Would your home be a good investment property?

One of the most frequent topics we are approached with is from 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 of course keep in mind those pesky kids who have moved out and when you are just ready to downsize they decide to move back in again).
  • Downsizing – phew, the kids have finally left (and you’ve changed the locks) and you don’t need to keep cleaning that many rooms. Another reason may be that retirement is looming and the stairs are getting 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 those smiling travellers in their rigs and converted buses touring the country? (Oh, happy days!!)

So what happens to their existing house? Should it be sold 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 tenanted? 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. Currently 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 amongst 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 and that type of thing.
  • Who are you aiming at renting your property to? What kind of profile does it have? For example, a large dwelling on a 100acre 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 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.