Rentvesting or PPOR in My Situation?

mariahwerk on 05/02/2024 - 12:09

I am juggling between the two options and would love to have some insight from money savvy people here.

My before tax income is around 100k. I want to borrow around 400k (my max is about 480k). I have 350k deposit saved up (including first home super saver).

I am in Sydney and can afford a 2-bed apartment in areas like Homebush/Meadowbank etc. I don't plan on having children so the need for a bigger space isn't for me.

Option 1: Buy an apartment with relatively low strata and live in. Repayment will be higher than current rent but affordable. Can have pets, decorate my place, not worry about being kicked out. If I want to turn this into IP in the future, good rental yields (750-800 per week). Cons: everyone says apartment is depreciating and not worthy. Little chance of asset growth.

Option 2: Buy a house far away from CBD e.g., Leppington, Marsden Park, live in for 6 months and then rent it out for 6 years. Rent in Homebush. Cons: From my research, the current rental yield for houses in these areas is 3-4% before any RE fees. Will likely be negatively geared but my income isn't high enough to enjoy the tax savings as much. Would rather be positively geared so I can invest in shares etc.

From AusFinance and here everyone seems to be saying buy where you afford and rent where you want, and wait for CGT etc. But due to work I can't rentvest regionally where growth is more promising (Perth, Brisbane etc) (to live in 6 months) or I have to forgo my FHB benefits. What makes more sense in my situation?
TIA

Financial

Comments

  • rambutann on 05/02/2024 - 12:19

    Firstly, congrats on saving that deposit!

    It all depends on what you want in life.
    Do you want stability or do you want to potentially make some money but have to deal with the stresses associated with both being a landlord and renting a property?

    There's a trade-off in both directions, it really depends on your personal lifestyle.
    I have had investment properties before, but sold them due to the stress associated with it + its more challenging to buy a PPOR when you have investment properties.

    I would personally pick buying an apartment for myself, but that's because i'd rather not deal with the stress and I already live well within my means - in my world the additional stress is not worth the potential upside as it wont significantly benefit my life.

    BUT if you have not had bad experiences renting, and you have enough mental capacity to deal with an investment property then give it a crack.
    There's a chance that you'll have zero stress with an investment property, there's a chance that you'll be put through hell.

    • freefall101 on 05/02/2024 - 12:58
      +2

      We need to start a TV show off this. I have an income of $100k as an underwater hamster trainer, I've have $30k in savings, $3.9m in crypto (wait, sorry, it just dropped to $200k) and I want to buy a house, a rental and live in a boat in international waters. Help me, OzBargain!

      • geekcohen on 05/02/2024 - 13:39

        Called "Oz Tank"…… like "Shark Tank".

  • netjock on 05/02/2024 - 13:18

    If you need to ask here it means you have misunderstood everything you have read.

    There is so many variable in this.

    Buying apartment: repayments greater than rent. But don't forget there is an element of capital paid back over time and it gets larger with each payment

    Rentvesting: you have to continue paying for rent. The IP you get rent but how much is your interest deductions and how much does rent cover. Don't forget you might be claiming $10k a year in interest on your $100k income (at say 30% tax rate), after 10 years it might double and you have a $300k capital gain. After 50% discount it is $150k taxable but your salary might be $150k and you'll be paying $100k at 45% plus you got a surcharge on your super contributions when making over $250k a year.

    Some people would call me stupid because they have really good mental maths but I'd suggest you work it out on a spreadsheet because individual circumstances differ. How much you are claiming and when you want to exit is also important.

    • mariahwerk on 06/02/2024 - 19:32

      There's quite a few limitations to my scenario, as I can't buy regionally (without forgoing my FHB benefits); can only lease it out for 6 years without CGT exemption being impacted; Sydney is already quite saturated (I don't think Leppington/Rouse Hill etc will make massive jump in prices as much as 5-6 years ago); I rather not have to deal with move in/out, managing a property, finding a rental (which is probably not a good one considering the current shortage) etc.

  • capslock on 05/02/2024 - 14:32

    If the real estate market behaves in the future in the same way that it has in the past 10 years then option 2 is better.

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