Could you turn your family home into an investment property? What's next

Before you put the “For Sale” sign up and move on to your next home, have you considered keeping your home as an investment property? Here are a few things to consider to see if converting your home into an investment property may be an option for you.

Key considerations

Your ANZ home loan specialist and a qualified Tax Accountant can help you decide if turning your home into an investment property is an option for you. 

Some of the things you may want to factor in are:

Rental returns

Speaking to a local real estate agent could give you a sense of what similar properties in your area rent out for and an idea of what fees are charged for managing rental properties. This will help you understand if the rental income you could expect to receive from your property will likely cover the mortgage repayments, and if not, what the potential gap would be that you’d need to cover on an ongoing basis.  You should also find out if properties are generally quickly rented or not, so that you can include any possible holding costs in your budgeting.

Rental appeal

It’s also a good idea to objectively think about whether your home will be attractive to potential renters and if it will be easy to manage. Some questions you may wish to consider include:

• Is the property well situated and near to local shops, schools and transport? 
• Is your home low maintenance, or is it likely to need ongoing repairs? 
• Do the features of your house match what people in the area are wanting?

Potential for price growth

If you want to keep your home as an investment property for now, but sell it further down the track, you may be interested to understand if it has the potential to grow in value overtime. Among other tools, you can use the ANZ Property Profile Report. This can help you understand your property’s growth potential with information on sale prices of similar houses in your area, price trends over time and insights around how long houses take to sell which can indicate likely demand in your area. Keep in mind that past performance in property growth does not guarantee growth in the future and you should consider the risk that property values may decline. 

Budgeting is key

It’s a good idea to pull all your research into one detailed budget, including the rental income you could likely expect along with all the relevant costs such as repayments on the two home loans you would have if running two properties simultaneously, landlord insurance, council rates, water rates and body corporate fees. 

Consider including a buffer in your budget for unexpected costs involved with an investment property such as unplanned maintenance, a break in rental income, or an interest rate rise.

Reviewing your home loan

If you do decide to turn your home into an investment property, it’s a good idea to speak to an ANZ home loan specialist to help you understand the financing options for both properties. You may want to use any equity in your existing home to help purchase your new home. You may also want to change your existing loan structure, for example, you could consider an interest only option on the investment property. It’s important to speak to a qualified tax accountant before making these decisions.

Other considerations

While everyone has different needs and financial circumstances, there are some potential tax considerations when converting your home to an investment property. You will need to speak with a qualified tax accountant for advice on your tax circumstances, and the following does not take into account your personal needs and financial circumstances and is not personal financial advice.

Claiming expenses

Having an investment property means you may be able to claim certain tax deductions on eligible expenses. These expenses could include items such as real estate fees, repairs and maintenance fees, insurance, body corporate fees and council rates. You may be able to depreciate other items too such as a new stove, fridge, timber floors and carpets, which has the potential to decrease your taxable income. Again, seeking professional advice is essential.

Negative and positive gearing

You may be able to negatively gear your investment property. This is when the rent you are getting paid is less than your expenses including your interest repayments, so essentially you are making a loss. When a property is negatively geared like this, you may be able to claim that loss against your other income such as your salary.

When your investment property is positively geared, your rental income is greater than your expenses and you are making a profit. With positive gearing you will be taxed on your rental income, but you may be able to reduce your loan and interest faster and potentially carry less risk if your situation changes.

You should speak to a qualified tax accountant to see what gearing would be recommended for your situation.

Capital Gains Tax

When you own an investment property, and sell it for a greater amount than you paid for it, you make a capital gain and you’ll need to pay Capital Gains Tax on any profit. You are taxed on the difference between the purchase and sale price. You don’t usually have to pay Capital Gains Tax for your home, but if you convert your home into an investment property, be aware that this can change. However, speak to a qualified tax accountant before making any decision.