Strategy for growing family - stop rentvesting

Hi,

A bit of background, my partner and myself are currently sharing a 2 bedrooms flat in Sydney.
We own 3 IPs and were quite happy with the rentvesting strategy.

However we are now expecting our first kid this year and don't want to share the flat anymore.
This means we are going to pay quite a lot in rent (about $750/ week) for a 2 bedrooms.
Yeah I know that sounds expensive but we don't need public transport and are walking distance to work - also save a lot on gym as it's part of the complex (even if I guess with a kid we won't have time to workout anymore haha). This is pretty much same price as a far away flat without gym and a lot of commute time (train...) if we add the cost of gym + transport.

So going forward our rent will be about 40k / year which could easily be spent in a PPOR.

What's your thoughts on moving to a PPOR strategy?
What would be the impact in terms of investment given we will have to spend this amount in rent anyway?

We just passed the boom cycle in Sydney so won't expect any equity for the next 10 years :/ which isn't ideal!
However I can see that rent even in our current place is catching up quite quickly with the price of the flat so the strategy to live in a place that you could not afford is not so true anymore.

Thanks for your feedback

 

You must mean 750 pw?? 750 per month is ridiculously cheap.

 

If you ever intend to buy a PPOR in Sydney then this may be the time to do it.

I doubt you will see spectacular growth, but neither would I expect the prices to remain level for 10 years. Best bet would be slow and steady growth.
Marg

 

I assumed a typo. $750 per week ties in more closely with $40K a year.
Marg

 

Yes sorry it was definitely a typo - I fixed it
Would love to pay $700/month though haha

 

$40k is a lot of spend on rent. But that's Sydney.

Understand your reasons for staying close to work and it costing the same.

But question is.... would rent stay at the same level over the next 10 years and beyond at 40k.

What would the rent have been 10 years ago?

Based on history, boom cycle is followed by stagnation with price growth and rents may also stagnate for some time. Once the over supply of apartments dries up and the population grows, rents will start increasing.

We don't have a crystal ball.... but if histroy is to go buy, cycle will continue.

You just need to weigh up if 40k could be spent on your own place.

Rentvesting works for some people, but based on another thread general consensus seems to be that having own place is also a good thing, especially for a young family

 

kids will draw on walls and generally make the place a mess.
At least if you own the place, no RE is going to come and hassle you

 

I cannot agree more! When I look at some of my IPs - 4 bedrooms with lots of land going as cheap as $350pw

So according to you it sounds like a no brainer - afterwards I still have my current IP to get some equity and keep moving forward in the investment strategy (if I still have time with a kid haha)
So I guess it will slow me down a little bit but at least I won't be throwing 40k/year out of the window.

 

Agree..now's a good time to make a few silly offers. It could go further south but that's all speculation. Now's the time to seek out that trophy home.

 

I'd prefer the kids drawing on walls of a rental prop than my own PPOR

 

In sydney i doubt it. Have you included body corp etc?

If you buy a ppor how much deposit do you have?

 

Not much unfortunately as we used most of it to purchase our first IPs.
We may be able to use 100k more or less. So after it really comes to the LVR of the loan I guess - or if we want to use some equity from our IPs or not.

Initial idea was to use equity to keep purchasing IPs but we may have to review our strategy now.

 

I went to a workshop maybe a year ago and the person suggested to purchased our own property with a trust account in order to keep it as an investment but still leave in it.

Any thoughts on this strategy?
It seems like this way you can claim tax exactly the same way as an IP even if you live in it.

 

no ... don't think you can offset trust assets against your income

 

Was that person a lawyer?

Heard a podcast yesterday by a non lawyer saying you can live in your trust property with no issues.

But there are plenty of issues to consider the major one being land tax and the main residence exemption.

 

And you can't claim expenses as the trust is the tax payer owner. Any losses will be trapped in the trust and carried forward.

 

Hi Oliver

That is an interesting advice - what were their reasons for it?

So many issues with this

 

Company is JDL Strategies.
I don't remember all very well so hopefully I'm not making things up but from what I can remember it was to help with mortage and tax purposes.
For instance serviceability won't hit as much as it would be just like an investment and not a PPOR.

 

Some of the most successful people still rentvest - only difference is they might be renting a $4000pw waterfront mansion!

Bear in mind your $100k sitting in an offset account of one of your IP's will essentially give you approx. $100pw less interest repayments hence $100pw more to go towards your rent. If you have enough cash offsetting your IP's you might find yourself in a position living "rent free"

Also none of your PPOR purchasing and ongoing costs will be tax deductible and you will only get a fraction of it back if you were to pull out any future equity to use the funds to reinvest again (stamp duty costs will just disappear). I think you are doing well rentvesting and if you are savvy enough by selecting a rental property with a secure landlord looking for a long lease, you mitigate a lot of the risks/fears of needing to move short term. Also, landlords in general are much more accomodating at the higher end of the rental market especially if they nab a long term, stable tenant that pays on time and looks after the property. They could even allow you to do some minor cosmetic renos to suit your own tastes once you've "proven" yourself. This is why I always suggest to do as much research into the landlord themselves.....if possible even have a chat with them to see what their plans are and how much they might value you as a long term stable tenant.

If you are comparing like for like properties, I daresay the property you are looking to rent for $750pw will potentially cost you double that rent in interest payments alone if you were to buy something similar. Not to mention purchasing costs and opportunity costs of not being able to invest such a large chunk of capital.

A lot of people fear moving itself but there are now companies out there that pack everything up, relocate and even redecorate/unpack everything while you go to the pub.

There are also the benefits of just calling the property manager up if anything goes wrong, not needing to pay council rates etc, being able to choose to up and go wherever and whenever you want which is more of a personal decision but sometimes also necessary depending on your lifestyle, work, things that happen in life that are out of your control, crappy neighbours etc

Questions I would ask myself if I were to buy a PPOR;
1. Will this be my "forever" home?
2. How much cheaper would it be for me to rent the property I WANT to live in versus buying that exact property?
3. How comfortable would I be if I were forced to move and how flexible would my family members be?
4. Am I going to keep investing with the capital I was going to use for my PPOR?

 

this really depends on the size of the PPOR loan, potential rent of the property, ppl's own rent.....