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Changing from owner occupier to investment property

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Thinking about changing your current owner-occupied property into an investment property? Here we'll walk you through what you need to consider.

How to turn your home into an investment property

If you’re looking to rent out the home you’re currently living in, you’re likely weighing up your options. Chances are, you’re looking for a home that better suits your lifestyle. But if you’re tied into a mortgage where you’re currently living, you might be looking at other options like renting it out for a period of time.

Managing Director of loans.com.au Marie Mortimer suggests when the time comes to purchase a new property, it may be wise to keep your existing property as an investment property.

"Whether your family is growing or you need a home office, it might be time to consider changing your current home from an owner-occupied property to an investment property and get a tenant to live in your property," Ms. Mortimer said. 

When renting out your home, your current loan type will come into play. Since the property is about to become an investment, rather than owner occupied, your accompanying mortgage will also need to change.

You’ll need to let your lender know if the property is no longer owner occupied. This might mean you’ll be charged a higher interest rate, and there will likely be different loan features now at your disposal.

Other than your home loan, there are a few key considerations to think about before deciding to turn your home into an investment property. Let’s discuss how you do it and how to make it work for you.

Steps switching from owner occupied to rental property

The actual process of turning your home into an investment property is quite simple. There are, however, some important considerations to get out of the way first which could influence the simplicity of it all.

1. Find out if you qualify first

Before applying for an investment loan, find out if you qualify first. Use our calculator to see if you can pre-qualify for an investment home loan and see what you can afford to borrow.

2. Make sure you can afford it

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;

  • Potentially renovation costs or property management fees.

Despite tax benefits (which we will discuss below), there are quite a few expenses of 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.

3. Figure out the tax implications

There are some tax benefits to turning your home into an investment property. For one, you can write off many things as a tax deduction if they’re classified as ‘investment expenses', such as:

  • 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 corporates fees, cleaning costs, 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.

4. Work out your rental income

When it comes to investment properties, you will need to decide if your property will be negatively or positively geared.

In addition to the tax benefits mentioned above, if you make a loss on your investment property, you could look into negative gearing. This allows you to deduct any rental income losses from your taxable income.

A positively geared property means its rental earnings are higher than the costs of owning the property. Negative gearing can reduce your taxable income, but you’re not actually making a profit from owning the property. That is, not until you sell.

5. Are you renting out the entire home or a portion of it?

It’s not uncommon for homeowners to rent out a part of their home while still living in it. If you had an extra bedroom or two, you could choose to rent it out and take out an investment loan on that portion of the house, while treating 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. You might end up needing to pay CGT when selling, depending on the circumstances.

6. Do you plan on returning to live in the future?

If you have plans to sell within the next six years, you might want to look into the six-year rule to avoid paying CGT. According to the Australian Taxation Office (ATO), you can keep treating your dwelling as your primary residence for up to six years for CGT purposes. So even if you’re not living in it, you can rent it out and return to it at any time within six years and it will still be CGT-free (with some conditions). This could end up saving you hundreds if not thousands of dollars when it comes time to sell.

7. What kind of investment loan would you get?

If you end up needing to change your owner-occupier loan to an investment loan, you might find that you’ll have different features attached. Your requirements might also change once your home converts to an investment, so you might want to look into things like using an interest-only loan to claim interest as a tax deduction.

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:



Greater borrowing capacity with more equity

Damage from tenants due to wear and tear

Greater cash flow through maximised rental income Property might not be attractive to renters
Grow property portfolio

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 renting popularity. Sometimes, it could end up being more beneficial to buy a second home as the 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 speaking, 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.

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About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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