22 May 2014
Get $35,000 Tax Free!
How would you like up to $35,240 tax free? This is possible if you are a First Home Buyer and purchase an off the plan or new property under $550,000.
The $35,240 is made up of 2 parts being:
a) Stamp Duty saving of $20,240 and
b) $15,000 First Home Owners Grant which is a tax free payment by the NSW State Government on settlement.
While you may be thinking about buying your first home in your ideal location, you may wish to change your strategy to take advantage of these Government grants by looking further afield in NSW to buy a property under $550,000. This can be converted into an investment after 6 months of ownership and have the tenant help pay off your mortgage. This strategy is used by many First Home Buyers to get into the rising Sydney market, while still living where they want to.
The important part of this strategy is to understand the numbers and think outside of the box. The grants on offer are the most generous they have been and do not apply if you purchase an existing property. If you decide this is the right strategy it’s important to make the decision based on the numbers & benefits and leave the emotion out of it.
For example, if you were to buy an off the plan apartment for $450,000 in Western Sydney, you would need a 10% deposit ($45,000) today to secure the apartment. The development would usually take 18-24months to complete and by the time it settled you should have saved at least another 5% ($22,500) giving you a 15% deposit. By taking an interest only mortgage for $382,500 at 6% would make your interest payments only $441/week. You would live in the property for 6 months and then turn it into an investment renting out the property for a minimum of $450 per week. You would be entitled to the associated tax benefits once it’s an investment (all expenses are tax deductible – including the interest on the loan) and as it’s a new property, there would be depreciation on the property (approx $10,000 in the first year) which can help to turn your investment into a cash flow positive one (after tax) from day one!
As the property is most likely going to be cash flow positive (or at least neutral), you can continue to live at home or rent where you ideally like to live while still enjoying the growth in equity as the property market rises.
The above strategy is widely used by many First Home Buyers once they understand the numbers and the benefits and adopting this strategy can also help you build a portfolio faster over time which can contribute to a growing equity base as well as passive income in the years to come.
If you are not a First Home Buyer and are looking to investment in an off the plan property, you are eligible for a $5,000 Stamp Duty Grant from the NSW State Government for new properties up to $650,000.
Mark is the Founder and CEO of iBuyNew.
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