Rent out occupied property to girlfriend to increase borrowing?

I am in the process of buying an IP

currently living in an owner occupied apartment with GF.
a friend suggested to me to rent out the whole apartment to GF on paper which will improve my income and borrowing power?
Also will help with tax deductions etc etc
is this possible?

I am planning to see an accountant but wanted to ask on this forum first if this was a legit question that can be asked as I don’t want to come across as a noob

 

Your address is going to show this property as your main residence?
From a lenders serviceability point of view it will be hard to get around this so may not help your borrowing capacity at all.

Alternative to boost your borrowing capacity - GF buys the IP with you, is that an option?

 

It doesnt matter what "paper" says, its tax fraud. The property would be occupied privately and non-deductible. And still your main residence.

GF or wife wont matter. She is likely your spouse for tax purposes and its just dishonest.
The additional servicing would be negligible as in most cases rent and outgoings are largely similiar and its not like there is no loan interest.

You break up and she is ****** and lets the ATO know. Oh snap

 

You are spouses so that won't work.

You would also need to take into account rent where you are living.

 

Nah, it won't work. You'll have the address listed as your home, so they'll catch on straight away.

 

Even if a lender did recognise the rent (and one immediately come to mind that will), they'd want to see evidence that it's more than just 'on paper'. They'd ask for additional evidence such as a lease agreement, bond lodgement receipt and bank deposits going back three months.

Don't try to game the system, it just means that the people who could help you the most, won't want to deal with you.

 

Thanks for the reply everyone. Glad I have asked this here and not someone face to face in an office.

My usual home address has always been my sister’s place for everything.
Considering if it can be done, is it worth going through this whole process? And will it make any difference in the borrowing power?
bit of a process with changing home loan to investment loan, setting rental agreements.....etc etc

 

Will you declare the rent as income? Deduct expenses? Report capital gains properly when you sell?

you are literally asking whether its ok to commit fraud.

 

I'm quite serious about the three months of deposits into your account, most lenders will ask for this and you can't fudge it by getting the money from your GF, then just transferring it back. They'll also review the rest of the transactions to cross reference other expenses which could open up other problems. Lenders are quite switched on to this sort of thing.

If the rental income is legitimate and can be demonstrated as I've previously outlined, then it can be considered.

At the same time, lenders will want to know how much rent you're paying your sister. Even if you're not paying her any rent at all, most lenders use a minimum rental outgoing figure (usually $650/mth).

Essentially you're gaining some income, but you're adding an expense. This may improve your serviceability, or it may do the opposite. Depends on the numbers and the specific lenders policies.

 

Thank you. yes. I personally won’t be doing this as will have to rely on a lot of variables and unknowns for things to work. Also looks like you need a trustworthy team to pull something like this off.

Atleast, now I know that it is doable if done right and my friend wasn’t just fabricating something.

 

If you have multiple GF then it should not be a problem Can ATO tell which one is your PPR?

 

I think you may misunderstand Peter's wisdom. He didnt say its doable. He just indicated how a lender may see it for legit rent. What you described isnt.

If I sum it up...You live there and with your GF while you appear to make it look like you are receiving rent from her and claim 100% of the ownership costs as a deduction. FAIL Or you pay her rent. for your own dwelling. This is covered by a ATO ruling which will deny 50% of the deductions to both YOU and your sister etc....https://www.ato.gov.au/law/view/document?docid=ITR/IT2167/NAT/ATO/00001 and penalties etc

The fatal element to the plan is a lender will ask - So where do you live and what is your rent ?? Wont they ? So the lender will factor in the rent to be paid as a expense commitment. Its a zero sum game at best.

 

Who's name is the apartment in? If it is 100% in your name you can most likely charge "the female boarder" market rent for 50% of the property and claim normal apportioned IP tax deductions. Would probably make some modest improvement to your borrowing capcity.

Your proposed plan with the fake address at your sisters house - maybe a step too far into outright fraud.

 

Just so there's some context of what all this is actually worth...

Additional rental income of $100 per week, adds roughly $30k - $40k in additional borrowing power.

If people are hoping this will allow them to borrow an extra $200k for the next property, it's probably not going to work regardless of how cunning you are.

 

I had a client tell me the other day that they would just pay their mum for something when the property becomes positively geared. they claimed this would make it negative again. Then I asked if the mum was working and she was on a higher income than him. I also asked what would the payment be for? he said some sort of management expense - is she licensed? nope.

Some strange ideas out there