Buying your first home is a huge milestone, but there will come a time when you will need to bid farewell to that first home. You could be looking for more space as you grow your family, or perhaps you have a new job and are relocating. Or maybe you just want a change of scenery. Whatever your reason for moving, choosing your new home comes with the question: “what should I do with my old property?” Should you sell your property or keep it as a rental investment?
Although most people will sell their home before moving into a new one, owning a rental property does come with its own benefits. Here are a few things you should consider when making the decision to sell or rent your property.
As always, you should consider your finances first. Renting or selling, which choice will generate a positive cash flow for you and the best financial outcome?
If you want to keep your home as an investment property, you will need to subtract all likely expenses to maintain the property from the income you will make from rent. This includes things like mortgage repayments, taxes, insurance, property management fees, repairs, and more. The ongoing income from your rental property will be associated with ongoing costs; however, this is a good strategy if your property is likely to appreciate over time.
On the other hand, if you want to sell your property, you will also need to account for fees such as conveyancing, marketing, styling, auction and agent’s fees. These will be one-off costs to accompany a one-off sale and may be a viable solution if you require an immediate cash injection.
If you are unsatisfied with the amount you’ve calculated, it is wise to hold onto your property until the market changes, and you can increase your return on your investment.
Your tax responsibility becomes much more complicated depending on whether you sell or rent your own home. For example, if you fully own your old home, any rental-related income you receive will be considered part of your taxable income. As such, you won’t be able to claim any tax deductions on your home loan interest as a property investor since you have already paid your loan off as an owner-occupier. On the other hand, maintaining a mortgage on your rental property allows you to negative gear it.
Tax is a complex matter and one that needs to be handled correctly, so it’s best to speak with a qualified tax advisor or accountant in these situations. Your advisor will be able to help you minimise your tax liability and explain how factors like capital gains tax and land tax will apply to you.
While the tax implications and financial considerations or selling vs renting your property are important, emotions cannot be ignored either. Selling your family home or the first house you ever lived in can be an emotional experience. On the other hand, some landlords can find it difficult renting out their house to a complete stranger.
Being a landlord also comes with its own stressors and responsibilities such as sourcing tenants, keeping informed of your legal responsibilities, and resolving any issues your tenants may be experiencing, such as maintenance and repair – all the while maintaining an adequate cash flow. However, if you invest in an experienced and capable property manager, most (if not all) of these responsibilities will be taken off your plate.
Here at Wills Property, we boast a range of property management services dedicated to helping you achieve the result you want. Call us today or browse our range of properties available for inspection.