Never buy Primary Residence, rent forever?

This has been mentioned before but I think with our recent booms in Sydney and Melbourne and the costs today, it is becoming increasing difficult to buy in desirable locations, pockets close to the city so why not just rent where you want to live and continue buying/investing ?

There has always been a stigma attached to renting, but I don't think the case these days, even so, which makes more sense? If its cheaper to rent in a desirable location why not go this way while continuing to grow a property portfolio

Thoughts?

 

Depends. My mate bought a house for $150k years ago in a not very desirable area. The area has improved and the place is worth maybe $500k even in Perth's down market. It is paid off so he uses it as security for loans for investment purposes. There are affordable properties in Perth now so even newer investors could do the same thing.

In Melbourne and Sydney, in good areas, house prices are ridiculous. I would not by a PPoR at this time in the property cycle. However, what if they rent, save, invest and look again in 10 years time? Will prices still be ridiculous and unaffordable? Perhaps not, so that could be a time to jump in and buy a PPoR. If I was in those cities, that's what I would be looking at doing. Alternately, I would buy in an area that is up and coming. Maybe something where I could divide off the back yard in future and build another house or 2. There are lots of options.

 

I am doing this but not with a forever goal. It's been two years, but I bought a ppor to develop. Should be completed in 12-18 months and then I will move in.

The problem with rentvesting is unless you can establish a ppor and then move out for up to 6 years, you miss out on the benefits of CGT free property.

Further once you retire it's pretty helpful to have you largest expense covered by owning outright.

 

u can move out even after 6 months and sell and still be cgt free.

 

In the current lending environment, PPOR could actually be better for some.

If you buy something with a responsible budget, you can recycle debt back out to buy investment property with as its paid down. Once its completely transformed to deductible debts, your servicing gets a big jump as your cost of living has gone down.

 

Im in this situation at the moment. I have been keeping an eye for ppor that ticks the boxes for me down here in gippsland. It may slow my investing plans but it would be handy so the mrs can set her business up from home as well as it being your own house.
@MTR what are your thoughts on buying a ppor in a town that is affordable but with not much chance of good growth vs rentvesting in that town and investing elsewhere? When do you believe it is better to rent vs buying a ppor? Keen on your thoughts.
Cheers

 

reninvesting, buy where you can afford, rent where you want to live.

 

Really depends on each individual, I think. I was lucky to buy my first PPOR (I'm into my 3rd PPOR now) during the GFC in Sydney, so is able to have a PPOR and a few IPs now.

One of the real estate agent I've dealt with prefer to rent and owns IP, his logic was that he can get better returns for his money invested in IPs then locked into a PPOR.

Then, there are some others I know who doesn't own a single IP but have very expensive homes. Reason for them was that when they retire and sell their expensive homes, they won't have to pay CGT.

Personally, I wouldn't choose the last option but then again, these guys are obviously smart enough to make really good money to buy their expensive homes. So, who am I to say it's the wrong decision

 

If you are having kids getting security of tenure is important. It might work if you can get a long lease like they do in France.

But moving house to house every 12 months will be annoying and costly.

 

I am happy to rent, but probably not forever. It's a matter of preference.
Don't like the idea living in someone else's place and needing permissions to do things. I'm quite lucky in a way that I don't have the huge desire to have to live in certain suburbs... yet.

 

We hate moving so much we decided to buy..

Also it's a downturn up here....buying and renting almost the same....

 

I am with you.

We bought our current PPOR for $200K in 1988. Over the years, we have used the capital growth in this property to buy businesses and IPs. Today, we could sell our PPOR for $3M and the capital growth would be totally tax free.

Now that we are retired, it cost us basically nothing to live here.

 

Tax is a big reason to PPOR vs just investing + renting once you have enough capital because you don't pay tax on interest you avoid paying.

Say you rent a place with 4% yield and have enough capital to buy the place. You need to make 6.6%-7.8% on your capital before tax to pay rent assuming 39.5 to 49% marginal tax rate.

Now lest say you buy the place instead. You have to pay about 1% in costs above what your capital is making.

Comparing, I need to make 7.8% - 1% = 6.8% before tax on my capital via investing to be comparable to PPOR.

So getting a guaranteed 6.8% via PPOR vs a risky 6.8%+ through a rental makes PPOR attractive to me.

 

Not having a main residence is a waste of a CGT exemption!

 

That's what I was trying to say.

That's what I was trying to say.

 

I'll probably end up renting forever. Prefer the flexibility.

Still got my main residence exemption from when I lived in my first property for 6 months for the FHOG.

 

I'm the opposite, would rather invest in a more expensive ppor. No tenants to put up with, tax free when sold, don't have to worry about being kicked out if the landlord wants it back. That all sounds good to my little brain.

 

Yes but unless you are going to downsize & downgrade suburb, then you haven't really made anything that is improving your retirement prospects.

The only benefits are you have a greater capital base to leverage against (if serviceability is t an issue) and on retirement/downsizing you reap the benefit. Of course there may be some LOE benefit too, but I would prefer not to take out a mortgage on my PPOR during retirement.

The problem is people often find it difficult to sell and downgrade suburb, often choosing to downsize but upgrade area and freeing up very little capital in the process.

 

Best thing to do would be move from a Sydney suburb to an equivalent (or better) Brisbane or Hobart suburb or smaller NZ location? Or North Coast NSW. Free up capital yet still live in a nice place.

 

Yes but doesn't work for everyone people in retirement often like to be close to grandkids so moving states can be difficult.