Your family has grown and now you need extra space to comfortably accommodate all the members of your home. Perhaps, there is a better school in a neighboring city and your kids’ education is your primary concern at the moment. Maybe you are desperately craving a much-needed change.
No matter what your reason is, turning your current home, or, what is known as your Principal Place of Residence (PPOR), into an investment property can be a great way of generating additional income. It will also ensure that you aren’t burning all your bridges to return to the old life if the desire for the same arises later on.
Why Turn Your Home into An Investment Property?
Of course, you could also just cash on your equity by selling the house if market conditions are favorable. However, for a host of different reasons, homeowners often feel that retaining their PPOR is better than selling it.
For one, renting or leasing out your house will cut out the cost of hiring real estate agents and funding marketing campaigns. It also saves the time that you would otherwise have to invest in prepping for and executing the campaign.
Additionally, it will also save you from the hassle and cost of buying another investment property like conveyancing fee, building inspections, stamp duty, etc.
Retaining your PPOR is a smart move as it provides an extra element of security. You can quickly move back to your former life without having to feel stuck in what might seem like a bad decision if things don’t turn out like how you had imagined them to be in your new location.
Things To Consider When Converting Your PPOR Into An Investment Property
By definition, your primary residence is the place that you inhabit. You can rent it out every year for a total period of up to two weeks without having to pay any tax on the income that gets generated.
On the other hand, a rental property is a place that you primarily use as an income property. Your personal use on a rental property cannot exceed a period of more than 14 days per year.
However, the tax code is rather complex when it comes to using your property for generating rental income. This is where a conveyancer or certified public accountant comes in handy. They will help you to carefully understand the nitty-gritty of the taxes applicable on renting out your property.
On the bright side, while you will have to file in your income from the rental property as tax deductible, you will likely be able to deduct the expenses incurred on fixing and maintaining it. Also, The Australian Taxation Office (ATO) allows you to make deductions for depreciation and other write-offs applicable on rental properties.
The decision to convert your PPOR into a rental property must be carefully evaluated especially since there are tax benefits on selling your primary residence that aren’t applicable when you convert it into a long-term rental property. It is also recommended that you carefully study tenant rights and other related issues before taking your final decision.