Bigchrisb commented on my recent post that we could save money by renting our new house out rather than going to live in it immediately. This is because the stamp duty paid to buy new properties is in this territory immediately tax deductible for investors. In Australia no costs of owner occupiers are tax deductible. So, I've calculated roughly what I think the financial gain from renting our house out for a year would be and come up with $18k:
The main deductions are the stamp duty, mortgage interest and depreciation. The first two we are going to pay ourselves anyway and so aren't actually additional costs while the latter is probably not a real cost, or we are going to suffer it anyway. Next there are property management fees, which might help in getting a tenant fast etc. and the difference between land tax on investors and rates on owner occupiers. There are real extra costs.
Assuming we could rent the house for one year at $650 a week we would earn $33800 in rent. So, the net income is -$34k and the tax saved at 40% is $13.5k. On the other hand we make $33.8k we would otherwise not have, but pay $25.8k in rent on our existing apartment that we would not have to pay if we lived in the new house as well as $3.7k in extra actual costs. So the net financial gain is $17.8k.
Let me know if you think I got something major wrong.
So, if we don't do this, economists would say that our revealed preference shows that the utility of living in our new house a year earlier and avoiding dealing with the hassles of being a landlord are worth at least $17.8k to us. For me, $17.8k is about 1.2% of net worth and so it's not enough to make a difference. It's not a lot more than our after tax salaries for one month. I asked Snork Maiden how big the number would have to be before she would be willing to do it and she said $50k. I know that if it was $100k I probably would do it :)