Turning Your Home into an Investment Property

Turning your PPR (principal place of residence) home into an investment property is a potential wealth-building option to consider, especially given the high tenant demand and record low vacancy rates in our current housing crisis. It is an alternative to staying in your current home and buying an investment property instead.

Either way, you have the opportunity for:

  • capital growth on two properties.
  • earning rental income may help you pay off your loan/s faster.
  • investment property tax deductions to reduce the amount of tax you need to pay.
  • being able to sell your property during a more opportune time, when the market is stronger, as an example. You can also try to buy the second property in a low market.

Key considerations: turning your existing home into an investment property

First, here are the key considerations:

  • Research your likely rental income

Research the market and work out your likely rental income on your existing home.

  • Research market prices for where you want to live

Assuming you want to buy, you will need to work out how much your new residential property will cost and therefore how much you need to borrow.

  • Assess your borrowing power and loan affordability

If you decide to turn your home into an investment property and buy another residential property, you will need to ensure that you can afford two loan repayments.

You can also find out how much equity you have in your current property to help finance your new home. This can also help reduce the LMI (lenders mortgage insurance) that you may need to pay.

Speak to me to find out your likely repayments. Affording both loan repayments will be made easier by earning rental income to help you cover your regular repayments.

  • Assess your tax benefits

Unlike owner-occupied properties, most investment property expenses are tax deductible. So, if you turn your home into an investment property, you will be able to deduct expenses like the following against your rental income to reduce your tax:

  • loan interest and bank fees
    • property management fees
    • advertising costs to source tenants
    • strata fees if it is an apartment or townhouse
    • repairs and maintenance costs
    • depreciation.

Steps to take when turning your home into an investment property

Step 1

Let your bank know as you will need to change your loan from an owner-occupier to an investment property loan. Investment property loans have slightly higher interest rates than owner-occupier loans, but unlike owner-occupied property loans, investment property loan interest is tax deductible. Expect an investment property loan to be around 0.25-0.5% higher than an owner-occupier loan.

Alternatively, as an experienced mortgage broker, I can help you find out if you qualify for an investment property loan and determine the right one for your needs. I can also have a look at other interest rates that are available at a better rate.

Step 2

Take out a lower interest rate owner-occupier loan (if available) for your new property.  

Step 3

Let your accountant know at the end of the financial year as it will be important to know the dates that it became an investment property and identify any deductions you may be able to claim.

Take advantage of the capital gains tax (CGT) exemption opportunity

If you return to your original residential home within six years of renting it out as an investment property, then you can take advantage of the ‘six-year CGT exemption rule’. Unlike your home, investment properties are generally subject to CGT if you make a capital gain upon their sale.

However, under the six-year CGT exemption rule, if you return to your original residential home to live within six years, then it will be exempt from CGT if/when it is sold. As CGT is applied to your marginal rate of tax, this can save you tens of thousands of dollars or more if you make a significant capital gain on the property.

An option to work towards if you are not ready to purchase your next property

If you plan on converting your current PPR to an investment property in the future, it may be beneficial to build up cash in an offset account rather than reduce the loan, as ultimately you will want the investment loan to be higher than your home loan. It can benefit you for tax deductibility purposes and you can also use this cash for your next PPR house purchase.  

Choosing the right loan

If you are considering the possibility of transforming your current property into an investment and wish to explore the potential benefits of an investment property loan, contact me to help guide you through the process, discuss your specific situation and answer any questions you may have. Please feel free to reach out to me on 03 8419 9800.

In conclusion

Transforming your home into an investment property can be a strategic financial decision with potential long-term benefits. By converting your residence into a rental property, you open avenues to generate passive income and capitalise on the country’s robust real estate market. This process however should involve careful planning. Before making any decisions about converting your home into an investment property, it is crucial to speak with your financial advisor. They can help assess the financial implications and ensure that this move fits within your overall financial strategy. Additionally, it is important to carefully consider whether you can comfortably afford the associated costs. Consulting your advisor will provide you with a clearer understanding of both the potential benefits and the responsibilities that come with managing an investment property.

Brett Elliot
Lending & Finance Principal
03 8419 9800 | 0409 402 086 | lending@wilsonpateras.com.au


Wilson Pateras Accounting Pty Ltd is a related entity of Wilson Pateras Lending and Finance (VIC) Pty Ltd and Wilson Pateras Financial Planning Pty Ltd (Wilson Pateras Group). Where you are referred to a related entity by your adviser and take up lending or financial services, your adviser and the directors and shareholders of the Wilson Pateras Group do not receive any direct remuneration or benefit as a result of these referrals but may be entitled to profits as part of their ownership in each entity. You are free to engage your own preferred professional service providers should you prefer

This content has been prepared by Wilson Pateras to further our commitment to proactive services and advice for our clients, by providing current information and events. Any advice is of a general nature only and does not take into account your personal objectives or financial situation. Before making any decision, you should consider your particular circumstances and whether the information is suitable to your needs including by seeking professional advice. You should also read any relevant disclosure documents. Whilst every effort has been made to verify the accuracy of this information, Wilson Pateras, its officers, employees and agents disclaim all liability, to the extent permissible by law, for any error, inaccuracy in, or omission from, the information contained above including any loss or damage suffered by any person directly or indirectly through relying on this information. Liability limited by a scheme approved under Professional Standards Legislation. 

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