Have you reached a stage in life where the family home is no longer fit for purpose? Perhaps you're wondering whether it would make a suitable investment property instead? Read this before you make any decisions.
We often get approached by owner-occupiers who are considering renting out the family home. There are, of course, many reasons why people move house and look for an entirely different dwelling to suit their lifestyle:
• Upsizing – starting or adding to their family (and don't forget those pesky kids who have moved out and decide to move back in again, just when you are ready to downsize).
• Downsizing – phew, the kids have finally left (and you've changed the locks). Another reason may be that retirement is looming and the stairs are getting a bit harder to climb!
• Relocating with employment – a fabulous opportunity to house hunt and explore new areas (just how far away are the best restaurants and pubs?).
• Moving closer to other members of your extended family – (this also works in reverse, as putting distance between you can sometimes be even better!)
• A house is no longer required – have you been out on the roads lately and waved at all the smiling travellers in their rigs and converted buses touring the country? (Oh, happy days!)
Should owner-occupiers sell their existing property in these cases? Or would it produce a good income and be financially worth renting out? There are a few aspects to consider before making this decision:
• How old is the property? Part of the benefit of owning an investment property is the financial gain related to the depreciation that can be claimed. This is maximised if the dwelling is new and decreases as it ages. Consulting a depreciation advisory company will give you a quick answer regarding what is claimable, if anything, on your home. Most people aren't moving out of a newly built property for any of the above reasons other than job relocation.
• What condition is the property in? Are there likely to be major renovations or even a stream of small repairs or improvements you will need to make either before you let the property or once it is has tenants? This type of situation can seriously eat into existing finances and future income expectations.
• Where is the property located? Not all owner-occupier homes are going to be located in growth areas where there will be a good flow of people requiring rental property. The market is in a position where renters are flocking to view everything they think could possibly be in their price range, and even properties they know are going to be more pricey than their budget. There is a desperation among those who are seriously looking to rent long term and settle into an area, but keep in mind that this isn't the case in every town, suburb or region.
• What amenities are within easy reach of the property? There are certain requirements that renters usually look for, and these can include things such as: the availability of local schools, shopping and entertainment areas, public transport, good road network, hospital and medical facilities, etc.
• Who are you hoping to rent your property to? For example, a large dwelling on a 100-acre site in a rural or out-of-town area will have interest from a much more limited number of renters – quite a niche market, in fact – than a medium-sized, mid-range family home closer to essential services.
• What kind of tax implication is there? If you move out and sell your home immediately, then this is a capital gains tax-free transaction. However, if you decide to rent it out over an extended period – several years or more – capital gains tax becomes payable over time.
This should give you a good general overview of some of the points to consider about whether to move house and rent out your existing home or cut all ties and sell it, using the resulting income to either put into your new family home or invest in a more suitable and profitable investment property.
Read more:
When is the best time to renovate?
5 tips for buying the right apartment
Philippe Brach
Multifocus Properties & Finance was established in 2005 with the aim of mentoring investors to create wealth and invest in their future by building an investment property portfolio.
The company is led by Philippe Brach who has over 25 years experience in the international corporate world specializing in finance, accounting and investment. He is a fully qualified and extremely experienced real estate agent, concentrating his attention solely on investment opportunities around Australia. In addition he is a highly regarded mortgage broker, being accredited with around 35 different lenders.
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