# Investment property



## Nyden (26 December 2007)

Hello all, & a Merry Christmas! Or rather, to be politically correct - happy holidays!

OK, bit of an odd question here (sounds rather complicated to myself, but I'm sure to you Guru's it's a quickie) :-

If I were to buy my first house with intent on renting it out for 3-4 years, would this be classified as an Investment Property? The ultimate goal would be of course to live in it, but renting it out as to pay it off - whilst we live in a much more affordable rental place 

Now, if the property *is* classified as an Investment Property, does this still entitle us to the First Home Buyers grant? We do intend on living in it, it is our first purchased house, however we just wouldn't be living in it for a while.

Or, is there a way to cheat the system? For instance, buy the house, collect the grant, live in it for a couple of weeks - then rent it out & classify it as an Investment Property / claim the tax deductions on the loan Interest? Best of both worlds!

Or, is it all to do with the type of loan? Investment Loan, Home Loan - surely those could be refinanced though 

Well, the main question is with regards to the home-buyers grant, whether or not we would be entitled.

I would certainly prefer to be able to deduct the interest though - would save a lot more than the grant would!


Regards,
Nyden


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## hangseng (26 December 2007)

Nyden said:


> Hello all, & a Merry Christmas! Or rather, to be politically correct - happy holidays!
> 
> OK, bit of an odd question here (sounds rather complicated to myself, but I'm sure to you Guru's it's a quickie) :-
> 
> ...





You will not be entitled to the 1st home grant.

If you first lived in the property for say 6-12mths then due to changing circumstances genuinely had to move and so rented it out, then you would be entitled.

There is actually no specific time limit. The test is the 1st home purchase with the sole purpose to be your sole place of residence. Anything other than that you are not entitled.

Do you sums an I believe you will find the property is best purchased as sole residence initially as you will recieve the grant and won't have to pay stamp duty up to a certain value limit (in WA anyway). I believe the value limit is around $350k in WA now, it was around $250k.

Just a note. Stating publicly you may be seeking to "cheat" the system won't win you many friends. Best to do it honestly, based on sound financials and sleep well at night.


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## trinity (26 December 2007)

http://www.osr.nsw.gov.au/lib/doc/factsheets/fs_fhb1.pdf



> At least one applicant will occupy the home as their principal place of residence for a continuous period of 6 months, commencing within 12 months of   settlement or construction of the home




Considering you are eligible for the FHOG, just live in it for 6 months then rent it out.


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## Nyden (26 December 2007)

hangseng said:


> You will not be entitled to the 1st home grant.
> 
> If you first lived in the property for say 6-12mths then due to changing circumstances genuinely had to move and so rented it out, then you would be entitled.
> 
> ...





When I say cheat, I obviously don't mean doing anything illegal  I obviously refer to using (or exploiting) the system the best way that I can legally, who wouldn't do that? The government are crooks, they spend my tax dollars on rubbish, so if I can legally get money back from 'em, I'll do so & sleep *very* soundly

It *is* my primary intention of living in the residence, just not for the time being. We're merely going to rent it out, & live in a smaller place to save money - once again, I guess this is a case of responsible people missing out...& I shant let that happen!


Great, thanks trinity! 

& Thank you hang-seng

With rising interest rates, one needs to be shrewd


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## numbercruncher (26 December 2007)

First Home Owners Grant at a glance




> An applicant or spouse must not have previously owned a residential property or applied for this grant. Ownership of an investment property before 1 July 2000 will exclude you from being eligible to participate in the scheme. Whereas ownership of an investment property from 1 July 2000 will not exclude you from being eligible for the grant.




http://raywhite.com/cgi-bin/rw/doc_manager.pl?t=view&aid=28&c=7

So you buy it as an Investment it seems you wont loose your eligibility for the FHOG in the future .....

Just dont rort how it was designed and intended at the expense taxpayers and the Gov would be my advice


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## Nyden (26 December 2007)

numbercruncher said:


> First Home Owners Grant at a glance
> 
> 
> 
> ...





Does this conclude that one can claim the FHOG right away with an investment property, or only once you begin living there?

Regards,
Nyden


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## numbercruncher (26 December 2007)

Nyden said:


> Does this conclude that one can claim the FHOG right away with an investment property, or only once you begin living there?
> 
> Regards,
> Nyden




Im not an advisor so probably better to speak to one, but it seems you intend to purchase a property which for all intents an purposes is an Investment, why not just keep it as such and one day when you purchase your own home claim your FHOG etc then ?


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## ithatheekret (26 December 2007)

My query to the members :

The latest Centro crisis , which the media has negatively linked SGB with , is so perplexing that I wonder whether they are being fed disinformation .

The $1.6B mention is on a basket of high end malls etc. , the market value alone and the diversification of the portfolio , would have to be on par if not exceeding the loan amount resets etc.

As SGB holds the portfolio as security against the loan book , I see that as a positive .

There's another large pillar bank that has the same position on a loan book , for another REIT fund as I label them . They too could bonus on a default .


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## hangseng (26 December 2007)

Nyden said:


> Does this conclude that one can claim the FHOG right away with an investment property, or only once you begin living there?
> 
> Regards,
> Nyden




No, FOHG only applies if you live in the home immediately.

If you are renting it out you are not entitled to it.


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## adobee (26 December 2007)

numbercruncher said:


> First Home Owners Grant at a glance
> 
> 
> 
> ...




This is WRONG !
If you buy an investment you are not entitled to any future FHOG as it currently stands..  This investment wipes out your FHOG..

You must move is within the first 12 months for at least six months i.e you can move in 11month and then stay for 6 there after.

If you try and rip it they will catch you and you will have to pay the money back plus 17% interest (I speak from experience, however I got the FHOG the first week it came out and there was not set time limits at all in the legislation then and they have since changed it so I feel I got ripped!!) the OSR will catch up to you three - four years later and charge you 17% interest your only choice of negotiation is to go to court and risk being charged with fraud... NOT worth it..

I think if you buy in the right price range you will find that its definetly worth getting the FHOG and maximing the stamp duty saving.. see OSR web site..
If you are buying BRAND NEW it may not be worthwhile as if you claim the FHOG you wont be able to claim tax depreciation for this period which on a new 2br apartment could be around $15- $18k first year!

Type of loan has no diference on the fhog and will only have an affect on how much you can borrow ie you tell the bank you want to borrow x but have y rental income that will be coming in whilst you live at home with your other family the will lend you d. Whilst you tell them you are moving in they will lend you x - a bit less cause you have to come up with all the money..

You need to get an accurate approximate rental for the property

*Work out FHOG + Stamp duty & Mortgage Duty saving compared*
*to rental income lost for 6 months + depreciation lost for 6 months + tax deductable interest between loan interest and rental income. (remember this is offset against your tax able income you are not getting the full amount back I would suggest working 40% of this amount to be the actual monetary amountB]


The result is going to be dependent on the cost of the home and how well it maximises stamp duty saving and what is depreciable allowance would be..

see for exact terms and calculators..
http://www.osr.nsw.gov.au/benefits/first_home/*


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## numbercruncher (26 December 2007)

adobee said:


> This is WRONG !




Ill take your word for it, Im no expert, ive read it in several places though, I alway advice people to phone the TAX office afterall thats what they are paid for, that info I posted might just be typical realestate shark stuff eh?

Its on this site as well ....



> Most first time investors are under the mistaken assumption that purchasing an investment property before their own home eliminates them from qualification for the Federal Government First Home Owners Grant (FHOG) Scheme. This is incorrect, and even though you may have purchased an investment property, as long as you have not occupied the property, you may still be entitled to the FHOG




http://www.ozinvest.com.au/blog/2007/10/29/property-investment-and-the-first-home-owners-grant/

Phone teh tax man and clarify someone 


Heres the leg on the Tas Govs website ..... They might have it wrong too?



> None of the applicants or applicant's spouse/partner can have previously owned a home, either jointly or separately, or with another person *before* 1 July 2000; and
> None of the applicants or applicant's spouse/partner can have owned *and* occupied a residential property either jointly, separately or with some other person on or after 1 July 2000; and




http://www.tenders.tas.gov.au/domino/dtf/dtf.nsf/b32c3f5d1957617bca25714500073054/317485b2655e5273ca257145000c6e9b?OpenDocument


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## Nyden (26 December 2007)

adobee said:


> This is WRONG !
> If you buy an investment you are not entitled to any future FHOG as it currently stands..  This investment wipes out your FHOG..
> 
> You must move is within the first 12 months for at least six months i.e you can move in 11month and then stay for 6 there after.
> ...



*

So much conflicting information :

Alright - so, is it "ripping them off" to move out after 6 months, and turn it into an investment property?

Thanks for the info so far guys, I love this site *


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## hangseng (26 December 2007)

Nyden said:


> So much conflicting information :
> 
> Alright - so, is it "ripping them off" to move out after 6 months, and turn it into an investment property?
> 
> Thanks for the info so far guys, I love this site




As I said the test will be the original intent. i.e. to buy to live in the property.

The onus will be on you to prove intent.

Good luck.


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## Flying Fish (27 December 2007)

Crikey if you can not afford to buy a house and live i n it for at least six months, I don't thinky you hav any hope as a property investor. Just rent and do something else mate


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## Nyden (27 December 2007)

Flying Fish said:


> Crikey if you can not afford to buy a house and live i n it for at least six months, I don't thinky you hav any hope as a property investor. Just rent and do something else mate




Of course we can afford it! I don't think a few people have gotten the gist of this. We intend on buying a property, living in it the bare minimum to claim the FHOG, move out, rent a smaller place, declare it as an investment property (to claim interest as a tax deduction, and use payment from renters to add to paying it off), once paid off - live there.

We basically intend on paying it off ASAP as to eliminate long term interest payments, we would obviously be _slumming_ it a little by renting out a far smaller place to *live* in.

I'm merely sussing out the legality of it all.

Please read the thread first flying fish, my intentions here are not because we're struggling, or anything of the likes; but purely out of the desire to save money  Afterall, a penny saved is a penny earned! Sounds like a good investment to me.


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## hangseng (27 December 2007)

Nyden said:


> Of course we can afford it! I don't think a few people have gotten the gist of this. We intend on buying a property, living in it the bare minimum to claim the FHOG, move out, rent a smaller place, declare it as an investment property (to claim interest as a tax deduction, and use payment from renters to add to paying it off), once paid off - live there.
> 
> *I'm merely sussing out the legality of it all.*




Nothing legal about it actually.

I would think as soon as you declare it as an investment you will attract undesired attention like bees to a honey pot.

Don't underestimate what I stated. It is the original intent of the purchase and you will have to prove it.


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## Nyden (27 December 2007)

hangseng said:


> Nyden said:
> 
> 
> > Of course we can afford it! I don't think a few people have gotten the gist of this. We intend on buying a property, living in it the bare minimum to claim the FHOG, move out, rent a smaller place, declare it as an investment property (to claim interest as a tax deduction, and use payment from renters to add to paying it off), once paid off - live there.
> ...




Yes, but the original *intent* will remain; to live there eventually. Just paying it off first by renting? It *will* be the primary residence, & as long as we don't own any other property; may be able to argue to that effect.


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## PennyHopeful (27 December 2007)

If you establish it as your main residence immediately and then use it as an investment property and ensure you move back into it within 6 years without owning another principle place of residence you will also not pay any CGT. This process can be repeated as long as you dont let any one period exceed 6 years. From what i can tell you dont intend to buy another PPOR so this may suit you. As always consult a professional before taking any action.


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## marklar (27 December 2007)

Nyden said:


> We intend on buying a property, living in it the bare minimum to claim the FHOG, move out, *rent a smaller place*, declare it as an investment property (to claim interest as a tax deduction, and use payment from renters to add to paying it off), once paid off - live there.



I'm struggling with the numbers on this, your rent is dead money, FHOG is $7k, I have no idea where you live but I'd have to think  $1000/month as a bare minimum, if it's anywhere convenient probably closer to 2k, you'd have to do at least 12 months to avoid suspicion, probably 24 or more, plus the bond that isn't earning any interest, is the tax deduction worth the effort & risk to get the FHOG?  You'd probably piss away $7k in moving expenses!

m.


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## Nyden (27 December 2007)

PennyHopeful said:


> If you establish it as your main residence immediately and then use it as an investment property and ensure you move back into it within 6 years without owning another principle place of residence you will also not pay any CGT. This process can be repeated as long as you dont let any one period exceed 6 years. From what i can tell you dont intend to buy another PPOR so this may suit you. As always consult a professional before taking any action.





CGT on what, sale value? I assume rent is just income, not sure what the CGT is on?

Either way, thank you PennyHopeful, that makes sense! Finally, an understanding of what I want to do


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## Nyden (27 December 2007)

marklar said:


> I'm struggling with the numbers on this, your rent is dead money, FHOG is $7k, I have no idea where you live but I'd have to think  $1000/month as a bare minimum, if it's anywhere convenient probably closer to 2k, you'd have to do at least 12 months to avoid suspicion, probably 24, plus the bond that isn't earning any interest, is the tax deduction worth the effort?
> 
> m.





That tax deduction surely is, the rent we would paying ; aka the "dead money" is far less than the rent we would be making on the house we would be buying, at least that's the theory here!

I'm just throwing around ideas here, as I said - I had an idea, wanted to suss out the legal stance. This isn't necessarily what we're going to do, we may just live in the house 

Convenience isn't really an issue at the moment; neither of us work in the city at the moment (may change very soon, though)

Many people rent whilst saving up for a house, it may be 'dead money', but at least they aren't amassing a ton of interest. Not all areas are increasing 15% a year, despite what many think there isn't need for a huge rush to get into the housing market.
 - So, I don't see how this is any different from that logic?


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## jtb (27 December 2007)

PennyHopeful said:


> If you establish it as your main residence immediately and then use it as an investment property and ensure you move back into it within 6 years without owning another principle place of residence you will also not pay any CGT. This process can be repeated as long as you dont let any one period exceed 6 years. From what i can tell you dont intend to buy another PPOR so this may suit you. As always consult a professional before taking any action.




The CGT that Penny is alluding too is if/when you come to sell the house. Obviously if you ever sell the house the period it was rented for is calculated as an investment an CGT will be payable.
It is therefore imperative that you get valuations when you move out and when you move back in.

Further to Penny's statement - if moving interstate for work is an option than the CGT free window is 8 years from memory.  

The most crucial thing to weigh up in my opinion is the devaluing effect on your property that >5 years of renters will have on it.
Secondly you would want to tie up a long lease for yourselves as you could well face being forced to move every year or two due to house sales etc.

Are you able to put your parents/in-laws in the property and move into their house perhaps? (pay rent to yourselves)


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## tech/a (27 December 2007)

> If you establish it as your main residence immediately and then use it as an investment property and ensure you move back into it within 6 years without owning another principle place of residence you will also not pay any CGT. This process can be repeated as long as you dont let any one period exceed 6 years. From what i can tell you dont intend to buy another PPOR so this may suit you. As always consult a professional before taking any action.




Important info.

I doubt you'll positively gear a property these days in most capital cities.
So you'll need to fund both the shortfall in rent---Your own Rent and possibly a few more Interest rates rises. Unless you pay a premium initially for a fixed term.



> The most crucial thing to weigh up in my opinion is the devaluing effect on your property that >5 years of renters will have on it.




Can be substantial.Last one I sold devalued $30K from a pristine similar home in the area.

One possible solution (depending on your circumstances) and careful selection of what you buy is to rent out rooms and have the *best of both worlds.*

Friend bought a close to the airport nice pad and he and his Girlfriend (She was a hostee) rented rooms to Airline Hostee on switch runs.At $60/ night (In Adelaide) did really well.
Even better I would imagine in pretty well all other capital cities.


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## Nyden (27 December 2007)

tech/a said:


> Important info.
> 
> I doubt you'll positively gear a property these days in most capital cities.
> So you'll need to fund both the shortfall in rent---Your own Rent and possibly a few more Interest rates rises. Unless you pay a premium initially for a fixed term.
> ...




Fair idea there Tech, although the idea of a "roomie" doesn't exactly overly appeal to me!

I'm absolutely clueless on real estate, so to clarify a few things - is there a CGT on selling a residential property? If so, is loan interest added to the base cost or no? As obviously I'd be "paying" more to the bank than I paid for the actual property.

One thing is for sure, the housing market is fairly tough these days for a newbie  Perhaps we should wait for a few more hikes, & reap the benefits of multiple foreclosures  Has the Aus market been hit really at all? I know areas in the US have dropped 15%. 

Heck, might even be worthwhile buying a cheap property for the time being


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## PennyHopeful (27 December 2007)

Yes. Capital Gains Tax on sale would not apply as you would qualify for the main residence exemption using the 6 year rule. If you do not establish it initially as your main residence however then apportionment would apply and you would pay partial CGT.

DYOR


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## Flying Fish (28 December 2007)

Sounds good. here is my situation. I just paid off a modest unit in a city. Can I use this place as a deposit to buy a investment property?


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## adobee (28 December 2007)

numbercruncher said:


> Ill take your word for it, Im no expert, ive read it in several places though, I alway advice people to phone the TAX office afterall thats what they are paid for, that info I posted might just be typical realestate shark stuff eh?
> 
> Its on this site as well ....
> 
> ...





I have read the ozinvest website and they too seem to be adament about it being right that you can get an investment post 2000 not live in it and get the fhog... This contradicts everything I have been told by OSR.
I will make some further enquiries in the new year when OSR re opens as this is quite an important ruling.. 

I am 90% sure that I am still correct (NSW) (Tasmania may be different) however am ready to be humbled and proved wrong by OSR.  I cant see anything on the OSR website that mentions you can own an investment prior..

What I am thinking could be possible is that the Federal gov provides the $7k and state gov wipes stamp duty.. state gov maybe wont do this if you own an investment ... 

_OSR web site says

To qualify for First Home Plus you must meet the criteria listed below:

the contract and the transfer must be for the purchase of the whole of the property

all purchasers must be ‘eligible purchasers’

at least one eligible purchaser must occupy the home as their principal place of residence for a continuous period of six months, commencing within 12 months of completion of the agreement

an ‘eligible purchaser’ is a natural person (ie not a company or trust) at least 18 years of age who has not, and whose spouse/de facto has not:

at any time owned (either solely or with some one else) residential property in Australia other than property owned solely as trustee or executor

previously received an exemption or concession under First Home Plus._


The only way reading this that I can see it would be possible to have the fhog after owning an investment is if the investment was bought in a trust or company..

*Under First Home Plus and First Home Plus One, if you are buying an existing home:

at least one of the eligible purchasers must occupy the property as their principal place of residence for a continuous period of at least six months, with that occupation starting within 12 months after completion of the agreement or transfer. *

Residency is six months (thats it!) see above from OSR website. Six months within first 12 months meets all requirements for residency.

Note I am talking about NSW .. other states may differ ..


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## adobee (28 December 2007)

Flying Fish said:


> Sounds good. here is my situation. I just paid off a modest unit in a city. Can I use this place as a deposit to buy a investment property?




Well done for paying it off!

You can however you want it so that there is still as much equity in your home as possible and as minimum in the investment property (ideally great equity in both but one amount split between to max the occupied property) as everything on the investment is tax deductable.


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## aaronmoonpropertymanagers (22 November 2018)

I've passed this one onto my cousin who holds a few of his own.


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## sptrawler (22 November 2018)

Flying Fish said:


> Sounds good. here is my situation. I just paid off a modest unit in a city. Can I use this place as a deposit to buy a investment property?



Just make sure the loan is on the investment property, with your ppr as collateral only. Sometimes they refinance both properties, then it is difficult to differentiate for tax purposes.
Another thing worth asking, is at what point will you be able to remove the caveat on your unit, then the investment property becomes a stand alone loan.
Which allows you to use the unit, as collateral for a further purchase, if you wish to.

Just my thoughts, but it is essential you set everything up correctly, the ATO aren't very forgiving.
One of the accountants on the forum, may be able to give you a more accurate description of the proceedure.


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## WCaswell93 (28 October 2021)

What about if you have no intention of having kids? In that situation, is it worth buying an investment property, or do you think that when you reach retirement age there will be no real need for all that extra passive income, because you're too lonely and depressed to enjoy it?


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## tech/a (28 October 2021)

CGT is tax on the Capital appreciation of the property from Purchase to the futures sales price 
buy at 1 million sell at 1.5 million CGT on $500 k

get it!


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## Value Collector (29 October 2021)

tech/a said:


> CGT is tax on the Capital appreciation of the property from Purchase to the futures sales price
> buy at 1 million sell at 1.5 million CGT on $500 k
> 
> get it!



Mostly correct.

CGT is the tax on the difference between your “Cost Base” and your final sales price, your “Cost Base” begins at your purchase price, but will rise when you make capital investments into the property and fall as you claim depreciation.

for example, if you purchase the property for $1M, but over 10 years you claim $100k as depreciation charges as the building wears out, it will reduce your cost base by $100k.

which means you will pay capital gains tax of the difference between $900k and the sales price of $1.5 eg capital gain of $600k.

the reverse is true if you spend $100k improving the property, it will increase your cost base.


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## Value Collector (29 October 2021)

WCaswell93 said:


> What about if you have no intention of having kids? In that situation, is it worth buying an investment property, or do you think that when you reach retirement age there will be no real need for all that extra passive income, because you're too lonely and depressed to enjoy it?




You will need the passive income to fund all the travel and other perks you get to enjoy as a childless couple.


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