To turn your home into an investment property? To do or not to do? Opinions needed!

[Arimeh]

Ok we are thinking of turning our current home into our investment property - so to speak. We live 25kms out of town, and while that may not seem like much, it adds up to about $100 a week in petrol, which is huge.

So I contacted the real estate in town today (the small town, not bigger town) and they actually manage the other two units near us, and they get $265 a week for them. Since our unit is bigger with a double garage (plus it stands alone, the other two are joined by a mutual wall and their back yards attach to each other too) she said we should be able to get about $285 a week in rent for it.

So we are thinking of renting it out, and moving closer to town, and renting a place for similar money, or a bit lower (there are ok-ish places for that price). So the bonuses are that I would be closer to my friends (Sterla and Jahzara) and also to my cousin, who has 3 kids much the same age as mine and they all love playing together.

So what should we do? Should we do it? I know we will lose out a bit on money, but we will be saving in petrol, plus DH pays $20 a week for parking because we don't live close enough to town for public transport or to walk/cycle in to his work.

The big pro is that apart from being closer to everyone and everything, but I'll only be a few minutes from the gym at night, instead of travelling 30 minutes there and back most nights. I'm finding it hard juggling the house, kids, gym plus all the travel time. Never seems to be enough hours in the day. Plus there are no parks where I live, so the kids are stuck in the house most of the time. Also, I hate the small town attitudes out here, seriously if one more freakin person tells me that I have my hands full with the kids - arggghhhh. I even got asked today if kelti and eden were twins. HeLLOO.. they are 16 months apart!!! Anyhhoooooo...

So we know we would be out of pocket a bit, and that we would lose out in paying body corporate and rates. However, my body corp is only $265 a year here, and rates about $700 a year - so not that bad.

I dunno - any experiences out there with doing this kind of thing? I'm just a bit over living in the sticks!

[feeb]

Sounds like its a great idea!!! A lot of pros there!!!

PMSL I was asked other day of boys were twins!!!! I look at said umm nope 18 months 4 days difference in age! WTF is with people

[CrazyLady]

well, i'm not an expert but wouldn't the money you save on fuel and parking counteract the rates and body corporate iykwim? I think that the pros outweigh the little issues really and think of all the extra time you'll have while not driving.

[buliej]

Don't forget that your rates and body corporate fees will be tax deductible - you should get some tax advice prior to doing this to make sure you have everything documented so you get the most you can out of the tax savings that come from an investment property.

[Arimeh]

well, i'm not an expert but wouldn't the money you save on fuel and parking counteract the rates and body corporate iykwim?

Well thats what I think. If we lived in town we might spend $30 a week on petrol, instead of $100. So that extra $70 a week can be used to pay the body corp (which at $275 a year is hardly anything) and the rates and the agents fees.

[buliej]

agents fees - also tax deductible - there's a lot that is!

[Arimeh]

Don't forget that your rates and body corporate fees will be tax deductible - you should get some tax advice prior to doing this to make sure you have everything documented so you get the most you can out of the tax savings that come from an investment property.

Well my brother has an investment property and says we will be too much out of pocket because the rental income is lumped in with our taxable income and you don't get to claim the interest that you pay on the mortgage because it was a home loan and not an investment loan first up?

I'm very confuzzled.. LOL

[buliej]

I'm not sure that is correct. Your rental income is added to your income - but this doesn't mean that you don't get to claim deductions for other items. However, I know it's tricky with the mortgage payments when you lived in the property prior to converting it to an investment property. It would definitely be worthwhile to get some tax advice from a qualified professional as this could really impact the $s in either direction.

[Laranna]

You can't claim the interest on your mortgage so you would need to refinance your home loan into an investment loan and then you would be able to claim the interest. I'm no expert though that's the way I think it works.

[misty]

In regards to the homeloan, the interest is deductible so long as you haven't redrawn any money off it for personal use. If you have used some of the money for personal use only a portion will be dedctible at best, or at worse none will be if you have done it umpteen times and it is now impossible to track the deposits and withdrawals (I made that mistake). If you have an offset account rather then a redraw facility you don't have any issues and it will all still be deductible.

FWIW - It may still be worth doing even without the deductibility...

In regards to the 'small town attitude', you don't have to be in a small town to experience that. I have been asked on numerous occasions if my boys are twins :rollseyes: there is 22mths between them. Yes the are both baldy boys, but one is a baby while the other is running around tearing up the place! And I get asked / told on a daily basis that I must have my hands full.

[Astrid]

A friend of mine (who I think was in the same town as you) did the same thing. Turned her primary home into an investment property and bought closer into the city. I would definitely check out a good accountant on this one and also chat to your bank as the loan type may need to be changed.

I know what you mean about the travel, I am about the same out of town. We are spending atleast $10 per day on fuel and that is just the basics, no extra running around. We have land here though, no neighbours etc, so are happy to put up with the distance. I am trying to get more organised with travel and with grouping activities together or just foregoing some if it means 2 trips into town that day.

[misty]

You can't claim the interest on your mortgage so you would need to refinance your home loan into an investment loan and then you would be able to claim the interest. I'm no expert though that's the way I think it works.

Unfortunately it doesn't work like that, and if the ATO decides to do an audit you could find yourself in big trouble.

[Arimeh]

Misty - we've only had the loan since January, and haven't drawn any money out of the redraw (not that there is much in there) but yeah, its not been used for anything but paying the repayment every month.

Thanks guys - guess I'll have to go see an accountant - scary.

[deletedit]

The interest on your home loan IS deductable, you CAN claim it, you don't need to refinance to an investment loan. But, only that amount is deductable - so if you have redraw and take that out, or top up the loan to get a car or something, that extra amount ISN'T. Rates, maintainence, property manager fees are all deductable but large upgrades that are well over and above repairs (new kitchen etc) aren't, you have to depreciate those over several years.

I tried to sell my last house, couldn't, now it is rented out.
Going to have timing issues selling our current house, so it'll probably get rented out too. You can rent a house out here within a week, selling takes months.

There's always a catch though. You have tenants. And tenants are humans, with all the foibles humans have, so if you get unlucky you'll have issues and probably not earn as much from the house as you thought you were going to, or they'll not look after the house as well as you would. My tenants have indoor dogs and cats ... OMG ... so much hair!

[deletedit]

Oh, did you get the first home owners grant or stamp duty concessions on this house? If so, that's a whole other kettle of fish

[Jahzara]

Me again !

I have no advice of course apart from - yes i think its a great idea for many reasons if you can do it !

Closer to town = good !

OK - i'll go now !

[Arimeh]

Oh, did you get the first home owners grant or stamp duty concessions on this house? If so, that's a whole other kettle of fish

Nah tassie doesn't have any concessions with their stamp duty when you buy a house down here - makes no difference if its your house or an investment house - you pay the same rate of stamp duty. The only thing that differs is the land tax that is payable if its not your residential premises, but I rang about it today, and ours is $0 because its worth under $25,000 (the land value) and you only pay over $25,000 - but even if it gets to over $50,000, its like $180 for the year or something.

[Kitt3n]

Mel I would strongly suggest you get some financial/tax advice before you go any further......... to have an investment property set up as such it needs to be set up in the original mortgage so that you can negatively gear it, claim the deductions etc........ the rent you recieve will be taxable, and if you can't claim the deductions (depending on your circumstances) you may end up being gravely out of pocket.

ETA, just another thought .......... not sure on this one, but if you rent it out you could end up being liable for CGT depending on the time frames as to when you can buy/sell etc. Get some advice!!!