.
    For example -atm -my wife and I live on someone elses acreage in a 2 bedroom cottage .But if you did the figures for example if we were buying this property- we would have to pay 6-7x what we are paying for rent -just to pay the interest on the loan .

    Luke Taylor | Hope Property Investing
    http://hopepropertyinvesting.com
    Email Me

    Property Support,Strategist and Buyers Agent

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    I have done rentvesting in the past, but generally don’t recommend it.

    Although you will be saving cash at the moment over time rents rise whereas those paying off of home loan would find the monthly repayments generally remain the same over 30 years. Use of an offset account and paying extra can knock this 30 years down to 10. It might actually work out cheaper in repayments about the 5 year mark – that is with rent rises the rents paid would exceed the repayments on a home loan at this point.

    Once the main residence is paid off it can help serviceability as you are not paying anything for your living quarters – for a serviceability point of view.

    Interest on a main residence is generally at a lower rate than an investment property. Careful planning can allow you to get main residence rates on money borrowed from investment properties.

    Land tax is another issue – by not living in one of your properties it may be subject to land tax.

    The biggie is CGT though. Not having a main residence CGT exemption is a huge disadvantage.

    However, the best strategy is to rentvest temporarily by using a few strategies together.
    Find the dream home.
    Move into it, establish it as the main residence.
    Move our and rent the home out.
    Claim all associated costs and negative gear it.
    Rent where somewhere to live for up to 6 years.
    Keep saving in the offset account attached to the loan on the main residence

    Once you think the main residence will have a positive taxable income then you move back in.
    Pay down the loan, redraw to invest at owner occupied rates.
    Keep paying down the non0-deductible loan splits

    Advantage
    – full CGT exemption
    – Full land tax exemption
    – owner occupied rates on at least part of your investment loans
    – non-deductible debt being quickly paid off
    – servicing improves
    – taxable income lower as not paying tax on rental income

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Luke TaylorLuke Taylor
    Participant
    @world-changer
    Join Date: 2005
    Post Count: 415

    Great strategy Terry love it!Alot of guys are doing this .
    I think though- the thing I found is people starting out are finding difficult is
    point 1 Find the dream home –
    As People need to not only find their dream home but be able to afford to purchase it too
    For example we pay $280 per week rent .The interest only on the property we live at would be close to $2000 per week .
    Most people could not afford this until they get further ahead,pay cheap rent and invest elsewhere to later be able to get into their dream property.
    Or they could choose to buy a cheaper PPOR and use the benefits as you mentioned (and buy and sell the propertys a few times to speed the process if they can) while the market increases the value and do some vale adds(renos) to the property at the same time

    • This reply was modified 1 year, 11 months ago by Profile photo of Luke Taylor Luke Taylor.

    Luke Taylor | Hope Property Investing
    http://hopepropertyinvesting.com
    Email Me

    Property Support,Strategist and Buyers Agent

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    Hi Luke

    That sure is cheap rent for a property worth so much. It must be under 2% yield.
    That is something well worth taking advantage of, but you could still utilise the main residence exemption on another property.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Luke TaylorLuke Taylor
    Participant
    @world-changer
    Join Date: 2005
    Post Count: 415

    Great Terry,awesome help

    Luke Taylor | Hope Property Investing
    http://hopepropertyinvesting.com
    Email Me

    Property Support,Strategist and Buyers Agent

    Profile photo of csargent89csargent89
    Participant
    @csargent89
    Join Date: 2019
    Post Count: 5

    This is what I’ve been doing for the past year and a half. I live in a big house of 5 in inner Melbourne with friends and my girlfriend. It works out to be $600 a month for me which includes everything. I then use my extra money and buy IPs in Hobart that are positive cashflowed.

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