A bit annoyed by all these regulations that make it harder for an investor to buy a house than a non-investor with the same means. The government shouldn't be differentiating between the two categories, i my view.
What regulations are you referring to?
I was wondering the same thing. Typically, the difference is that a non-owner occ pays a higher interest rate and buys different insurance.
IMO, the wiser move for MikeBT (or anyone) is to secure the long, low interest mortgage while he lives in the house, convert it to a rental, then lather, rinse repeat, clinging to those low, fixed rates until the day they expire. This is called using leverage to create wealth. It's also an excellent hedge against inflation.
Hello, yes, here in Australia there are some strange strange rules.
Investment property used to have very favourable tax treatment. Specifically, whereas residential mortgage interest is not deductible (as it's not connected to an income-producing asset), investment mortgage interest is deductible against all other income.
Now the favourable treatment is no more, for several reasons:
1. The bank regulator (APRA) was specifically told to enforce quotas on investor lending on banks. I have no idea why this was done; to me, it seems incredibly punitive for those trying to shore up a retirement. Yes, first home owners wanted to buy a residential house and complained that they couldn't get into the market but they also had a variety of concessions and aids (like a first home owner's grant) and this move by APRA seemed to me to be pure populism.
2. The government has clamped down on deductions for investment properties. There is likely to be a left-wing government installed in May and that will limit interest deductions. Depreciation on plant has already been limited.
3. My state government is heavily reliant on land tax which for an average-priced investment property is about 5% of its value...EVERY YEAR. In my view this is ridiculously punitive.
4. Investors are now arbitrarily subject to higher interest rates on their loans. Again, this is just due to the APRA regulations, and a general sentiment against investors.
What to do? I've found a few strategies:
1. Tell your bank manager your IP is actually a residential property. (Declare it as an investment property to the tax man and to your insurance broker, so that you're not committing tax/insurance fraud, only a breach of contract with your bank which will never be found or prosecuted). This way you get the lower interest rate.
2. Use an offset account to shift funds around your multiple mortgages, always prioritising the PPOR mortgage (since that is not deductible). With an investment property, once you've "paid it off", rather than discharging the mortgage, just keep all your funds in the offset account. Next time you need money for any asset, withdraw from the offset and the 'debt' created is deductible.
