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Converting Owner Occupier to Investment and Exploring Upsizing/Downsizing or Rent Vesting

Updated: Nov 9, 2023

As a trusted financial partner, we recognise that property decisions play a significant role in shaping your financial future. Whether you're considering converting your owner-occupied property into an investment, thinking about upsizing or downsizing, or even exploring the concept of rent vesting, it's essential to carefully evaluate your options and make informed choices. In this blog, we will provide you with valuable insights and guidance to help you navigate these scenarios and unlock the full potential of your property journey.

  1. Assess your options: If you're looking to rent out your current home and purchase a new property, it may be wise to keep your existing property as an investment. Consider your lifestyle needs and whether renting out your home aligns with your financial goals.

  2. Notify your broker: Inform your broker that you intend to convert your property from owner-occupied to investment. This will involve changing your loan type, which may result in a higher interest rate and different loan features.

  3. Evaluate affordability: Determine if you can afford the expenses associated with owning an investment property. Consider factors such as increased living expenses, potentially higher interest rates, additional home loans (if purchasing a second property), fees and charges, renovation costs, and property management fees.

  4. Understand tax implications: There are tax benefits to converting your home into an investment property. You may be able to claim tax deductions for expenses such as loan interest, property management fees, advertising costs, repairs and maintenance, and depreciation losses. Seek independent tax advice to understand the best tax structure for your circumstances.

  5. Determine rental income: Decide whether your property will be negatively or positively geared. Negative gearing allows you to deduct rental income losses from your taxable income, while positive gearing means the rental earnings exceed the costs of owning the property. Consider speaking with an accountant to understand the implications for your income tax and capital gains tax.

  6. Renting out the entire home or a portion: If you have extra bedrooms or space, you can choose to rent out a portion of your home while still living in it. This may involve taking out an investment loan on the rented portion and treating associated costs as investment expenses.

  7. Future plans: If you plan to sell your property within the next six years, familiarise yourself with the six-year rule to potentially avoid paying capital gains tax. Under this rule, you can keep treating your dwelling as your primary residence for up to six years for capital gains tax purposes.

  8. Consider the right investment loan: If you need to change your owner-occupier loan to an investment loan, research and compare different loan options. Your requirements may change once your home becomes an investment property, and you may consider using an interest-only loan to claim interest as a tax deduction.

It's important to weigh the pros and cons of converting your home into an investment property based on your individual circumstances. Benefits include greater borrowing capacity, increased cash flow through rental income, and the potential to grow your property portfolio. Drawbacks may include potential wear and tear from tenants and the possibility that your property may not be attractive to renters.

Remember to consult with professionals such as lending specialists at Loan Savvy to make informed decisions throughout the process.

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