By Elizabeth Kerr
This week I won’t make much sense to you if you didn’t read last week’s column about rent-to-buy property investment and ownership. This week’s column is divided into three sections.
These are as follows: 1. The Investor Landlord (IL). 2. The Tenant Buyer (TB). 3. The House.
Investor Landlord:
Why would I invest in Property this way?
The most common question is by far why would you even bother when you could just buy a property and have it rented the traditional way?
The answer is nearly always ‘cash flow’ and could also be any or all of the below:
- You can’t support a negatively geared property by topping up the rental payments to pay for the mortgage from your own income.
- You need the positive cash flow to balance out another property investment that is negatively geared (but well positioned for rental or capital gains in the future).
- You are a bit philanthropic and want to feel like you are using your wealth to the betterment of your community, or
- You would like to create a money machine without having to put any money down physically yourself, or
- You will use the proceeds to pay off your own personal home mortgage quicker.
- You want to grow your property portfolio and supporting negatively geared properties is too risky for you.
- You want to help your kids/grandkids into a home and have a contract in place to support the arrangement, which also outlines when/how you will get the money back again.
I’m sure you might think of others but those 7 should cover the majority of situations.
Tax
Some investors will argue that the house was brought with the “option” for a TB to purchase, not the “intention”.
Those waters are muddy but in my opinion, at the time of purchasing the property the IL obviously does have every intention of selling it to the TB, therefore would be expected to pay tax on the sale profits.
The rental credits are probably going to be taxed at the time of receipt as rental income and the expenses are deductible as per a normal investment.
How much tax you have to pay is really dependent on how your investment is owned and how that ownership entity is structured.
The team at GRA have provided accountancy advice for these types of investments, so, if you have any questions I encourage you to use an accountant who is at least familiar with how the arrangement works.