Should I keep my home as an investment property?
Homeowners looking to sell their property regularly ask whether they would be better placed to hold onto their current residence and rent it out as an investment.
There are some compelling reasons why holding onto your current property could be a good idea; for instance, there may be more capital growth in the future for the home. You also get to avoid paying stamp duty from purchasing a different property as an investment and you can reduce any other transaction costs that would have been incurred.
But if you bought your current home looking at it as an owner-occupier, rather than as an investor, you might have a great home but not a great investment property. When you buy an investment property you can choose real estate in any market in Australia – you’re not limited to your own backyard. You are also able to buy more cheaply elsewhere and to buy based on the fundamentals, rather than relying on your personal taste to deliver growth.
As the Sydney market has been so hot in the past few years, and rental yields have subsequently suffered, it’s time to ask yourself whether there is much growth left in your suburb or whether there’s rezoning upcoming that could boost your home’s value.
When purchasing a rental, or deciding whether to keep your current home as an investment property, you should be look for:
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Prospects for future capital growth (and how long you will be holding the home for)
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Rental yield and chances of vacancy
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The ‘opportunity costs’ (what would be the result if you invested your money elsewhere)
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Holding costs above and beyond mortgage repayments
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Future plans for the property (renovation, redevelopment or moving back in?)
These are rarely factors a homebuyer considers, which means it might not necessarily be the best option to hold onto your current home. However, re-analysing the property from an investment perspective may reveal that it has enough future growth potential that it might be worthwhile. Write yourself a pros and cons list to ensure you’re making a levelheaded decision and you are not making a decision based on emotion.
