PPOR strategies

Nice post.

I have a g/friend who is very creative, her primary residence is on a large block, close to city in Perth and near university. Old garage at rear of property has been converted into a one bedder g/flat,, her partner is a builder and its been completed on the cheap, but looks very slick. They built another on the opposite side of the rear block (1 bedder g/flat).

Each rents for $350 pw, includes internet access, they have been fitted out to a nice standard, the rear yard is fenced off and the tenants have private access.

Whenever these are vacant they are rented out immediately, high demand due to location.

This is certainly looking outside the square. (both g/flats are not council approved)

As an owner of g/flats I think the key for this to work is ensuring that the set up is right, private access important. Otherwise don't do it as it will take longer to lease and it will be one headache if you get it wrong just my opinion.

MTR

 

I moved out of my PPOR for better serviceability. Now I get to rent where I want.

Being a tenant is so much easier than being a landlord.

 

Didn't they not need approval or didn't get one? Retrospective approvals can be costly.

 

I guess there is no maintenance or jobs to worry about but I hate the thought of cleaning at exit and the chance there may be damages to dispute and just the dramas dealing with PM's!

 

Smallish garage was already on the property/site, so they just converted this to g/flat.

The other g/flat I think it was built with some sort of cladding, very cute, I guess they are not worried about approval, been renting it out for years now with no issues.

Just about every g/flat in Sydney is not approved, its pretty much the norm.

At the end of the day its just what you are comfortable with. Of course you save money just building, but then you are taking some risk??

I have been renting out my g/flat in Syd for at least 5 years not approved, no issues whatsoever, does not mean it wont happen... touch wood


MTR

 

Isn't that what a kid from google did, parked a truck in the google carpark and lived in there. Top idea! With the technology available in caravans these days young peeps should set themselves up in a caravan park or free camp site. I'd be doing that if I was young again

 

Not approved is pretty risky, but their choice.

Also means they lose CGT Free status on their PPOR which may be ok depending on their circumstances.

 

Similar to the tiny house movement. Some people just don't understand what tiny means - they spend close to a 100 grand building their *tiny* house - go figure.

 

When it's not approved - the chances of declaring the income are less than high.

 

Which means ATO trouble as well then for undeclared income

 

Renters insurance and law favoring tenants I don't see (m)any issues with renting. When the PM starts acting unreasonable - I'll reciprocate - no mercy

 

Currently renting out your ppor to others and claiming it as an investment, and living elsewhere is allowed. Is that correct?
Until the ato change the laws they will not prove you have done this, as many are doing it. You can dispute it if they do.
As long as you have a legitimate reason for moving out and renting you will not have an issue with it. I have not done this, I can tell you 4 couples that have been doing this for the past 4 years.

 

Friends with benefits? I could be mistaken but it is a property forum.

 

Great post Jess - Long time observer, first time poster.
I've have an internal debate in working out what's a better strategy to eventually acquire my dream PPOR.
Obviously, most 'dream' PPORs these days are out reach for people who just got started (eg. a relatively young person who just started work 3-4 years ago and without any existing IPs.. just finally managed to save around 200k for deposit). This is especially true for Melbourne and Sydney FHBs.

What would most people consider as a better strategy then, if you're presented with the following two options, would you rather..?
1. Borrow your maximum amount and buy a lesser-PPOR as your first property. Then upgrade in the future, selling your first/current PPOR to top up your deposit for eventual purchase of dream PPOR.
A few considerations:
- Bearing in mind of the market movement had in the past 2-3 years in Melbourne/Sydney - we could be in the peak/near the peak and CG will slow down until the next cycle.
- Highly leveraged, paying more interest over long term (even though interest rate, arguably, is at its lowest point despite the recent hike by the big 4 banks) and interest 'eating' up precious savings.

OR

2. Borrow less (say 50-75% of maximum) and buy a townhouse/villa IP within 5-7 km of the city. Rent out the IP and aggressively save by channeling income + rentals into offset a/c.
Much more savings because less interest from less borrowing.
In a few years time (2-3 years), use the equity from offset to buy the dream PPOR (and NOT sell the IP).
A few considerations:
- Less potential CG, mainly because of less capital outlay (townhouse/villa without land) and because we've already peaked/near peaked as compared to 2-3 years ago.
- But less 'stress' on current lifestyle and cashflow. And because of smaller borrowing, lesser interest is paid as well, more of cash/savings can be used to pay off straight against the principal amount of the dream PPOR.
- Might be quicker (arguable) to get the eventual dream PPOR.


What would you do?

 

@febstyle Welcome to the forum

It depends on your living situation to an extent - if you're in a situation where sharing/renting out rooms is viable, option 1 might work. The main issue I see is that if buying in Sydney you could be much better off waiting before jumping in due to the market cycle.

Otherwise option 2 would be my preference.
Or even better, option 2 with the ability to add value/develop down the track.

 

We are currently doing option 2. Renting while we are in accumulation phase and channeling all money into offset account.. Once we finished accumulating we will be look into buying PPOR. We bought 1st IP this year... At least three more to go unless an opportunity comes up..

 

Anyone have any excel modeling that they have done exploring the benefits of owning a Owner occupied house + 1 IP vs Renting w/ 2 IPs as an example?

My wife and I started off with an OO and upgraded to a bigger OO last year, renting out the old one. In my view rent money was always dead money so paying into the OO while it increases in equity was always a preferred option. But I would love to look at the numbers to see if i am deceiving my self.

 

Numbers provided above as a guide by jess and Redom. Renting would be better due to the way it is modelled now, you could release equity from your PPOR and use for additional IPs,then rent ppor.

 

Or in a shipping container in the backyard

 

Looking on the ATO web site, I don't see any requirement for having a legitimate reason for moving out. You can move out for any reason you want, except to enter a scheme with a predominate reason to save tax.

I have done it before. I bought a unit near work and lived there fine until work moved me to another office. I moved into a shared house near my new work and rented out my PPoR for about 5 years before selling up.