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  1. #1
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    Default Tell me about keeping your first home and renting it out, and buying something bigger

    Hi Ladies,

    DH and I are considering our options when I return to full time work in the new year. We have a small villa style house (similar to townhouse) and believe it would be a great opportunity to hold onto it and rent it out and buy something bigger. I am just not sure of the logistics with all of this and pretty clueless with mortage type stuff.

    What is equity? Is that the actual money that you have between what you own and what the house will sell/value at?

    Do we need to save a whole new deposit for the next house or is there another way to leverage off our first homeloan?

    What other costs are involved with renting out a property? (I can think of rental insurance, real estate fees to look after the renting?, maintenance, council rates)

    As this is considered income, does it affect your child care benefits?

    Any advice is greatly appreciated .

  2. #2
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    An accountant can help.
    You remortgage the rental property for a bigger number and then use the money from this as a deposit for your new home. The larger the debt on the rental property the better, so you can make a tax loss year after year on the rental property: negative gearing.
    Warning: the tax man may treat your rental property as a loss making venture, but Centrelink no longer does, from what I can tell. You'll have to treat the rent as income: check with Centrelink, they'll tell you.
    You need the accountant to help with your cash flow- that's the only other problem with negative gearing.

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    Oh yes: equity is the difference between the current value of your home, and the amount you owe on the mortgage.

    Also, if you take out a large new debt on the townhouse, your mortgage provider will want mortgage insurance (often thousands) to protect THEM in case you default.

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    Default Capital gains tax

    And the with the townhouse being a rental, if you ever sell it, it will be subject to capital gains tax, unlike your family home.

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    When we bought a 2nd house we didn't need to refinance for a deposit the bank just used the equity from the 1st house kind of like a guarantor I guess

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    Default Tell me about keeping your first home and renting it out, and buying something bigger

    We have looked at doing this, but by the time we pay interest on both mortgages I don't see how we are 'ahead' financially. Yes we will own 2 homes eventually, but what we eventually sell them for will prob never cover loan PLUS interest on loan!

    You will have real estate fees, including taking the first 1-2 weeks rent, ongoing monthly fees which includes 8% of your rental income, re-letting fees (even if tenant breaks lease early), they will organise maintenance on ur behalf and sometimes bump up the charge by 10-20% to make their cut, advertising fees, start and end of lease inspection fees and surely some more that I've forgotten since looking into it.

    Yes the rental income is taken into account for CCB and FTB and so are the assets (of both homes) for other govt assistance payments.

    Yes you can redraw on your existing loan for the deposit for 2nd house but will pay lenders mortgage insurance if borrowing 80 or more% of the home value (according to the banks valuation). The LMI is a once off fee paid at settlement, calculated on size of borrowings and your own deposit.

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    Default Tell me about keeping your first home and renting it out, and buying something bigger

    The owner of the rental also pays the water bills.

  8. #8
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    thanks for the replies so far!

    Bressar - so had you paid much/a lot off your first homeloan to be in that position?

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    Quote Originally Posted by really old View Post
    And the with the townhouse being a rental, if you ever sell it, it will be subject to capital gains tax, unlike your family home.
    I was under the impression so long as you lived in the rental for more then 12mths at some point in the life of owning it you no longer had to pay capitol gains tax once sold.....I may have misunderstood this though

    sent from my happy place while I steal 5min for myself

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    We did this - kept our duplex and used the equity to purchase our current home. We rented our duplex out and recently lost over 50k selling it. So in view of current real estate climate I wouldn't recommend it. We were hoping the sale of our duplex would allow a more comfortable (and longer) maternity leave for me. Unfortunately the drop in value of both properties meant that all the money from the sale of the duplex had to go into our house mortgage. We are still financially better off with one property, as just keeping the second property was costing about 6k a year.
    So look very closely into all the costs of having an "investment" property - insurance, real estate fees, rates, loan interest etc".....


 

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