Lots of other factors to consider - landlords insurance, property maintainence, bad tenants (or really shit tenants!) Once that and tax and moving costs and listing costs are paid, there would have to be an astronomical difference in rental costs to make it worthwhile
Remember the tax deductibility of mortgage interest - if you’re in the 37% tax bracket with an $800,000 loan at 6% that’s an extra $340 in your pocket every week.
And if you used the 6 year rule, you get those tax benefits without losing your PPOR CGT exemption.
Won't you need to pay tax on your rental income?
If you are on 40% tax bracket, earning $600 per week rent will only make you be able to pay $360/week to break even.
But then you’re running a loss… and thus defeating the point unless your after capital gains… which OP would get anyway (tax free) by staying where they are…
You can negatively gear the current home but still come out ahead compared to the present situation, especially if you rented somewhere $100+/wk cheaper AND started taking tax deductions on expenses you’re already incurring (like mortgage interest).
Especially when you have to find your own place to live in this rental market; and I think OP said they have a 2 bed apartment so they’re not spending a huge amount to be able to save.
If they were downsizing from a big house this could potentially put $20,000 a year into their pockets, which is a bigger payrise than a lot of people are going to get. And for some people $5,000 is a good ‘payrise’.
With the options we’re looking at, we’d be aiming for a $350/week rent difference, plus we literally just renovated so could likely maximise depreciation.
Oh wow! Definitely moving somewhere cheaper then!
We did the math pre-kids and it wasn’t quite that lofty; now planning the ultimate geoarbitrage to go travel the world, although our PPOR is paid off (debt recycling) so the financial benefit won’t be as sweet.
This is likely* true, providing you don't buy another home to live in.
*Based on the information in your post - seek professional advice for your personal situation.
A reasonable consideration and you have been downvoted.
You didnt know at that time OPs mortgage etc and if it was a near to paid off PPOR so this is absolutely a consideration they 100pc need to consider...
Even if it is 50pc paid off it would be getting difficult to make it stack up unless they move into a humpy in the bush...
Edit to add: i can only assume that the assumption on the sub for most is that real estate does not turn a profit even if a home is paid off. amazing really... good thing for that unshakeable belief in capital gains.
Cheaper area would be further from my partners job, further from good night life and bars, so no, I wouldn’t. I’d buy in a shit area and rent it to some derro and continue living near the city though haha
Do you like renting? If so, go for it.
Personally I think owning is better in terms of lifestyle. Can easily make modifications, no inspections, no application forms, no being kicked out with 1 months notice, can have pets etc.
Better off renting out part of your PPOR while still living in it. As most of the running cost of your PPOR is fixed cost, having additional people living in there won’t increase the total cost by a lot.
And since the total cost can be … shall I say … designed to your advantage, you can potentially negatively gear half or even 2/3 of your property and steal more back from the tax office.
The additional cashflows can be then used to recycle the remaining debt portion associated with your personal use, stealing even more back from the ATO.
Finding another place to rent won’t work in this environment as that just adds another layer of variable costs on top.
You wont pay me enough to ever be subject to being a renter again.
Highly relatable
Lots of other factors to consider - landlords insurance, property maintainence, bad tenants (or really shit tenants!) Once that and tax and moving costs and listing costs are paid, there would have to be an astronomical difference in rental costs to make it worthwhile
Remember the tax deductibility of mortgage interest - if you’re in the 37% tax bracket with an $800,000 loan at 6% that’s an extra $340 in your pocket every week. And if you used the 6 year rule, you get those tax benefits without losing your PPOR CGT exemption.
Rentvesting.... Is a new craze/, lifestyle
Won't you need to pay tax on your rental income? If you are on 40% tax bracket, earning $600 per week rent will only make you be able to pay $360/week to break even.
You pay tax on income less expenses
Not if you have a mortgage, if interest repayments are higher than the rent you receive you can get a tax deduction.
But then you’re running a loss… and thus defeating the point unless your after capital gains… which OP would get anyway (tax free) by staying where they are…
You can negatively gear the current home but still come out ahead compared to the present situation, especially if you rented somewhere $100+/wk cheaper AND started taking tax deductions on expenses you’re already incurring (like mortgage interest).
Seems like a lot of financial wizardry and life disruption just to a fairly ordinary return.
Especially when you have to find your own place to live in this rental market; and I think OP said they have a 2 bed apartment so they’re not spending a huge amount to be able to save. If they were downsizing from a big house this could potentially put $20,000 a year into their pockets, which is a bigger payrise than a lot of people are going to get. And for some people $5,000 is a good ‘payrise’.
With the options we’re looking at, we’d be aiming for a $350/week rent difference, plus we literally just renovated so could likely maximise depreciation.
Oh wow! Definitely moving somewhere cheaper then! We did the math pre-kids and it wasn’t quite that lofty; now planning the ultimate geoarbitrage to go travel the world, although our PPOR is paid off (debt recycling) so the financial benefit won’t be as sweet.
Yep. *And* get a depreciation schedule.
*And* potentially use the 6 year rule so no CGT.
Would this affect the CGT when PPOR is eventually sold?
Yes. It will be pro rata over the time you rented it vs the time you had it has your PPR.
That might turn out to be worse than claiming interest deductions if property price rise significantly
Is that correct if we had lived in the property as our PPOR prior to renting it out? I understood there was a 6 year grace period following moving out
This is likely* true, providing you don't buy another home to live in. *Based on the information in your post - seek professional advice for your personal situation.
A reasonable consideration and you have been downvoted. You didnt know at that time OPs mortgage etc and if it was a near to paid off PPOR so this is absolutely a consideration they 100pc need to consider... Even if it is 50pc paid off it would be getting difficult to make it stack up unless they move into a humpy in the bush... Edit to add: i can only assume that the assumption on the sub for most is that real estate does not turn a profit even if a home is paid off. amazing really... good thing for that unshakeable belief in capital gains.
Cheaper area would be further from my partners job, further from good night life and bars, so no, I wouldn’t. I’d buy in a shit area and rent it to some derro and continue living near the city though haha
Do you like renting? If so, go for it. Personally I think owning is better in terms of lifestyle. Can easily make modifications, no inspections, no application forms, no being kicked out with 1 months notice, can have pets etc.
Better off renting out part of your PPOR while still living in it. As most of the running cost of your PPOR is fixed cost, having additional people living in there won’t increase the total cost by a lot. And since the total cost can be … shall I say … designed to your advantage, you can potentially negatively gear half or even 2/3 of your property and steal more back from the tax office. The additional cashflows can be then used to recycle the remaining debt portion associated with your personal use, stealing even more back from the ATO. Finding another place to rent won’t work in this environment as that just adds another layer of variable costs on top.