Changing from owner occupier to investment property

Turning your primary residence into an investment property is not as easy as simply moving out and putting your home for rent. There’s a lot to consider, from logistics of finding and managing tenants to arranging your loan and taxes. 

If you’re thinking of changing from an owner-occupied home to an investment property, here are a few things to keep in mind: 

Let your lender know 

If you’re still paying a mortgage on the property, you will likely need to make the switch from an owner-occupied home loan to an investment home loan. You’ll need to let your lender know about how you’re changing the property’s use.  

An investment home loan typically comes with a higher interest rate, and there may be different loan features now at your disposal. Before going ahead and putting your home up for rent, consult with your lender to discuss your options. You’ll likely need to refinance your current mortgage into an investment loan, so it aligns with the property’s new purpose. 

Considering refinancing with the same lender or finding a different lender with better rates and more worthwhile loan features. If you’re thinking of refinancing your home loan to an investment property, get in touch with our friendly lending specialists for more information. Contact 13 10 90 or arrange a call to get started.  

Understand the cost of investment 

By turning your home into a rental property, your living expenses might increase. This is dependent on whether you choose to buy a second property or ‘rentvest’ until you find a suitable new home. While you’ll be receiving rental income, you might also have to pay: 

• A slightly higher investment home loan interest rate (in some cases); 
• Two home loans (if you’re buying a second property); 
• Fees and charges associated with buying a property, application or exit fees; 
• Potential renovation costs or property management fees. 

There may be additional costs associated with owning an investment property, so it’s important to make sure you can realistically afford this. You might choose to create a detailed budget or even consider speaking to a financial planner or lending specialist. 

Figure out the tax implications 

There are often tax benefits to turning your home into an investment property, although they will depend on your individual situation. A tax deduction may be available if they’re classified as ‘investment expenses'. Examples of expenses that may be used as deductions include:

• The interest component of your loan
• Agent and property management fees 
• Advertising to find tenants
• Bank fees and loan changes associated with your loan
• Body corporate fees, cleaning costs, and council rates
• Repairs and maintenance
• Travel and car expenses for rent collection or inspections
• Costs for the inspection or maintenance 
• Depreciation losses on newly purchased items. 

At loans.com.au, we recommend that our customers obtain independent tax advice. Tax advice is important to find out the best structure for your own personal circumstances.

Decide on how to use your investment property 

It’s not uncommon for homeowners to rent out a part of their home while still living in it. Some homeowners may choose to rent out part of the home and take out an investment loan on that portion, treating the associated costs as investment expenses (as mentioned above). 

You might like to speak to an accountant to find out how this would affect your income tax and capital gains tax (CGT) liabilities.

Work out your rental income 

When it comes to investment properties, some people may consider if they want their property to be negatively or positively geared. 

A positively geared property means its rental earnings are higher than the costs of owning the property. Negative gearing may allow you to deduct any rental income losses from your taxable income,

Pros and cons of turning your home into an investment 

When deciding whether to turn your current home into an investment property, there are a few notable benefits and drawbacks that should be considered before deciding whether it’s right for you. 

To give you a general idea of what this might entail, here are a few pros and cons for consideration:

What about buying a second home? 

Turning your home into an investment property isn’t always the best option. This is because different factors can come into play, such as growth potential or rental popularity. Sometimes, it could end up being more beneficial to buy a second home as an investment, rather than holding onto your current home. 

If you’ve owned your property for some time, chances are you’ve accumulated some equity. You could use this equity as leverage to purchase a second home more easily. Equity is the difference between your home’s value and how much of it you have paid off. Generally, the more of your home loan you’ve paid off, the more equity you will have. 

Using equity to purchase a second property is a common way many investors choose to grow their property portfolios. It can be efficient and cost-effective, and the lender will still process your home loan application by assessing your income, expenses, credit history, home market value, and borrowing capacity. 

Disclaimer: The information provided in this article is general in nature and does not constitute financial or legal advice. Please seek professional advice tailored to your personal circumstances before making any financial decisions.

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