# PPOR vs. IP - Where should you start?



## RandR (20 January 2011)

Although me and the missus have been dutifully saving money for a deposit for our first home. We have been bouncing back and forward over ideas for awhile now upon whether or not buying a PPOR (principal place of residence) is the best place to start, or whether perhaps buying an IP first (investment property) would be more beneficial.

Looking for any thoughts from more experience people if you can share !

- Is it a decision you have already made ?
- What would your decision be with hindsight ?
- Or just what do people feel in general is the better path to follow at this present state in time ?

Obviously any advice cant be specific to our situation, but i think its important to keep in mind we are eligible for the First Home Owners Grant, and reside in qld (so also have stamp duty benefits as a first home buyer if purchasing PPOR i believe ?)


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## TabJockey (20 January 2011)

*Re: PPOR Vs IP - Where should you start ?*

Not sure if its like this in QLD, but in Vic you need to live in the house for 12 months to get FHB.

An investment property may be better if: 

> You earn a pretty good income and the negative gearing is going to be of large benefit.

> You don't plan to sell in the short of medium term (capital gains on IP but not PPR)

> House Prices look attractive compared to rents: ie Yields are good (7%+)

> You dont like the idea of renting out rooms in your PPR. Thats what I do and I get the best of both worlds. But you have to put up with OTHER people 

> You currently rent a place you love and it works out better to continue to pay rent where you are, and collect rent somewhere else.

 Not personal advice :Go see a good financial advisor but run the numbers yourself in excel.


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## Tysonboss1 (20 January 2011)

Are you using one of these accounts, it's a great idea especially if you think housing is flat for a while

http://www.youtube.com/watch?v=QZxEo4x9liI

I went the IP route first cause I was moving around alot, I was in the army at the time, and it allowed me to start paying of a home from an early age, However buying somthing small and affordable to start with isn't a bad idea.


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## Mofra (21 January 2011)

I know a few people who rent and own one or multiple investment properties (myself included). 
Ownership of your PPOR has a major CGT advantage (if you plan on staying put for an extended period) however the tax laws are still scewed heavily in favour of the investor which is a major reason I (along with a few collegues) chose this route.


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## tech/a (21 January 2011)

It doesnt matter which way you do it but do one of them so you at least keep a breast of any price increases.
If you keep it as your IP and dont mind moving every so often add value and up grade every few years.
OR
USE the added in x years to buy your IP.

Looking back when I first up graded I sold my PPOR.
Should have rented it out and kept it.
Learnt after the second time!

Lastly

If prices are moving up rapidly I would buy it as PPOR for the saving in Capital gains tax.
If prices are slow then Id buy it as an IP for the tax deductions on everything you can think of and interest.
If you can afford to do so.
Buy houses not units (Land value).


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## RandR (21 January 2011)

Thanks for all the input so far !



> Not sure if its like this in QLD, but in Vic you need to live in the house for 12 months to get FHB.




Yes, i believe this is also the case in QLD.



> Are you using one of these accounts, it's a great idea especially if you think housing is flat for a while
> 
> http://www.youtube.com/watch?v=QZxEo4x9liI
> 
> I went the IP route first cause I was moving around alot, I was in the army at the time, and it allowed me to start paying of a home from an early age, However buying somthing small and affordable to start with isn't a bad idea.




We did look at these, but decided ultimately, although of course the returns and incentive are good, the fact our money would be locked away and inaccessible for what seems like a quite excessive period of time (4 years) it just wasnt worth. Especially when we took into consideration the fact that personally ... we are still young, and realistically anything could happen with our lives in that timeframe that could change this goal.

Your correct about starting small, i believe this is the way to go, we are looking in the price range of 300,000- 400,000 with an eventual deposit of 20%



> If prices are moving up rapidly I would buy it as PPOR for the saving in Capital gains tax.
> If prices are slow then Id buy it as an IP for the tax deductions on everything you can think of and interest.
> If you can afford to do so.
> Buy houses not units (Land value).




Good advice. In my case though the thing with the investment property route is it would moste likely be neutrally/positively geared.

Im thinking the real cruch question is whether or not the handouts for a PPOR outweigh the financials of an IP. (ie, whether the FHOG+considerable stamp duty/buying concessions) outweigh the return an investment property could make in the short term.

I think if i was to run the numbers then the answer would most probably be yes to the PPOR, if looking at a period of 1 - 2 years, but eventually the return of the IP over a longer period of time would outweigh this.


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## Bill M (21 January 2011)

Hello RandR, I started with the PPOR. The biggest thing for me at the time was paying rent money and getting nothing in return for it vs buying and paying roughly the same and having an appreciating asset. Also what tech/a mentioned is very important. You do not have to pay any Capital Gains Tax on your PPOR, it is all TAX FREE when you sell. So when you do your calculations it must include the capital gains tax if it is an investment property, good luck either way.


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## tech/a (21 January 2011)

but eventually the return of the IP over a longer period of time *could *outweigh this.


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## prawn_86 (21 January 2011)

Bill M said:


> The biggest thing for me at the time was paying rent money and getting nothing in return for it vs buying and paying roughly the same and having an appreciating asset.




I think it is a bit different these days. To buy the property we are in would cost nearly double the amount pw as we currently pay in rent. So there may be a case for investing the difference into a IP with a better yeild and paying it off quicker than if youw ere to buy a PPOR

In short, each case is different


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## Tysonboss1 (21 January 2011)

prawn_86 said:


> I think it is a bit different these days. To buy the property we are in would cost nearly double the amount pw as we currently pay in rent. So there may be a case for investing the difference into a IP with a better yeild and paying it off quicker than if youw ere to buy a PPOR
> 
> In short, each case is different




True,

I think the main thing is just getting started, the sooner you can start paying off the mortgage and have "reverse compound interest" working for you the better.

There is somthing to be said about living in your own home, However I did the IP thing while I rented for years, Mainly because the army gave me rental assistance in sydney while I rented out my IP's in Brisbane. Plus the tax deductions etc.


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## ROE (22 January 2011)

Tysonboss1 said:


> True,
> 
> I think the main thing is just getting started, the sooner you can start paying off the mortgage and have "reverse compound interest" working for you the better.
> 
> There is somthing to be said about living in your own home, However I did the IP thing while I rented for years, Mainly because the army gave me rental assistance in sydney while I rented out my IP's in Brisbane. Plus the tax deductions etc.




I think current buyer face tougher choice  because renting and mortgage repayment is just too far apart...

When I got a job, the rent was $200 a week or $250 for my own place with deposit I have from sale of my stock holding ..around 20% deposit

but I can afford a lot more in repayment though.. I end up paying $500 toward my mortgage, couple years went by no more repayment and live rent free..

If I have to start out at this time, I wouldn't know what to do either, it's a big decision and if you make a wrong one it could cost you..

but I always have preference of buying my own home so I probably go for the mortgage option...


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## Tysonboss1 (22 January 2011)

ROE said:


> I think current buyer face tougher choice  because renting and mortgage repayment is just too far apart...
> 
> When I got a job, the rent was $200 a week or $250 for my own place with deposit I have from sale of my stock holding ..around 20% deposit
> 
> ...




I bought my first house back in 2001, and it was renting for $250/week but to service the loan cost $435/week,

So the repayments were 74% higher than rent.

Today the rent is $425/week and the loan would cost $850 / week to service.

So the payments are 100% higher than rent, 

So your right the gap has widened. But the big difference that I see as causing this is that rents tend to rise steady year on year with inflation. Where as the price of houses booms and stagnates. when I bought in 2001 it was following a period of several years of stagnated prices, so the gap between rents and prices slowly narrowed.

After I bought prices boomed for serveral years widening the gap again. I think one things is clear though. rents will overtime increase and the interest you pay decreases

So given the first example 10 years later renting is still $10/week cheaper than the payments on the loan, However the owners repayments only have $252 worth of interest so $182.00 / week is repaying the loan. so reverse compound interest is on his side.

Not to mention every year the rental increases will compound against the renter, where reverse compound interst is working for the owner.

Also should he sell he would have a lump sum of over $200,000 capital gain + over $40,000 of forced savings from reduction of the loan.


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