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Is it worth it?

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Leen McLan | 14 Jan 2013, 06:27 PM Agree 0
Hello

Looking at purchasing a second property, however I wish to live in this and rent my firsthome which is in a high end suburb of Perth and will return higher rent that mortage.

Is this feasible and can i make it work for tax purposes?
  • Eos Property | 14 Jan 2013, 08:37 PM Agree 0
    The plan is very feasible but you need to lose the focus on tax savings.

    Based on what you have said the rent from the property will cover your outgoings (rates, repairs, property management fees too?) and this puts you in a healthy situation. You will be holding a high quality asset in a good location without using any of your money.

    However - you will need to dig a little deeper. How do you intent to finance your new home?

    If the intent is to use some of your equity in your existing property to buy the new home be aware that these new borrowings will not be tax deductible. The ATO considers why you borrowed the money as being the main factor in determining whether or not a loan is deductible. In your case the new borrowings are for a new home and therefore the sum borrowed will not be deductible.

    Aligned with this you may wish to consider switching your existing loan to an interest only facility if it isn't already interest only. You should also look at getting a depreciation report done to maximise your tax deductions on your existing property. Using a PAYG tax variation form will also assist with your cashflow.

    Finally you will need to establish a valuation on your existing property when you move out. As this property will become an investment it will start to incur CGT when you move out (unless you do not buy another PPOR). Speak to your accountant about this.

    Hope this helps.
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