Thinking of turning your home into an investment property?

Turning a home into an investment property should be a financial decision, rather than an emotional one.

When your situation changes – whether it be relocating interstate for work or moving in with a partner – there are some things consider:

Is it emotional?

There are a number of considerations for home owners thinking about turning their principal place of residence into an investment.

Wakelin Property Advisory director Richard Wakelin believes people often have a strong attachment to their first home.

He says keeping the home is also often seen as a safety blanket for when the new move does not work out, and some people may look to eventually downsize there.

From a financial perspective, Mr Wakelin says the family home – or the first property – usually has a lot of equity because of capital growth and debt reduction.

Melbourne landlords can be choosey because the vacancy rate for houses is tight. “Because of the amount of equity in it, it’s usually positively geared,” he says. “And if something is positively geared, you’re paying tax on it as opposed to getting tax relief from a negative-gearing situation.”

The six-year rule

A principal place of residence is capital gains tax free.

Valuer and buyers’ advocate Greville Pabst, of WBP Property Group, says home owners can rent out their primary place of residence for up to six years and maintain a “capital gains tax free status”.

When it is leased for more than six years, the tax office would treat it as an investment property, which is subject to capital gains tax, he says.

“When somebody is relocating for work, or personal circumstances change, they really should speak to a financial adviser or their accountant as to how their tax status is going to change as a result of moving house,” he says.