Whether an investor upsizes or downsizes, they’ll be left with one home they’re living in, and one they’re not. Smart Property Investment’s editor Phil Tarrant shares how you can get that empty property ready to rent.
Adding an old home back into an investment portfolio can give yourself an additional revenue cash flow source, according to Mr Tarrant, but it can also provide other benefits.
Speaking on the Property Investing Matters show, Mr Tarrant together with host Margaret Lomas answered a question from viewer Sue T, who said she and her spouse wants to move into a house that the partner recently inherited, and what needs to be done before renting the home out.
Focus on yield
For Mr Tarrant, what needs to be thought of first is how the greatest yield possible can be achieved.
“You need to price it right within the market, he said.
“Speak to a number of property managers, get them to give their assessments on what the property is worth.
“You need to make it as presentable as possible so you not only get the highest yield (i.e. the highest rent), but also create a connectivity with the tenant so they can stay there as long as possible. You want sticky tenants, so make it rentable.”
Ms Lomas added the fact that the couple have been living in the spousal relationship means they are treated as a couple for tax purposes.
“The fact that you both live together in a spousal relationship means you both are considered to have that as your principal place of residence and so anything that your partner might buy can’t become theirs, and you can’t have one each and have the best of both worlds,” Ms Lomas said.
When the pair move out, Ms Lomas also said that the property can be used under the six-year rule – that a property that is considered to be your main residence is free from capital gains tax if it is used to produced income, but this time limit resets if you change your main dwelling.
“Before you move out, I would definitely get hold of a valuation of that property and you might find that after six years you move back in, and reset it again,” Ms Lomas said.
“You might find that at the end of the six years you want to move on, or you might find you want to keep it, in which case, your capital gains tax will start accruing from then onward, so it’s really good to get an idea of what it is that you are looking at in terms of value.”
For more on the tax rules related to your property investment, click here.