Hi PC Experts, I am new on this forum and seeking your guidance on what could be good CG strategy for my particular Scenario. 1. Situation - Living on rent in Sydney, have 3 school going children and staying in close proximity to good school catchment areas and paying a good fortune on rent currently 2. My savings can borrow me around 1M for PPOR or investment (600K) For Option 1 - PPOR Due to big family size (5-6) a small apartment or townhouse in near good school catchment suburbs is not an option for me. A decent size house for $1M in Sydney would mean far away location. I could possibly live in far away suburbs with close Proximity to metro and rely on it for both work and school runs (provided kids continue to study in their existing schools). For option 2 Investment Buy interstate in high growth location e.g. Brisbane. could potentially negatively gear or neutralise with my earning (highest bracket of taxable income) . Expect an equity in 5-6 years and use that to grow investment portfolio and continue to live in our preferred suburb of choice while renting. The problem with rentvest is that i'll loose out on rent and most likely wont be able to buy a PPOR in Sydney The problem with PPOR is that i'll loose out on my borrowing capacity completely. I cant foresee any CG in Sydney in short term. My best guess is 5-6 years (but stand corrected). Would be locked into the vicious cycle of repaying my mortgage forever. Option 3 - do nothing and wait for the right moment. Buy PPOR during the downturn period (Hard to predict) and may not happen. What is my best CG strategy here?
The advantage of buying a main residence are a) ability to debt recycle the loan away, improving tax and borrowing cap, and interest rate b) you get a CGT free asset c) no land tax issues d) eventually will end up cash flow ahead as the interest reduces as the loan reduces e) you can add value f) you can do what you like - paint, put up pics, have a dog etc
Children will eventually go to university, which won't be driven by location. I used to think before why would someone go buy their home first...they should go build a property portfolio first, and see where it goes. However, my views have evolved and at times for families it makes sense for them to tick off their home first. Or at least have a place they can move to eventually (even if they choose to live in a particular area for schooling etc). This is because everyone is at a different stage in their lives. Terry has listed some really valuable things above. If you have your home, you can progressively pay it down and then debt recycle to invest. Where as, if you purchase investment properties, you will need to 'borrow' from the equity to fund your home in the future... works for some, but not fit for everyone - as it depends on what stage of life you are at. Also, if you buy an investment property first, how long will it take to build up the same level of savings to fund a home in future (borrowing permitting).
If you buy the ip, what does your deposit and borrowing capacity look like for ppor, if you still want to buy one?
Hi Terry, Thanks for your response. Understand PPOR being CGT free asset makes good sense. Somehow i still cant get my head around how a PPOR could bring CG in the short term. How would you compare both strategies if the cycle is 4-5 years only.
Hi Trainee, Very Interesting comment, havent run actual numbers on this. My guess is that total borrowing capacity should still remain the same. If 500K is borrowed for investment, 500K will be left for PPOR (Assuming Bank will remove rent from my expenditure raising borrowing capacity for PPOR)
Hi Property Twins, Thanks for the insights, would it make sense to rent your PPOR while you continue to rent somewhere else? Have seen some people do that to stay close to schools but not sure if this is a good strategy. wouldn't you loose money given low rental yields in Sydney
You need to balance out the two options. It all comes down to what you want, big house, good suburb, good schools? Make sure you account for everything and pull the trigger.
Depends too on timing. Some buy and the property flatlines but if its a growth period the property could leap 20% and its tax free. The very issue is that a former main residence will be tax free growth v's a rental which wont. The absence rule and equity release and all these other factors all assist to make the tax free benefit even larger
Also consider the fact that you can move back into and then out of the main residence and reset the 6 year rule.
