PPOR or IP strategy? Which path to take

Hi All,
Currently considering a few property options.
1. PPOR in Perth ( where we currently reside and pay a very modest $250pw combined to live in a blue chip suburb on a large block of land )
2. IP in Sydney ( apartment )
3. IP in Hunter region ( specifically Cessnock )

Budget wise we would be able to borrow up to 500k-550k, we earn 200k+ combined but only want to put 50k or so down.

If we go with option 1 my idea is to buy something around 400-450k and rent out two rooms to pay down mortgage as much as possible however as long term we may not stay in Perth this property would become an IP, does this make my idea of paying down fast a bad one as I am reducing a non tax deductable debt that later will turn into a tax deductible debt or is it better to pay down and therefore have more equity when moving on and transitioning it to an IP?

Also, sometimes I feel it best to just keep renting and purely buy an IP, this strategy would also help reduce tax bill ( as far as I am aware )

Have been reading this forum for a few years now and am always learning, this is just another post to enable me to learn even more from and hear peoples advice.

Thank you

 

If you have any thoughts about turning this PPOR into an IP then don't do that by paying this loan down, put excess cash into an Offset account.

I'd do this if you have a 10+ year investment time horizon.

Don't do that!

Only if it is negatively geared, will having an IP reduce tax.

 

It seems like a waste not to use the fact that you're local to Perth to snoop out a better first property, whether its PPOR or IP.

You still seem to be tossing up between what sort of areas or property you want in Perth. Have you actually started going to home opens yet? I would say that might help in getting a feel for what and where you want to buy into.

 

This won't strictly be a PPoR then. You will have to declare income and write offs and it will also have CGT implications on sale. You should obtain tax advice prior to starting down this route. You can't legally accept cash for renting out a a couple of rooms and call it a day.

- Andrew

 

No one should ever invest in anything to reduce tax. The tax outcome is simply that, an outcome. The reason you pay less tax is because you're losing money on a cash flow basis. The idea is that this loss is more than made up for by capital gains in the asset over time. If you're investing to save tax, you're essentially saying you're investing to lose money.

- Andrew

 

Yes I go to many! It may look like I am indecisive given the fact I am looking in multiple areas and multiple dwelling/strategy types in Perth but to me I don't think its always best to limit yourself to a particular suburb and/or strategy. I like having multiple ideas in mind and when I get that gut feeling on one I will go with it. 2 years on and that feeling has not arisen.
I am from Sydney so I know the market there also and to me Sydney is always going to grow more than Perth in the long term IMO but so many people say I am crazy not to buy in Perth right now given the low it is at and I respect that view also.
I know the poor Perth based people on here are sick of me and my posts I am unashamedly annoying and have been assigned the nick name of the riddler in the past lol my stance you dont ask you dont know/you dont ask you dont get

 

Thanks Propertunity!
I think any apt I buy in Sydney is going to be negatively geared, would you agree?
I dont know why people are so hesitant on Cessnock, to me the numbers stack up! Decent yield, low vacancy rates, stable growth.....I know people who's IP has gone up 60k in 3 years, purchased for 230k. Also if this new mine at Weston goes ahead that's 5000+ employed for a 4-5 year construction phase

 

Hi Cmelderis

These look like very varied options.

If you buy in Perth - It doesn't make sense to pay it down if the ultimate intention is to make it an investment property. Best to park the money in the offset account, which may be used toward a future owner occupier property.

When will you be moving away from Perth?

For Cessnock - go with what Propertunity has said as Alan is a local in that region

 

Thanks Property Twins ( insert dancing twin emoji here )
Yes very varied options, I am a big believer in an open mind.
Aaaahhhh when will we be leaving Perth, excellent question! Hard to answer, in my mind I want to move back east ( potentially sunny coast ) in the next 3-5 years but the longer I am here the more I realise how good we have it I really dont know right now, we dont have kids and dont intend on having anyway which means we dont really feel the need to lock in where we want to live long term etc happy to go with the flow. In saying that we have been here 6 years and still love it and miss nothing about Sydney, I only want to go east to be closer to NZ ( partner is from there ) and I also want to move back onto acreage and the acreage here can be quite boring and barron.

 

I am biased, but we have a twice in a generation window into Sydney. You should invest there.

Sydney is the most diverse economy, with lots of population growth, and it is in an air-pocket right now. Lots of other reasons for another thread, but you are right to consider Sydney. This would be the best option.

 

It depends on how much deposit you use, but if minimal deposit then yes it will likely be neg geared.

Meanwhile if you look at the table below comparing capital growth of Cessnock houses with Marrickville units over the past 15 years you will see that Cessncok houses did not even manage to double in that entire time. They went from $212K to $373K. Meanwhile Marrickville units went from $300K to not just $600K but $712K.

Ugh, mining......most people are not good enough to time their entry and exit points and end up with a result that is something less than optimal.

 

Good to have an open mind - however - clarity is needed on why you are looking to buy in the first place?

If you don't have plans for a family, and not tied to one place, perhaps rentvesting is a good option. If there are good opportunities to buy in Perth (and depending on where its at in the property cycle), with an eventual recovery, it may make sense to buy and have benefit of future growth.

If you are looking to invest, there may be better opportunities over the coming years. If you were looking to buy a home here, it would be a different conversation - being an emotional decision.

I suggest clarifying your goals in the first instance.

 

Thanks proportunity, very valid point re the cg in Marrickville vs Cessnock and yes am aware of that. The Cessnock strategy was if I buy an IP solo as my budget would be around 300k, Syd IP would be with my partner. Would still be limited to 500k so would be looking in areas such as belmore/lakemba/wiley park as we want a 2 bed apt. If we can stretch to 550k I am considering N beaches as this is where I am from and I think you cant go wrong long term in this area BUT I may see better CG in those western suburbs mentioned who knows!

 

Thanks again! Goal is to get on the ladder and build some equity ( isn't that everyone's goal right lol ) it really is as simple as that.
Tied to Perth for a few years as partner has only just started in his new career path ( mining ) so we would like for him to stick with that for a few years moving up the ranks before re assessing and Perth is IMO bottom of the cycle just not sure how long until its starts growing....rents are tightening hence might be good time to buy PPOR but as our rent is so low we would pretty much be paying what we now pay in rent just on rates/insurance and maintenance on a PPOR! My partner is keen on the having a home idea, i'm not fazed but there is good buying to be had here currently.
If we can get a PPOR here around 400k we should be able to get together enough $$ to buy the Syd IP next year I suppose my fear is Syd starts picking up sooner than most are predicting and we cant get the $$ together in time due to having bought the PPOR here. This is why I dont want to sink all of our $$ into a PPOR, I want to have money stashed to grab an IP at the right time.

 

Rents and capital growth are indirectly proportional to each other... so agreed, there may be good rental returns, and low vacancy, indicating there may be good opportunities there - where Sydney was 6 years ago.

How much would you be left with after completing the Perth purchase to put toward a Sydney purchase?

Worthwhile considering LMI if you are concerned re not being able to buy in Sydney.

I would suggest seeking specific advice on the structuring, so you are set up to enable that next purchase.

 

LMI will be happening, we don't have 20%. Agreed re structuring, currently working on this with my broker.
It does depend on what we end up purchasing in Perth but I would like to have say 20k left with the aim of having 50k at start of next year for Syd IP

 

@Propertunity do you think though over say the next 10 years the ROI would be greater in Marrickville than Cessnock? The growth you speak of was partly during the unprecedented Syd boom. Cessnock would be half the investment of Marrickville if you were to buy now. Just a general question.

 

That falls into the realms of future predictions which I don’t do sorry. In general terms though I believe Sydney will always do better than Cessnock. Just my opinion.

 

Thank you, your opinion is very much valued.
Thanks for taking the time to make some great points!

 

But surely it is better to lose money to an asset that is appreciating over time than to the tax man?