Moving out of PPOR to rentvest

Discussion in 'Investment Strategy' started by nickthegun, 1st Feb, 2020.

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  1. nickthegun

    nickthegun Member

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    Hi All,

    My current situation:

    Me: 31M, $128k + super
    Defacto Partner (not a Permanent Resident of Aus) : 31F, $55k +super


    Living in a 2 BR PPOR (semi in Sydney's Inner West (purchased in the last 6 months)
    Value: $1.5m
    Loan: $1.1m
    Equity: $0.4m

    Property purchased in my name only (to avoid 8% stamp duty surcharge for her half of the house) however she is a co borrower on the loan (I needed her on it to get enough borrowing capacity).

    Our plan
    No kids at least for the next 5 years
    Move out of the property and rent a 1 bedroom apartment for around $500/week.
    Rent out the existing property for $800/week
    Take Partner's name off loan if required (as in eye's of bank she wouldn't be getting a substantial benefit if it becomes an IP and the rental income is in my name only but the loan is in both names)

    Reason for moving is purely financial as we can:
    a) happily live in a 1 BR apartment around $450-$500/week whilst getting $800/week from current PPOR and
    b) interest on million dollar loan (about $35k/yr) will increase (once restructured) but will turn deductible which will result in huge tax savings
    c) maintain the main residence CGT exemption. Potentially move back in after 6 years and then do it all again

    I've calculated savings of >$100k over 6 years compared to staying in the current PPOR.

    Purpose of the post is to validate my thinking and to see if I've missed out on any other ways to go about this to have the best financial outcome.

    Thanks for reading. Any comments welcome.

    Nicolo
     
  2. Archaon

    Archaon Well-Known Member

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    Have you talked to a broker to see if you will have the borrowing capacity with the rent to be solely liable?

    How old is the property?

    Also consider a depreciation schedule as there is more tax destructibility to be had.
     
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    Sounds like a plan
    Considered if any land tax?
    Run the numbers including depreciation of building works?
    No need to take spouse off loan but doing so reduces risk which would be low anyway
     
  4. nickthegun

    nickthegun Member

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    I haven't spoken to my broker yet - that's my next step. I think I should have the capacity or at least be super close. Ideally I can leave the spouse on the loan then capacity not a worry.

    Property is 140 years old lol. We did get some built in wardrobes done but apart from that probably not alot to depreciate but I think I need to do more research on this.
     
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  5. nickthegun

    nickthegun Member

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    I didn't take into account Land tax.. Land value is about $1.1m - about $6k/year land tax - ouch!
    The property is 140 years old so I doubt there will be any depreciation - how do I find out?
     
  6. Trainee

    Trainee Well-Known Member

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    maybe sit down and consider a long term plan? Buying ppor and then deciding a few months later you want to change direction suggests you need to think further ahead.

    given your ages, not having kids for at least 5 years might be a promise you wont want to keep. What then?
     
  7. nickthegun

    nickthegun Member

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    Then we just move back into the property. That's what's so good about the plan as it gives us short term financial benefit whilst we decide what we want to do longer term.
     
  8. TMNT

    TMNT Well-Known Member

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    A house 140 yr old!!! Is it heritage listed??
     
  9. nickthegun

    nickthegun Member

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    Na, just an old workers cottage. It's been looked after though and in reasonably good knick... perhaps there's some deprecation there that I'm not seeing.
     
  10. TMNT

    TMNT Well-Known Member

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    Accountants are usually pretty good at finding stuff to depreciate that most people arent aware of.

    Whether its worth doing is another thing
     
  11. nickthegun

    nickthegun Member

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    Does the fact that the interest on the loan will be in both our names mean that I won't be able to deduct it all from my assessable income (all the rental income will be in my name )
     
  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    no
     
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