Why Not Buy Two? One to Live In and One to Rent Out

BUYING a home to live in and an investment property at the same time can be an effective way of leveraging equity, and getting a tax benefit at the same time.

Aussie broker Lindsay Rogers has a wealth of experience in the industry, and while first and foremost he recommends seeking any tax advice from an accountant, he says this tactic can be beneficial.

“Most accountants would advise that interest on the investment property is tax deductable whereas interest on an owner occupied property isn’t, and as a result the owner occupied property loan would be Principal & Interest while the investment property loan would be interest only,” he said.

“The idea is to reduce the non tax effective debt (the owner occupied property loan) and keep the tax effective debt (investment property debt) at a maximum.”

Mr Rogers recently helped clients of his in precisely the same scenario, after they netted $220,000 from the sale of their home.

“They decided that they wanted to purchase a new home and an investment property to help build their wealth for their retirement,” he said.

“After meeting with them and discussing their goals I worked out some figures and suggested that they could purchase a new home for $600,000.

“They needed to keep $26,000 for their cost (stamp duty, transfer fees and legal representative fees) of purchasing their owner occupied property and $194,000 was to be used as a deposit for an owner occupied loan of $406,000.

“The investment loan would be $312,000 to purchase an investment property for $300,000 and the $12,000 covered the stamp duty, transfer fees and legal representative fees.

Mr Rogers said the main benefit of the scenario was by purchasing together or purchasing an investment property when you already have an owner occupied property gives you an advantage of leveraging equity in the owner occupied property to borrow the full purchase price of the investment and costs and maximise the tax effectiveness.”

“Again, I would urge anyone thinking about it to get any tax advice from their accountant.”