Should I move into my IP? Have done the sums...

Discussion in 'Investment Strategy' started by BCR, 18th Sep, 2016.

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  1. BCR

    BCR Well-Known Member

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    Hi All,

    Keen to get some views on the below from the PC group.

    Have two IP's will be buying a third 3-6 months,

    Currrently I live in my parents granny flat with my fiancé (a very nice Granny flat, I've had it good so far) I pay $500 month/next to nothing basically.

    I will be moving out in March 2017, need to live near work as my hours are getting longer and the travel is killing me.

    Rent is budgeted to be $700-750 weekly for a 2 bedder 5kms out from the city. I want to live in a nice apartment, going down below $650 is not really within scope.

    Heres the fun part:

    IP1 cost to live in (exc maintenance)
    IO loan = $1730 monthly
    P&I loan = $2170 monthly
    Strata = $390 monthly
    Lost Tax deduction benefits = ~$460 monthly

    It works out about $750 pw on a P&I loan structure and I am paying $5k off principal
    or as IO loan or $725 pw on IO structure

    Not sure if I've missed anything critical here, it almost looks net net equal with the benefit of paying off $5k against the property and potentially a year or two CGT break (partial main residential exemption?)

    Anyone in the know able to shed some light why I would or would not want to do this???

    Thanks in advance
     
  2. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    If its a newish place then also factor in lost depreciation
     
  3. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

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    I don't know about the sums but the CGT savings going forward could be worth much more. If it is worth $700k and grows 10% that is $70k per year.

    Even if you live there temporarily you could use the 6 year rule to save a fair bit of CGT.
     
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  4. BCR

    BCR Well-Known Member

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    HI Terry, I am forecasting avg annual growth at 3.0% to be on the safe side

    Property is worth $750k - are you saying that if I move in for a year i get the 6 year rule? I thought I had to move in there from purchase and then have the option to move out for a period of absence?
     
  5. BCR

    BCR Well-Known Member

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    Hi Davem - the tax benefit loss counts that one in, I am positive on this one using IO loan, my depreciation is driving the tax benefit which I forego if I move into it.
     
  6. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

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    You can still get the 6 year rule.
     
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  7. BCR

    BCR Well-Known Member

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    Thanks Terry, I'll take this through with my accountant.

    Just for clarification, does that mean eg. if I were to sell after owning for 15 years my growth would be split over the 15 years and then I would have the equiv yearly figure taken off for 6 years.?

    If I can get a 6 year exemption from CGT by moving in for a year it may be worthwhile
     
  8. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

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    It won't be exempt totally as you didn't live in it from the beginning, but it will be worked out on a % lived in basis with the absence counting as if you were living in it.
     
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  9. Marg4000

    Marg4000 Well-Known Member

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    ]

    You can only use the 6 year exemption going forward. To gain the benefit you have to move in, then after you move out you can claim the CGT exemption for the next 6 years (if you don't claim another PPOR).

    It is not retrospective. I,e., you can't move in, then sell, then claim 6 years exemption.
    Marg
     
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  10. zlatan9

    zlatan9 Well-Known Member

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    This 6 year rule seems to be a great exemption! - have been trying to read up about it.

    So it looks like if I buy a property and move in straight away and live in it for a minimum of 6 months, then rent it out, I can get CGT exemption for up to 6 years?

    Within that six months, if I went overseas for, say 3 months (but not rent it out leaving it empty), come back and then rent it out, would that still count towards my 6 months of PPOR?
     
  11. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

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    There is no 6 month requirement. All that the law says is that it is your main residence before you become absent.