2nd IP or PPOR

Hey guys,

We are about to purchase our 1st IP and we will still have some leftover cash (~170k) after the buy. I live in regional WA and my partner will be studying in Perth over the next two years. We will most likely move to Perth at some point, can be anywhere between the next 2-10 years (depending on my job security). We are wondering what would be the next best step for us and we are thinking between the following two scenarios:

SCENARIO 1: We might be in a position to buy a unit (300-350k) outright in Perth in 2 years if we keep saving and don't invest in the 2nd IP. Say we buy it, my partner makes it PPOR (if she's still in Perth at that point as she studies there, if not buy it as IP), then we rent it out and use that equity to fund additional IP's. Once we move to Perth (depending on my job security, between 2-10 years from now), we live in it and we wouldn't have to pay rent (non deductible expense).

SCENARIO 2: We buy a 2nd IP now somewhere in Australia, save some more cash and buy an IP in Perth close to the bottom of the market, we later convert it to PPOR. However, once we move to Perth (depending on my job security, between 2-10 years from now), we would have to rent (non deductible) as we wouldn't own this property outright.

I would love to hear your thoughts.

Many thanks!

 

Anyone?

 

Hey mate just my advice and thoughts

Where is first ip?

How much you looking to spend on first ip or possible ppor ( in Perth)?

I don't like units but others do personal preference.
I don't see the point in buying a unit outright or paying that much off straight away.

There are soo many things to cover in your scenario but of course depends what your strategy is? Is it to keep buying more and more ips? Yield? Reno? How long do you want to hold them for?

My thoughts are that Perth still is going down in saying that I am sure there are bargains out there and if you can get a bargain then I d say go for it and get your partner to move in from start and be ppor ( saving capital gains stuff later on ) then it 6 months if you want to move out and rent you avoid the cgt well for 6 years anyway( 6 year rule)
To me this would be a house not a unit.

I also would be not dumping all cash I'd pay what I could but save the rest for a deposit for your 2nd ip put it in an offset account until you find something.
This would be my plan but again that's just me.

I'm confused with why you say you would have to rent as you won't own the property outright? Did I miss something?

Not many are in that position fantastic position to own ppor outright.

 

If it's for IP, why Perth? is it because you really intend to live in Perth? your thoughts sound confusing and no great deal of certainty. what are you hoping to achieve?

Simplify your plan.

 

"I'm confused with why you say you would have to rent as you won't own the property outright? Did I miss something?"

What I meant is that it would be more financially effective to rent and rent out our PPOR in case we don't own it outright. However that's not tax effective as the rent is not tax deductible.

"Not many are in that position fantastic position to own ppor outright."

We are not yet in that position.. but we might be able to afford a small unit outright in 2 years if we keep saving and not invest.

"depends what your strategy is? Is it to keep buying more and more ips? Yield? Reno? How long do you want to hold them for?"

My strategy would be pretty boring BH strategy. I'm hoping to hold them long term, 10-15+ years if everything pans out.

Thanks a lot for your comments, much appreciated.

 

I would buy property with land component.

 

Correct, I intend to live in Perth. I believe work will most likely take me there.

I think you're right, I am confused a bit. I'm hoping to build a portfolio by buying and long term holding good quality assets in capitals. However I'm not sure how to fit my PPOR into the big picture. If I just convert IP to PPR I'll miss on capital gains. Also if I don't buy it outright when I can (say a small unit in a couple of years) and end up in Perth soon after that, the money will be going on rent which would be non deductible.

 

Things may change especially job situation so remain flex. I would probably just invest first and buy a PPOR that I really like down the track...sell some IPs to pay down PPOR. and if you want to expand your portfolio then PPOR might tie you down.

 

In that case I would be taking a loan and not buying outright due to higher costs. I don't have any issues with rentvesting and invest in house with land. But like I said, wouldn't it be less effective as I would be paying rent as a non deductible cost?

Would it be more effective to buy something small outright in 2 years, live in it (no rent to pay), then draw equity as LOC from my PPOR and invest in IP's?

 

After reading your responses I'm with larrylarry

I am of the opinion to keep investing even if I own a ppor

We just sold an ip to help fund a ppor in Sydney we have finally got one. That ip was somewhat annoying me still positively geared but just problem after problem.

In saying that as soon as we pay down some of our ppor to an easier amount to pay monthly we will then be looking to buy another ip.

Good luck

 

We are not really the kind of people that have a burning desire to live in our own PPR, and our expectations about the place we live in our quite modest. That's why I think shelling a lot of money on an expensive PPOR would be a waste of capital in a way. Unless we buy an expensive (read detachable house in a desirable location) house that we convert to IP and rent it out? I guess it can be seen then as a good investment decision.

 

You are not open to the idea of rentvesting? If your rent would be cheaper than the interest repayments on your mortgage I'd consider it. But I understand it's an emotional decision for many people.

 

A broker might be able to help you see the bigger picture once all numbers crunched. I suspect that buying the right property will helo you greatly CG wise and I'm biased towards landed property because you can do stuff on it while apartments sell space and you can create little CG and it relies on other factors that you can't really control.

 

My wife would prefer a permanent place and not move around too often. I'm happy with the decision but we bought it cheap and we were able to add value...increased equity for IPs. I'm still learning.

 

Well your home is part of your wealth. I'm planning to retire in Europe so will be good to take the advantage of the CGT exemption.. oops just forgot that I might have kids in the meantime, they would probably be happy if I'd leave them with something

Out of curiosity, would it be cheaper for you to turn your PPR to IP and rent?

 

Yep that's what we are doing with our ppor renting it out.
My case is different though we live in another state and have free housing with employment but yep rentvesting makes sense financially for some people

 

Scenario 2. Forget the ppor till you're ready. If you are moving for work you could end up anywhere. Or no where. But wouldn't touch a unit in Perth, unless they are giving them away but still it will hurt servicing if it's empty

A chat with a broker will help make things clearer. @Jess Peletier and @Colin Rice are over your way.

how regional are you? 30km from the cbd or way out west? Get down to a meetup they're a great friendly bunch

 

Hey mate,

Thanks for your thoughts. I guess you're right, there is a chance, although fairly small, that I end up somewhere else.

When you say "forget the ppor till you're ready", I suppose you meant "till you move to Perth"?

I'm in Port Hedland, the lovely hot paradise in Pilbara.

 

No Bob he is so far regional that he is almost in a different state. Send your Mrs to a meetup, my Realist friend.

Look Mate (an Aussie term of Endearment), just buy any property that fits the bill as an IP and maybe in the future it will suit you to live in it. If you dont end up living in it, nothing is lost. If you will be content later on (with your partner) to live in a modest home, then you wont be tying up capital on the features of a trophy home. If she seems to prefer the nicer things in life, then get a nice home next while they are cheaper than usual. It will have a low yield, but that is the price we pay for a higher level home.

 

I don't necessarily agree with this. It would work for some, but after living in Hedland and meeting a lot of people up there, I realise that coming home from there with a significantly lower income, a portfolio of negatively geared property and no home is a recipe for disaster.