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PPOR Investment Property....

Discussion in 'General Property Chat' started by john_s, 19th Aug, 2016.

  1. john_s

    john_s Member

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    Newbie alert...

    I have a low income ($45K) and a 20% deposit saved for the price range I'm interested in.

    I am trying to turn the property into a share house, and occupy one of the rooms myself.

    The problem is that the bank will only approve my desired loan amount if it is an investment home loan, as a part of my income would be coming from rent.

    I will definitely be making a loss so the ATO shouldn't be too concerned about the details of the living arrangements?

    Would this work? Is it too dodgy?
     
  2. Blueskies

    Blueskies Well-Known Member

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    Not dodgy at all, as long as you declare the rental income. I did this for several years when I bought my first home, it is a great way to accelerate loan repayments, as well as getting a heap of (apportioned) deductions on your PPOR.

    The only hard part is making sure you are happy living with the people you are sharing with and they are reliable rent payers. It is much more awkward/unpleasant evicting someone who you live under the same roof with (had to do this several times)
     
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  3. MrFox

    MrFox Well-Known Member

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    If you exceed certain amount of tenants in your share house it could be considered commercial building. There are certain rules to run a business like that and the building has to be fitted with certain equipment like fire sprinkler system just to name one. Its like running a hotel. If you only going to rent out couple of bedrooms you don't need to worry.
     
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  4. john_s

    john_s Member

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    Thanks Blueskies!

    Yeah, from my experience the housemate screening process is very delicate...

    The bank will only approve the loan as an investment loan... Does this mean I cannot reside in the property? After purchasing a property how are the ATO and state government notified if the property is PPOR or investment?

    Thanks
     
  5. New Town

    New Town Well-Known Member

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    It will also affect the capital gains tax free status that a PPR would have. It is assessed proportionally so if its a 4 bedroom house with 3 bedrooms rented out, 3/4 of the tax free status is lost (but you can also claim 3/4 of expenses). Because the tax rules are such a pain, it is probably better to see the property as an IP in the long run and not a PPR
     
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  6. john_s

    john_s Member

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    Cool... So if I have an investment property, I live in one room, rent out 2 or 3 rooms and declare the income, I'm not breaking any laws?
     
  7. Blueskies

    Blueskies Well-Known Member

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    No to my knowledge that is purely the loan product the bank will write you, has no impact on tax etc I have several loans designated PPOR that are in fact investment loans.

    The ATO and State government will know if it is an IP or PPOR because you will tell them. State government for the purposes of stamp duty and rates, ATO when you do your tax return. In this case you would tell state gov that it is your PPOR and come tax time you would declare income and expenses on the property in your tax return at the % it is tenanted.
     
  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Im not a legal eagle but know how banks think.

    If you live in it and its in your name or a related entity its a PPOR.

    If you want it as an investment property bank will want to know where you are living and if you say in the property it will be a PPOR.

    Should be ok to rent a room or two out as a PPOR so do it that way.
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Get the loan approved as an investment property. The bank can't stop you from moving in there. The catch is lenders are charging more for investment loans than owner occupied loans these days. You'll also miss out on any government incentives for owner occupiers (stamp duty reductions, FHOG, etc) that you might have otherwise gotten.

    After you move in, go back to the bank, show them a utilities bill in your name (showing usage, not just connection) which demonstrates that you now live in the property. Request they reprice the loan accordingly. We processed dozens of these late 2015 when the price divergence occurred and people were living in what was previously an IP.

    If you did miss out on any government incentives, you may be able to apply for these retrospectively.

    I don't believe that post settlement the ATO or QLDSRO are formally notified when you move into the property, but the bank does give government departments access to your account transactions and they perform data matching. Consult with your accountant, declare the rental income and you can apportion the loan interest; this will keep the ATO happy, figure out the specifics with your accountant.
     
  10. john_s

    john_s Member

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    Great advice, this thread has given me a lot of clarity.

    Will get on to an accountant ASAP
     
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  11. MrFox

    MrFox Well-Known Member

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    Thats great that you are having a go. There are many way to skin a cat, as they say. ;-)
     
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  12. dabbler

    dabbler Well-Known Member

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    I think the bank is wanting to extract more money from you.

    You have to find out what they are wanting, if you live at parents or somewhere, they will probably approve on basis of expected rental, your income must not be enough for them.

    There can be a string of negatives, such as extra rates in QLD of around 50 or so a quarter.

    We just did a similar thing, bought with outlook as an IP, but then we decided we liked the location and changed mind and about to make decision to move in, then changed again and gave it to a applicant, changing your mind is not illegal, not paying your loan will be what the bank considers illegal :)
     
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  13. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Wouldnt this be a bit dodgy as future rental income will be included in the servicing calc and may not service without, therefore deemed as unresponsible lending if file is investigated at a future date?
     
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  14. dabbler

    dabbler Well-Known Member

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    Would be bit dodgy if you suggested it to a client.

    Will add, on my one, we had the ability to buy as PPOR or IP.

    No law against changing your mind, but there may be a question mark on planning it this way to circumvent. I would not like to be sitting in the hot seat if client stopped paying and went to court etc and they blame broker/bank.
     
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  15. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Client probably wouldnt think of that but a Lawyer hungry for billable hours may?
     
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  16. New Town

    New Town Well-Known Member

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    You probably would be if you say claimed 100% of the expenses but lived in part of the house yourself as your own residence
     
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  17. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I read the original post as the purchaser would live in the property but rent some of the rooms as well. Lenders generally won't accept this combination (for servicing) but it happens all the time. If this is the case, I don't believe there is a case of irresponsible lending.

    If there's no intention to rent any of the property, they I definitely agree that it shouldn't be declared as an investment. The last thing any decent broker/banker wants is to get someone into financial trouble.
     
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  18. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    So if the banks dont accept the board/rent as income but you as the broker factor that into the equation and present the deal as an investmemt using rental income from a valuation/real estate letter it would pass the "responsible lending test"?

    Never actually considered it before so just got me thinking.
     
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  19. JDM

    JDM Well-Known Member

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    Is the property located in Queensland and is it your first home? Renting out part of the property has big transfer duty implications. Based on a purchase price of $350k transfer duty would be as follows:
    • PPOR & first home (no rented rooms) - $0
    • PPOR (no rented rooms) - $3,500
    • IP or PPOR with at least one rented room - $10,675
    That could be a $10,675 difference in the first year. If you were entitled to the first home owners grant you can add another $20k on top of that making a $30,675 difference by renting at least one room out within the first year.

    From a previous post of mine:

    You can't rent out a room within one year from the date of occupation as this is deemed to be disposing of part of the property. The same applies to the first home owners grant.

    Relevant sections of the Duties Act for the transfer duty concessions are:

    First home: Duties Act 2001 - SECT 92 92 Concession—first home

    Home: Duties Act 2001 - SECT 91 91 Concession—home

    See s 153(1)(b)(ii): Duties Act 2001 - SECT 153 153 Reassessment—disposal after occupation date for residence

    DO NOT DO THIS WITHOUT FURTHER LEGAL ADVICE...but one potential way around this would be to grant someone a non-exclusive licence to use certain parts of the property. This would require a licence drafted by a lawyer with this in mind to ensure you do not accidently grant exclusive possession to the occupier (ie a lease). This would then need further consideration of whether it is caught under the residential tenancy legislation. From the tenant's perspective it would be far from ideal to be on a licence to occupy rather than a lease so this might scare some people away.
     
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  20. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    @JDM you are improving my perspective towards lawyers one post at a time and as a bonus not having to cringe when I see the invoice :D

    Is that state specific?
     
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