Consider the following scenario: you’ve been offered a job in another city, but you wish to return home in the future. Perhaps your children have left the nest and you’re considering downsizing or you’re just in need of a permanent change of scenery.
You may be asking why you should have to give up your existing home and all the equity you’ve built up over the years, whatever the cause. In this article, we’ll go over the questions you should ask yourself before turning your home into an investment property.
Do I intend to return to my beloved home in the future?
If your move is only temporary and you want to return home, a conversion may be the best option — as long as you follow the six-year requirement.
This rule governs whether or not you will have to pay capital gains tax (CGT) when you sell your home. If your property is sold within six years after first being rented out, it will be excluded from CGT under the six-year rule.
If you don’t intend to live in your current home and instead wish to turn it into an investment property, CGT will apply if you sell it after six years. Rental properties, on the other hand, may provide tax advantages.
How will I run the property?
Although private homeowners can manage their rental homes on their own, it is complicated and inconvenient. Using competent property managers can often be worth the money in the long term. It has the ability to make your life much smoother and error-free.
Is my rental property in a hot market?
In the current rental market, owners may overestimate the desirability of their property. To avoid this, conduct some research on comparable properties in the neighborhood before assuming you’ll be able to afford everything.
That same peaceful street that was ideal for your growing family may not be ideal for young professionals who require facilities and transportation. Market research and property appraisal may be able to help you determine whether or not this investment is worthwhile.
Will converting my family home into an investment property provide me with a steady income and tax advantages?
The tax benefits of having an investment property may or may not work out in your favor, depending on how long you’ve owned your home and if you’re favorably or negatively geared.
If your property is favorably geared, your rental revenue is sufficient to cover your mortgage payments and property expenses.
If your home is negatively geared, however, your rental revenue is insufficient to cover your mortgage payments and property bills.
Negative gearing, on the other hand, has some benefits: your losses can be claimed as a tax deduction, and if your property sells for a profit, you can maximize your tax savings.
It’s a good idea to consult a financial advisor before deciding on an investment strategy for your property.
Do I know the differences between a home-owner loan and an investment loan?
While the process of acquiring an investment loan is relatively similar to that of obtaining a homeowner loan, there are some differences.
For starters, investment loans often have higher interest rates than owner-occupier loans. While interest rates aren’t the only thing to look about when evaluating loans, it’s crucial to evaluate how much interest you’ll pay over the course of the loan.
Investment loans typically have higher set-up and maintenance expenses. When switching from an owner-occupied to an investment loan, it pays to shop around.
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