Changing Your Family Home to an Investment Property

  • Posted 22 Jan

Changing Your Family Home to an Investment Property

Picture these scenarios: You’ve been offered a two-year post in a dream city; yet want to return to your home for the long term. Or maybe your children have grown and moved on and you’re thinking about downsizing – or upsizing. Maybe you’re simply ready for a permanent change of scenery.

Whatever the reason, you may be wondering why you should have to give up your current property – and all the equity you’ve built up over the years – when the simple answer would be to just rent it out to a tenant and enjoy a (relatively) easy income stream..

There are a lot of success stories out there about converting a primary home into an investment property, and there are a lot of potential benefits to doing so.

When making this major leap, however, there are also a number of important considerations you need to bear in mind.

Here are some initial questions to ask yourself before you make any decisions about turning your family home into an investment property:



Do you ultimately plan to return to the home you love?


If your relocation is temporary, and your main motivation is to return to your ‘home sweet home’, then a conversion is the right thing to do – as long as you meet the six year rule.

An experienced real estate lawyer can help you navigate your state’s unique tenancy laws, and also draw up the contract with your professional property manager.

Private homeowners can manage their properties on their own, but it’s not for the feint hearted.

Often, the costs for engaging experienced property managers can be well worth it in the long run. It will help make your life a lot easier – and free from lurking errors and penalties and nasty surprises from tenants.



Is your property in a strong rental market?


Owners sometimes overestimate the desirability of their home in the current rental market.

Do some research on comparable properties in the area before you assume you’ll be able to cover all your associated costs, or fully cancel out that next mortgage payment.

The same quiet street that was great for your growing family might not be convenient for young professionals in need of amenities and access to transportation.



After some analysis, does it look like the conversion could bring you solid income and potentially favour you at tax time?


Depending on how long you’ve owned your home, and whether you are positioned toward positive or negative cash flow, the financial analysis might work out in your favor.

If you’re really ready to cut the cord and let new tenants have their way with the place, do your due diligence on how it will affect your overall bottom line come tax time.

Mortgage loan structures, intricate tax considerations, your needs regarding CGT (capital gains tax) exemption – these are all critical parts to the equation, and will vary depending on your specific life situation.

Converting your primary residence into an investment property can definitely be a very lucrative move, especially once you’re confident it is the right decision for you.

Now that you know you’re ready, it’s time to see how much your property is worth and whether you’ll need to make some minor changes to the property. Check out Australian Credit and Finance’s free online property valuation report and online calculator to determine how much you could borrow.

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