Part 2 - Sell or rent out?
In our last article, we looked at the options available to you when you’ve outgrown your home. In particular, we explored renovation loans, how they operate and what’s involved in applying for one. If you haven’t read part one, you can check it out here.
Once you’ve decided it’s time to move on to a new home - and possibly even made a purchase already - the next question to consider is what to do with your existing property.
There are a number of general considerations to make (such as your wealth strategy and whether this incorporates property ownership), but ultimately the key options you’ll likely evaluate are selling your home, or retaining it as an investment.
So - when should you sell, and when should you convert to an investment? Let’s have a closer look at the options.
Retaining your home as an investment
As simple as it may sound, the decision of whether to retain your property as an investment may be made for you - as not all properties are suitable for rental. This is an important first question to consider - is your house a large family home, architecturally unique or in an area dominated by owner-occupiers? There are a number of factors that can make it more difficult to find suitable interested tenants, in which case turning it into a rental property might not be a viable option.
In addition to this, there are some emotional elements that require some reflection and consideration. For example, do you want the hassle of being a landlord? Are you prepared for the administrative and maintenance requirements of managing a rental property, or dealing with a rental agent? Are you comfortable with the idea of tenants living in your former home?
Once you’ve determined the house has great rental potential and that you’re up to the challenge, the financial implications come into play. You’ll need to establish how much debt you’re comfortable with, and the ongoing fees required by agents and others involved in managing the property.
Working with a financial advisor can be very beneficial in setting yourself up for success, as they may be able to assist with maximising negative gearing benefits and assessing the capital gains implications of the proportion of time the property was owner-occupied vs rented.
With sound planning and a productive mindset and approach, moving to a new home could provide an exciting and rewarding opportunity to develop a valuable investment in your existing property.
When it’s time to sell
If you’ve decided your house isn’t well suited to becoming an investment, of course the other option to consider is selling up.
Researching trends in property prices in the area is also an important part of this process, and can help inform the decision to sell if you determine now is the best chance to get a good price for the house. If you have no existing debt on the property, this can also often be a good circumstance for selling.
Once you’ve decided it’s time to sell, there are of course other costs and financial impacts to weigh up. The costs of selling a house include engaging agents (on either a flat fee or percentage-of-sale basis), investments in marketing and advertising costs, conveyancer’s fees to coordinate the transfer of ownership, and potential fees and costs from your current lender if you still have a mortgage on the property.
Moving to a new house is an exciting but also a complicated and sometimes stressful process. There are a range of intersecting factors to consider when determining what to do with your existing home, and some of these factors may even be beyond your control.
Seeking sound financial advice is a great way to gain peace of mind and feel confident you’re setting yourself and your family up for success. If you’d like to discuss your property options, get in touch with the BFD Finance team today.