So, you're ready to move from your current property to your bigger and better new home. In the instance you don't need to sell to fund
the new property, is it worth keeping your current home as an investment? What are the advantages and pitfalls of this strategy?Property is a secure and stable investment in most instances, and can also bring a strong return. Having a property portfolio can make an excellent investment nest egg, but is a property you have lived in a good addition to it? Before a tenant moves in, have an appraisal of the home's current worth completed, in case you sell the home in the future. When you sell, the capital gains will be calculated on growth from the time of the appraisal to the time of sale. With any investment, there may also be other tax benefits and liabilities that will impact your decision. If you don't buy another house, for example you are renting, the home remains your principle place of residence. While the laws very state-to-state, this can mean more favour on your side when it comes to tenancy legislation. If investment properties are part of your long term financial plan, then keeping your current home can save you paying out stamp duty on a purchase at a later date. Selling a home also incurs costs, such as agents' fees. Selling your current home and buying another as an investment, whether now or down the track, can be a costly exercise. Beyond the financial implications of this decision are the emotional ones. It's likely that most real estate agents can tell you at least one story of a heart-broken homeowner who has seen their former family home badly damaged or neglected by tenants. It's likely that you've put much time and effort into creating your home, as well as lived many happy memories within its walls. It can be difficult to see someone else be negligent towards it, or simply not put in the same amount of time and care as you may have. Think about how you would feel if you drove past your former home and saw the garden going to waste, or if at a routine inspection there were holes in the plaster and damaged fittings. Arrears, negligence and damage are all issues that occur, even to the most meticulous of landlords. While this can be a costly and unpleasant situation in regular circumstances, when it is a home you have lived in, it can be all the more difficult.
If you keep your current home and convert it into a rental property, the first bit of good news is that you are not liable for capital gains tax on growth in the property's value thus far. However, once the property is tenanted and you receive income, capital gains will apply.