Strategy: Rent where you live and Buy Investment Properties

Guys guys, just K.I.S.S and don't ever sell

 

This survey shows that owners are more happier than renters

https://www.smh.com.au/business/the...pier-than-renters-survey-20180601-p4ziss.html

It says their anxiety levels are lower - maybe because they've got more control over their own living circumstances than renters - unit owners aren't as happy as those in freestanding homes.

I've done both, owned a PPOR unit and home and rented both out under the 6 year rules (sequentially). I'm happier in my own place and while I move a lot, on average around every 1.5 years, I have stayed in my OO places longer at least 2 years. I've had some bad landlords and RE agents and never liked being inspected every 6 mths.

 

Personally, owning my own home has created a sense of stability which I would not have if renting. I can travel away in the comfort of knowing that upon my return I have a place to call "Home".
Plus, packing up my belongings and having to move (because the decision is out of my control) is unwanted stress. There is a certain level of freedom in owning your own home.

 

Rentvesting can be a good idea to get on the ladder initially, but it is not a long term solution. I have seen people use up all of their borrowing capacity on IP's in distant suburbs and have left themselves no capacity to buy their own home.

 

That situation can be easily rectified by selling one or two IPs or waiting a few more years for the growth to kick in. Average Joe types don't buy stacks of IPs, so I would think that buying only one or two IPs wouldn't be much of a problem, particularly for those who dont particularly want to be tied to one PPOR for another ten years after they get the travelling and adventure bugs out of their systems.

 

True, you could do that, and there is always more than one option. But property is not a particularly liquid asset, with several entry and exit costs. So it is typically preferable to do a bit of planning at the beginning and try to hold on to what you buy.

 

Say Homer and Marge rent (both names on the lease) and Homer runs his Mr. Plough business from home. It takes up 20% of the house for his home office. Will Homer be allowed to claim 20% or since the lease is in both names that means that Homer can only claim 50% of that 20%, being only 10%? Usually a real estate agent wants anyone who is going to live or is living in a property to be on the lease.

 

Nope. Because Mr Plough Pty Ltd is a company.
The lease expense does not relate to Homer's income.

Also a home office expenses are generally not deductible unless it is a place of business.

If it was a place of business and Homer was a sole trader he could potentially claim 20% of the rent

 

But the company can pay him the appropriate amount in rent which is tax deductable on the company side? Probably not be allowable for a business with minimal office work, but an accountant using a bedroom solely as an office and paying a justifiable amount (e.g. floor area pro-rata) is surely no different to renting a serviced office? At the individual level he's getting the rental income but this is fully offset by the proportion of the outgoing rent.

 

If Homer leased part of his main residence to the company the main residence would then be income producing and subject to CGT. Homer would pay tax on the rent, but the company could potentially claim a deduction for the rent paid, if it related to its business.

 

Hi Terry,

Using today's interest rates, do you think this strategy still valid?

 

Yes but you are gent better off living in the main residence.

 

its interesting to see that this is the first time in Sydney in a very long time that owning a property in some parts is actually cheaper than renting!

Not applicable to all of Sydney obviously, especially the suburbs which are having a lot of upwards pricing pressure due to easier access to finance

 

why living in PPOR is better now? what has changed? I am new and thinking about rentvesting which will also increase my borrowing power.

 

its often cheaper to buy on 100% finance then to rent the same property - due to low interest rates.
Then paying it off makes things even better. You can debt recycle and loan shuffle to get owner occ on your investments adding another boost. Keep extending your PI loan back to 30 years.

I am not much of a rent and invest fan.

 

Unless you are Chris Gray. His strategy differs he never wants to own PPOR, because the yields he generates on his IPs are much higher than his rent he pays for his premium top rental property. Imagine receiving 5% against 1.5%?
I found his concepts in 2012 video to CPA in Brisbane very interesting in deed!

 

Yep, I do like Chris Gray, and he's a sharp guy with a great story. My critique would be that, if the only goal is a large property portfolio, this strategy works; however property is a different asset class and it should provide more options in your life.

I would also add that if one compares a renter vs a buyer over last 20 years: the renter's cost of living will have increased over this period, while the buyer's cost of living will have decreased over this time (while their net worth increased).

That said, there are lots of ways to skin the property cat. My only point is that I have seen rentvesting being done very poorly, so it's not a solution for everyone. It always depends on what you buy.

 

I just spoke to one Mortgage Broker and he said if I get IO loan only the lenders treat it as PI loan because IO loan is fixed for 5 years and for subsequent period (lets say 25 years) lenders assume there will be increase in interest rates....
In short broker said that IO loan doesn't necessarily increase your borrowing power.....
I am not challenging anyone here professionally. I am a learner so these are my discussion points...

Do you guys think the broker I am talking to is not investment savvy?

 

very good video.. I wish I knew this in 2012 but they say it is never too late to start right thing!
Like everything this strategy has its own risk- too sensitive to interest rate variation risk- but hey everything comes with risk so lets do it

 

I just realised there is one whole thread on Chris Gray.. and seems like these Gurus has more charm than actually worth for small investor.
I start realising that the way I learned Stock Market way which was the hard way .. (I.e. by loosing a lot of money) I should learn property investing the hard way too (I.e. this time with research and patience). But then there is fine balance between over analysing and taking actions..
I guess with hard work (research and research and talking to professionals) and then some action (actually buying first property) I will eventually learn...