Move in or extend lease - Rentvest question

Hi all,

I was curious as to whether someone might be able to help me with some maths, it’s doing my head in. With some properties in Sydney, significant discounts are being offered on leases, and I am trying to calculate the breakeven of extending a lease on the property I own, or deciding to move in. Basically I have a rentvesting scenario, but have a property where I also intend to live.

I purchased an apartment at the end of 2019 with an existing lease of $550/week expiring in August (I purchased it with the existing lease, with the intent to convert it into a PPR, with a long term vision of turning it back into an investment to upsize with family etc in the future).

I have an investment mortgage of $568,000 paying P&I at 3.11%.

If I decided to move in, I would be confident I would be able to get my mortgage down to around 2.8%.

Nominally, strata is 1400/quarter and rates are 350/quarter.

I am in the 37% tax bracket (nominally 140k).

I am conscious there are capital gains tax implications, but I wouldn’t mind in the first instance understanding the cashflow.

So based on the above numbers, at what point do I financially become better off rentvesting?

Bonus points if you can upload a spreadsheet where you can manipulate numbers.

Regards

 

impossible to say on those numbers. You don't indicate all the tax deductible expenses or what you are paying now in rent.

What is the pretax and post tax cashflow of the property v rent you pay?

 

Currently at home rent free with parents. So moving forward I have the option to move into this dwelling or rentvest (likely in the same area). Would estimate that the pretax cashflow (as tenanted at 550/wk) for the property is probably somewhere around -800/month. I haven't filed a tax return with the property, but I presume if pretax is around -800/month, post-tax should be around -480/month.
Edit: Minimal other deductions etc.

 

Wouldn't you be financially better off living at home rent free no matter what the numbers are on the investment property? Even if there was no loan on it.

 

I think you may have the concept of rentvesting a little messed up. A property can only commence to be a main residence after you reside there. And if you depart in many cases. But never if you intend to live there and prior to initial occupancy.

Our property investor estimator may assist and offer a checklist of the steps and costs to consider. And the after tax impacts of +ve or -ve income

 

Of course, but I want to move out, so my options are move into the dwelling I own, or rentvest in largely the same area. Thanks for your spreadsheet, I will have a look.

 

Just compare cash flow of property v rent

 

Rentvesting is a made up word. Used a lot by property spruikers as a strategy to broaden affordability with a gift of tax free capital gains. It describes the situation where someone owns a property and live in initially then move out of and rent it while paying rent themselves elsewhere. IF both rents are the same you effectively get a deduction equal to you own rents in many cases. So its key strategy is not living where you own but you must have lived there first. Rent your neighbours house and he rents yours !! Its key issue is tax benefits without any CGT being incurred (for at least 6 years). Prior to then they can move back in a for a bit and then repeat. Tax free CGT with +ve cashflow on property. By not commencing this process you have misssed a major element of the strategy. One strategy you are ignoring is turning CGT off for 6++ years if you commneced to live there even if it became 6 months, 3 months or a year. The one catch is it must commence being your MAIN residence. Not just a quick in and out.

You cant rentvest in largely the same area as such.

 

"rentvesting" is also a trademarked word. You shouldn't use it without permission of the trademark owner

 

I think most people use the word in the sense of just renting while investing, instead of owning a main residence. Not many consider the CGT issues.

 

TM is the spruikers resource that is supposed to give credibility. I wonder how they advise on the tax merits being unregistered? Calculating or illustrating a tax benefit is easily a tax agent service.

Tax agent services relate to:

• working out or advising about liabilities, obligations or entitlements of clients under a taxation law, or
• representing entities in their dealings with the Commissioner of Taxation,

where the client can be reasonably expected to rely on the service to satisfy liabilities or obligations, or to claim entitlements, under a taxation law.

 

I don't know who owns the trademark or if they are licensed, or if they have licensed the trademark to someone that is licensed.

But this is not really relevant as using the phrase doesn't require licensing. It is just a phrase that describes someone who invests while renting. Nothing to do with tax per se.

 

Those who peddle also peddle tax benefits. That's where they fail compliance.

 

Sure if they do they are breaching the law.

A bigger worry is all the brokers giving debt recycling advice