Bought a house - rent it or live in it

Bought a 2nd house - rent it? or move in to it?

Hi all

Just bought a second house this week, with settlement in 30 days!

The original plan was to move in to house #2 and rent out house #1.

My questions/thoughts:
If we instead stay in house 1 and rent out house 2.. We will get more weekly rent for house 2 as it is 3 bedroom and a lot bigger (same suburb).

House 2 needs a few things:
A dishwasher installed, new deck, paint inside, rip up carpet, polish floorboards, new curtains..
Could I claim all/some of these things as tax deductions while it is rented?

House 1, as we have been living in it, has nothing left to do on it.

A rough calculation would suggest that we would be around $70 a week better off by staying in house 1 and renting house 2 (just by going on loan repayments and rental income) obviously there are expenses associated with it too.

The main reason of wanting to live in house 2 is because it's bigger and a new project for us! However, if it makes more sense to rent it out for a year or so, perhaps that is a better approach first?

 

House 2

So basically house 2 is an expensive investment property (purchase price ~$700k) until we decide to move into it.

We can afford to service the loan either way..

Thoughts/advice appreciated. Thankyou

 

Rent it out

Hi,
It sounds as if you are managing very well financially and the negative gearing is not breaking the bank.

I would rent out house No 2, and fix/replace/paint as much as you can while renting it out, as everything you spend in a property that you rent out can be factored into your tax deduction claim at the end of the financial year.

Make sure you have a list of depreciation done by a qualified company - they will list all the depreciable items: building and contents, then your accountant would look at how much you can claim year by year. It's really worthwhile doing this.

Cheers

 

Tom,
You need to take care on #2 re initial repairs, replacements, improvements etc. These could be regarded as a capital expense rather than a repair and maintenance issue which some of these type of costs could be after the IP has been rented for a period.

Without knowing or seeing numbers, I cannot comment as to which is a better financial option. It sounds as if you purchased #2 with a view to live in, so unless you have a compelling reason not to, why wouldn't you?

Greg

 

Consider the CGT aspects as well. IP2 will never be totally CGT free.

 

Thanks for the responses all!

Have decided to move into House 2 and rent House 1.. Will see how it goes for the next couple of years/tax returns

 

RE: CGT - its always hard to decide which one will be better kept as our PPOR, as we will be able to claim House 1 as our PPOR for the next 6 years, whilst living in House 2. However, during this time, House 2 would be subject to CGT for the years that it is not a PPOR.. How do people go about deciding which one to make PPOR?

 

The decision only has to be made in the year of the sale, depending on a few things...

 

Sounds like you're comfortable with your decision. Also sounds like you purchased #2 with the intention of living in it so good to see that you've backed yourself.

 

- All sorted now. Living in #2. Revalued, bought wife's share, refinanced #1 and rented it out. All going well. Cheers

 

Great! Thanks for keeping us updated!

 

How did you buy your wife's share?