Changing your family home into an investment property

Picture this: You’ve been offered a two-year job in a dream city; yet want to return to your home in the long run. Or maybe your children have grown-up and moved out 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.

• Related: Read our guide to positive and negative gearing
• Related: Rentvesting: Investing while renting
• Related: Buying your second home

However, when making this major leap, there are 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 I ultimately plan to return to the home I love?

If your relocation is temporary, and you intend 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. Under this rule, your property can continue to be exempt from capital gains tax (CGT) if it's sold within six years of first being rented out.

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 home owners can manage their properties on their own, but it’s not for the faint hearted. Often, the costs for using experienced property managers can be well worth it in the long run. It can help make your life a lot easier and free from lurking errors and penalties and nasty surprises from tenants.

Keen to know the difference between new and old investment properties? We've got our own pros and cons list to help you decide what's best for you.

Is my property in a strong rental market?

Owners sometimes overestimate the desirability of their home in the current rental market. To avoid this, 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 home loan repayment.

That 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. Market research and property valuation could help you get a solid idea of whether this investment is worth it.

Will changing my family home to an invesment property bring me a solid income and tax benefits?

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 offer new tenants a new home, do your due diligence on how it will affect your overall bottom line come tax time.

Home loan structures, intricate tax considerations, your needs regarding CGT exemption – these are all critical parts to the equation, and will vary depending on your specific situation. Converting your main 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. With some careful planning, you may be able to get yourself some pleasing rewards. Talk to a Lendi Home Loan Specialist for expert advice on property investment.

How much could you save with a lower interest rate?

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