Ok at the moment I'm deciding whether to buy a first home to live in or as an investment. My end goal would of course be to achieve neutral/positive gearing after a few years, in which time I could possibly use it as equity to get my dream home.
Before anything else it might be important to mention that I'm single and 26yo, working in a stable job in the Sydney CBD, so yes it'll be a single income paying for my loan(s).
Here are the 2 plans I have. Let me know which one you think is best.
Plan A:
- Buy a 2-br unit as a first time home buyer (owner occupied)
- Receive $7000 from the government
- No investment property tax benefits on expenses/interest
- Live in one room and rent out the other room; calculated it to be 35-40% of my monthly loan repayments
Plan B:
- Buy the same 2-br unit as a property investment
- Would not receive $7000 from government
- Get all tax benefits on expenses/interest
- Rent out the whole unit; calculated it to be 75-80% of my monthly loan repayments
Fast forward 5 years, assuming that's how long it takes for negative gearing to become neutral/positive. Which of the two paths would save me more money? With Plan A I get $7000 and receive 35-40% of my repayments from renting out the other room. Would that scenario save me more money than Plan B?
I'm thinking Plan A might be a better choice. Let me know if anyone here has been on the same dilemma.
The big question is, are you paying rent now?
If you ar able to live rent free (parents etc) then there's no benefit to you actually living in the unit - you may as well obtain that income.
However, it does take a lot of rent to outweight the $7K homeowner grant, so it might be worth considering living in it for 12 months, then rentng it out - get the best of both worlds then.
If you are paying rent somewhere now, you will need to weigh up what you would receive from this investment (incl all the tax benefits) and compare them to your current rental costs.
If you are paying cheap rent, and you're happy to stay there, then rent out the unit. But if you are renting somewhere and that rent amount is more than the rent you'll get from tenants (less the tax advantages) then it would be better to move in.
Unfortunately only you know your income, mortgage amount, rental income etc - we can't really help you much without figures to work off.
If you are worried, it might be worth speaking to a qualified financial planner.
I did Plan A as a single female 22yo and it worked pretty well for me.
I negative geared it at tax time for some extra savings
I bought in 2004 and sold in March 2007. I didn't make a profit when I sold so I didn't have to pay any capital gains (actually, I made a little loss, will be handy for the future)
All that time I had somewhere to live, didn't pay rent, paid heaps off my mortgage.
Now I'm onto my 2nd property, a block of land I'm going to build a house on.
Go for it!
PS My unit was in Manly Vale, top place to live and buy
Of course you live in it...
Tax rulings allow you to take in Borders (Not renters) and you dont need to declare their income.
You wont pay Capital gains tax either if the property is your primary place of residence.
look up this info for yourself though dont trust your financial future to anyoone even qualified individuals.
BoomerJ