We are looking at maybe buying another property. Ideally we would rather rent that one out but the banks have said they will lend the money as long as we live in that house and rent out the one we are in.
Im wondering what the benefits are in having a rental. How exactly does it benefit at tax time. What do we need to be careful of Etc.. We will be going shares with mil as she is already on the existing loan and without her income we wouldn't stand a chance on paper. It's a means to an end and one we have been doing reasonably OK with so far (even if it has been testing at times and I have done my fair share of complaining about).
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02-08-2015 18:01 #1
Tell me about investment properties.
02-08-2015 21:20 #2
I dont really understand why the bank would require you to rent out your current property and live in the new one?
From a tax point of view that isnt the ideal scenario. You can only claim a tax deduction for interest if the purpose of the loan was for investment purposes. So you wont be able to claim the interest for the new property as it will be for you to live in, and you wont be able to claim for your current property as the purpose of the loan was for a home.
It is pedantic, but the ATO are very strict on it, and if you get audited, they will disallow your interest for this reason.
For tax purposes, you are always better paying down as much as possible on your home loan, and borrowing 100% of the investment property ... but the purpose of the loan when you borrow the money MUST be for you to buy an investment property.
As far as going with MIL ... as long as that is viable and the relationship is good, its all fine. I would put in writing an agreement as things can go awry and its not until then that you need it ...
look carefully at the market in the area you want to buy. Do your research .. go to the council or real estate association in your state and buy the list of sales in that area (dont just go off what the property was advertised for) - and carefully assess the facilities and benefits of the area. Make sure the house is sound and doesnt need too much work.
02-08-2015 22:18 #3
02-08-2015 22:20 #4
And we have done our own value of the house as it is just a few streets away from where we are. It's a good deal value wise, as for checking the soundness that is a given. We have those qualified people in the family.
02-08-2015 22:28 #5
redoing the loan etc is fine, but it still doesnt change the fact that the purpose of the new loan is to buy a house that you will live in. Its not to buy an investment property.
its good if you have people in the family who can help with housing stuff. Means you can buy something with some work to do and do it to increase the value of the property.
But property is a long term investment. Flipping stuff isnt so easy these days, as stamp duty makes it pretty unviable most of the time.
02-08-2015 22:51 #6
I'm only assuming the banks will lend $$ on existing being rental as the yield maybe better or you can get more rent?
I agree though from a tax point of view it's better to buy a new property as an investment
02-08-2015 23:05 #7
That's definitely food for thought. Thanks.
I have always wanted to have an investment house for long term gain. This house just popped up and seemed like a good opportunity to enter into that world. It's the bank (according to mil) that is putting those terms on it. Dp is going to talk to them himself tomorrow I think.
Without going into it too much is all based on a rough 5 year goal plan to break free of joint loans with mil.
02-08-2015 23:35 #8
@BH-KatiesMum have you got a link or something I could use to show mil? She can be trusting of the wrong people (banks in this case) and take advice that isn't necessarily beneficial to her (or us).
The advice of buying for investment vs tax makes sense and that is sort of what I had already thought. That you buy fresh to rent out. The reasons for that were different to what i thought though.
I will be suggesting we talk to an accountant for sure now and not let her assume the banks know best for us.
I will be getting dp to ask the bank some specific questions now. Are there any other things we should be asking? Nothing is official yet. It's all just in the "let's see if it's possible and beneficial" stage ATM.
02-08-2015 23:39 #9
03-08-2015 06:36 #10
Tell me about investment properties.
Oops posting randomly. Ignore me!
Last edited by mummymaybe; 03-08-2015 at 07:55.
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