Should you turn your home into an investment property? Ask yourself these five questions

Many property owners have considered moving out and turning their original home into an investment property – and there are a number of benefits to this. You can avoid hefty selling and buying costs if you want to purchase another property, you can attain the flexibility of a renting lifestyle, perhaps in a more affordable area and you already know the area so well.

However, is this really the right approach for you? Here are five questions you need to be asking yourself if you want to convert your home into an investment.

1. Are you willing to ‘let go’ emotionally?
If your heart and soul are in that home and you’re intending to put it on the rental market, then you need to ensure you are going to be able to handle any tenant damage, wear and tear or other issues that could make you the landlord from hell. You also want to ensure that you’re not just keeping the property due to this inability to ‘let go’ that may cloud your judgement about its future potential.

2. Did you buy your current home as an investment in the first place?
If you did not – then does it stack up in terms of investment fundamentals? You may have purchased well, but it might not necessarily be the best place to park your money. Perhaps you bought there as it was close to your friends or family, or near to your workplace. Remember that what attracts you, might not attract other people. If you can’t justify why the area is a good investment, then stop right now and reconsider – you might be missing out on the opportunities elsewhere by holding on to a lemon.

3. What is the reason you are moving?
You may be moving for a specific, unrelated reason or because it has always been the plan. But it might also be something about the property or area that you dislike. If the neighbours or the noise is driving you out then it might prompt you to ask yourself whether this is something that will keep the price down into the future.

4. Can you afford to hold it as an investment?
If you’re looking to buy elsewhere and hold onto this current property, then you need to step back and look at the affordability equation. How long can that property stay vacant until you start feeling the pressure? Is it actually financially better for you to rent another property instead of buying? How much debt will you be in? What sort of rent will the property achieve? Speak to your accountant and your broker and have a think about what happens if you lose your job or the worst happens. You will also want to see what funds you need to pay to get the property “investment ready”. This may include necessary renovations or upgrades, cleaning, new smoke alarms or other costs that many do not consider.

5. Are you willing to lose your PPOR benefits, such as CGT exemption?
There are a number of benefits to owning a primary place of residence rather than converting it into an investment. One of these is an exemption on Capital Gains Tax. You will still potentially achieve a partial exemption, but depending on how long it takes for you to sell and the proportion of ownership time compared to renting will dictate much of what you will pay. Similarly, if you received a government grant – have you fulfilled your obligations under that grant, such as length of time you need to have lived in the home?