My partner and I have low rent to pay for at least the next 3-5 years and want to buy an investment property to take advantage of all the extra money we can put into it. Its my understanding the banks aren't really fussed if you choose owner occupier, and this seems to be in our favour as the interest rate is lower.
Can we still claim various investment expenses come tax time etc despite picking owner occupier? Are there any downsides?
Probably should ask your bank that, not Ozbargain.
They might not mind if you move out and keep the same loan without telling them, but I wouldn’t lie upfront about it.
That was one of the factors as one of the ideas was to move in to the place in the future if buying a second place wasn't practical.
No the banks will just refer to the consensus on Australia’s foremost bargains sharing community
No it's not true. Those ozbargainers are taking a risk. More than likely some ozbargainers converted their owner occupied property into a rental and just never told the banks.
Ah ok I will just ask the bank if its easy to convert in the future.
@samfisher5986: It's very easy to convert if you decide to make it your PPOR in the future. Also, if you do this, get advice from an accountant as there may be tax implications if ever you decide to sell that property.
I'm not sure why you've been downvoted so hard.
Integrity isn't cool these days, I wouldn't be surprised if lots of people do this kind of thing. No one cares about doing the wrong thing as long as it helps them get ahead and this happens at all levels of society.
Some of us still value integrity
Biggest downside would be fraud.
Biggest upside will be bragging about it on OzBargain if you don't get caught.
Yeah but whats a bit of fraud on a credit application between two friends
/s
Owner occupier only affects the bank end, not the ATO end. ATO isn't going to go looking to see what type of loan you are on to ensure the correct interest has been paid for to the bank.
While owner occupier will have lower rates, it tends to also include principal repayments so you're outgoings are higher than an interest only loan. Only the interest component is deductible.
This is correct, the bank does not care whichever you use the property for as long as you can pay the repayment. The differences only matter in the calculation of your borrowing capacity.
And what matters for ATO is that if you have a type of income, then you can deduct any expense related to that income. Your home loan type means nothing.
Why would the bank not care? Dont they charge higher rates on investments and therefore make more money? My assumption would be that they assume investments are making money via rents or leasing and therefore see that as a reason for a cut of the pie. I think the banks very much want to know if its an investment based on that alone. Otherwise why would there be investment rates in the first place?
I hear the ATO and OzBargain match data these days. So expect a tax audit of your post history when you submit your tax return.
My bank (NAB) somwhow found out I had moved out of my house and turned it into an investment and then made me change loans to a lot less desirable interest rate :( No penalties other than that though.
Never heard of that happening before. How did NAB find out? I dont believe they actively track this once the loan is final.
No idea how they found out but they did - I certainly didn't tell them. There must be some mechanism in place where they can discover this though to crack down on exactly this kind of thing.
When you moved did you change your address or did you continue receiving mail at your house?
They've probably put in processes to investigate people doing this to improve revenue. Maybe they have access to ATO data which would have other data about you and they'd do some address matching stuff to check.
Did you also have a Citibank account?
Jesus christ what a question, I look forward to your follow-up posts about having to battle with the bank's legal team because you 'followed advice some bro posted on Ozbargain'
Funny enough my bank told me to do an Owner Occupied loan for less interest on an investment property.
Tell the bank that you will live in the property as an owner occupier. After settlement, you just happen to go through an unexpected life event and have decided to rent out the property instead. You forget to tell the bank about your new plans.
big brain play. right up there with "go into the shop and put something in your pocket. forget it's in there and walk out"
I mean what are they going to do right, you forgot, prove I did it on purpose mate I forgot you got nothing on me prove I forgot you can't right that means I'm not in trouble because forgot happens by accident and you can't prove I didn't forget okay officer just don't put the cuffs on in front of everyone please I'm being quiet not in front of my family please
Do not lie upfront
Do not, not lie after settlement
I'm sure this will end well.
https://www.canstar.com.au/home-loans/renting-owner-occupied…
It's not illegal so you won't go to jail, but it is against T&C's so you might pay penalties. Now if still wanted to do it, there are 2 ways you can do this.
Buy the property as an investment property, you pay investment property stamp duty (higher than PPOR stamp duty), you can rent out property right away.
After a month, tell the bank you changed you mind and you will be moving in and they convert the loan to OO. You continue to rent out property, the ATO doesn't speak to the bank.
Buy the property as PPOR. You pay PPOR stamp duty, you have to wait 6 months before renting it out because the QRO does speak to the ATO. You pay OO rates on the loan. After 6 months, rent out the house, don't tell the bank you've rented it out and continue to pay OO rates.
So here's the reality from a lender's/borrower's perspective (I'm not getting into the stamp duty and other government taxes/benefits side of this).
If you go for an OO loan, you may be able to get a lower interest rate (for reasons that go beyond this conversation).
Understand though, that you won't be able to declare any potential rental income in your serviceability assessment and that may reduce the overall amount you can borrow. This may or may not be important in your equation.
Once everything is settled, realistically the bank is not going to care so long as you meet your repayments.
The ATO will only care that you are declaring all rental income received to substantiate the interest deductions you are claiming.
OP what happens with home insurance if you are not going to be the person living at the property. You need to be very careful with all the terms and conditions.
The govt tracks you after settlement to make sure you paid the right amount of stamp duty. That’s probably how the bank finds out. Everything is getting more traceable and digital ID and cashless society will only make this worse. Give up your freedoms to big brother at your peril.
You can borrow more on an investment property as they count a portion of the rent as income to service the loan.
Do make sure you move in before tenanting out if this is your only property. This is essential.
Can you explain this more please.
So you are going to tell fibs on your finance application?