Should You Sell YOUR HOUSE Or Keep It As An Investment Property?

One of the most common queries we get from homeowners looking for property investment advice is, “Should I sell my home, or should I keep it as an investment property”? As any property specialist shall tell you, there is absolutely no single yes or no answer to this, because organizing an investment property really depends on a variety of factors, like the individual circumstances of the house buyer.

When you’re searching for a home to live in, it’s common that you could see a house on the market that you fall deeply in love with. Actually, having a psychological response for an owner-occupied property seems natural, because so many people actually want to like where they’re going to live. This is a significant different approach to buying an investment property, that ought to involve an ongoing business strategy like understanding local rental yields and negative gearing benefits. So why would you keep your current home as an investment property when you move to your brand-new home?

Well, the number one reason would be a psychological attachment. Something in our thinking tells us “We’ll easily such as this property, everyone else should too”. This appears to be a common pattern. A recent evaluation of volume surveyor reports prepared by BMT Tax Depreciation indicated that 22% of their schedules were for principal places of home (PPOR) which the owners converted into an investment property.

One logical reason to turn your home into an investment property would be if you were temporarily relocating for work reasons or perhaps exploring other lifestyle options. Over the years we’ve heard stories of individuals selling up in expensive areas like Sydney, buying in a quieter location and discovering that the approach to life had not been what they thought, or there were limited employment opportunities. In the meantime, property prices where they originally lived increased and offer tightened, to the level where they couldn’t afford to buy real property back in the same area where they resided before!

But think about the majority of individuals who are considering keeping their existing home as an investment property and want to buy their new home in the same city or town? Well if there is no personal debt included and extra money isn’t needed for the new PPOR, it could work, but this isn’t so common.

Most people with a home have a mortgage, and loan repayments (including interest) is the largest expense of many Australian households. If you pay a substantial amount of personal debt off your existing home, keep it as an investment property and need to borrow much more for the new home, in that case your loans will finish up being ‘upside down” for tax purposes.

This is basically because the interest on small existing mortgage loan will finish up becoming taxes deductible, whereas the larger new mortgage loan will not be tax deductible. So, should you keep the existing home as an investment property if you’re borrowing to buy a new home in the same city or town? The logical strategy from a tax perspective is always to sell your existing home to minimize the debt on your new home. You could then borrow to buy an investment property in the future and the eye on that new investment property loan will be taxes deductible.

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