Blueprint for a stamp duty revolt

Owning your business premises does not make sense even as a diversification strategy, because if your business is adversely affected by any cause related to location, the value of the premises will probably be reduced by the same cause. To get the full diversification benefit of running a business and owning real estate, you need the business and the real estate to be in very different locations; that is, you need to conduct your business on rented premises.

Horses for courses

If you reside in a certain location, you want that location to be adequate right now; future amenities are less relevant because you might move away before they arrive. And you want the location to be adequate according to your criteria - not necessarily anyone else's.

But if you buy a property, you want its locational advantages to improve in the future so that it will rise in value. You don't want the property to have every possible amenity right now, because that would raise the acquisition cost and reduce the scope for capital gains. Moreover, if the property is to rise in value, its locational advantages must improve according to the criteria of the typical buyer or renter - not necessarily yours.

In short, buying a property and occupying it are two different things, done for two different sets of reasons. Therefore the property that you buy and the property that you live in (or do business in) probably shouldn't be one and the same. But if you become an owner-occupant, you force them to be one and the same.

Avoiding time wasters

It is said that when you buy a home to live in, you don't actually live in the home; you sleep in the home and live in the hardware store. Then suddenly you have to move, and someone else gets the benefit of all your work. The increase in the sale price due to your modifications is not enough to compensate you, because your modifications were what you wanted, not what the typical prospective buyer might want.

But if you own one home and live in another, you won't waste time modifying the former, because you don't live in it; and you won't waste time modifying the latter, because you don't own it.

Inducements and done deals

"But," you may say, "I want to qualify for the First Home Owner's Grant. If my first purchase is an investment property, I lose the FHOG forever." At best, that's an argument for buying the home that you want to invest in, living in it for long enough to qualify for the FHOG, and then treating the home solely as an investment. But a ruse like that would probably disqualify you anyhow. So look at it this way: How many times do you have to pay stamp duty in order to wipe out the benefit of the FHOG? Probably once. And how long do you have to forgo the negative-gearing deduction to wipe out the FHOG?

"But," someone else says, "I already own my home!" Great. So you've already paid stamp duty on your present home. (Maybe you even got the FHOG.) But is that any reason to pay stamp duty on the next home and the one after and the one after that? Next time you have to move, consider whether your present home is a good investment. If it is - at least to the extent that it's not worth paying stamp duty to get a better one - then don't sell it; put tenants in it and rent your next place of residence. If, on the contrary, you think your present home is such a lousy investment that it's worth paying stamp duty just once to get a better one, then pay stamp duty just once. It may make sense to pay stamp duty as part of a once-in-a-lifetime investment. But it makes no sense to pay stamp duty just because you have to move house.

Conclusion

By buying the home you want to invest in and renting the one you want to live in, you can optimise both decisions independently, avoid stamp duty on future changes of address, and claim the negative gearing deduction. These advantages are likely to prevail over the capital gains tax liability and, where applicable, the loss of the FHOG.