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Move into one, rent the other

I am paying off a house worth about $900,000 with a mortgage of $300,000 and I am on about $125,000 a year. My partner owns his own house and we are thinking about getting married after moving in together. We are thinking about moving into my house and renting his out. What do you think?

It’s not easy to make recommendations unless I know all your combined circumstances but let me have a crack at some issues to give you some food for thought.

First, moving into your partner’s house could be more tax effective. First you won’t have to pay tax on the rent you would receive and as your place has a $300,000 mortgage, that could give you tax deductions. This question will be determined by your relative tax positions.

There could be some sense in selling the house that is owned and you could upgrade to a more valuable home. It’s very tax effective to pay off a mortgage as there’s no capital gains tax on your principal home and your combined income should support you owning a bigger and/or a better home.

I would suggest you do some homework on what suburbs have a historical record of good capital gain. Blue chip properties can deliver a 10-year average return of around 10 per cent per annum and so suburb selection is critical.

One final point – if your partner’s home is worth $500,000 and you then buy a $1 million property and say both properties rise by 10 per cent, then the new property would net you $100,000, while the other property would only give you $50,000. Of course, there are a lot of ifs and buts in this analysis and it underlines why you have to do your research. But it also raises the question — do you need some expert financial advice? The more valuable your properties, the bigger the potential gains and, of course, the potential losses if you don’t get the best advice.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Monday, May 09, 2011

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