Tips for turning your home into an investment property

Naturally, there are several factors to consider, particularly in terms of finance—from mortgage and finances to taxes, interest rates and holding costs.

As daunting as it sounds, most of the possible issues related to transitioning could be minimised if they treat the acquisition of the home as an acquisition of a property investment, according to Propertyology’s Simon Pressley.

Essentially, considering that the intention to move out is clear, the couple would do well to buy as investors rather than home owners. By doing so, they avoid the expenses associated with making the transition from home to property investment.

The property strategist explained: “It sounds like you've already made your mind up you're moving out. Make the decision in terms of the name you’re buying in and how you set your loans up as if you are buying as investment property from day one.”

“The cost to change that at a later date—the name on the title and refinance loans and all that—is going to be a lot of money and a lot of time, then it might not be accepted by the tax office anyway,” he added.

Mr Pressley shared other tips for home owners looking to become investors:

1. Secure a principal-and-interest (P&I) loan: Home owners typically get this loan structure, but it could also be beneficial for investors who want to keep their debts at a minimum and ultimately fast-track the growth of their portfolio

2. Consider an offset facility: This loan feature can further assist homeowners-turned-investors in managing their finances. Mr Pressley said: “Fast forward two years from now, this loan is going to be 100 per cent tax deductible once you start receiving rental income for it. In the longer term, you might be more in favour of having an interest-only facility, but you can effectively be paying principal off it by putting the extra money in an offset facility.”

3. Speak to professionals: Accountants and other property experts can help you navigate the changing financial structures and tax implications on the property.

Where to buy

Apart from the loan structure and other financial considerations, Mr Pressley also reiterated the importance of choosing the right location for the investment property.

While finding a location for a home depends largely on the home owners’ needs and wants, finding a location for an investment property takes a careful analysis of the area’s growth drivers.

According to him: “If you've already decided that you're not going to be living in Newcastle for the long-term, why are you making a decision today to buy an investment property there? Have you taken the time to understand where Newcastle is in its cycle and its long-term outlook or the growth cycle behind it?”

At the end of the day, homeowners who are keen to make their home an investment should consider how the property will work as a wealth-generating asset.

As much as you love your current neighbourhood, there are multiple property markets to explore across Australia—from the metropolitan cities to the regional markets, all of which offer a different variety of investment opportunities.

Mr Pressley said: “Your current neighbourhood is Newcastle but your market is all over Australia. You owe it to yourself to get that money working as hard as it can. To do that, you're going to want to explore all markets across the country.”

“Keep up the research, keep looking around and expand your mindset around property investment,” he concluded.

 Tune in to Simon Pressley's Q&A episode on the Smart Property Investment Show to know more about making the transition from home owner to investor.