Not all homeowners who are upgrading to a bigger house need to sell off their current property. The thought and wonder on how they could potentially keep their current home and turn it into an investment property would be on the back of their mind.
You can keep your property and upgrade to your new home without incurring a loss if you don’t need a fast sale in order to buy your new home.
If your home is an asset that’s doing well, the only time you should be selling is when you need to, why not own both properties to start your property portfolio journey if it’s viable?
By placing some strategies in place, homeowners can create wealth through the capital growth of their property/ies, this could be an integral part of their retirement planning on building up your nest egg.
Mortgage Strategy
Through an effective mortgage strategy, you can potentially have a positive cash flow Investment property once your home is converted into an investment.
A good mortgage strategy will also capture the tax benefits on your investment, low-interest rate, correct structure and a better chance of improving your wealth. Without a mortgage strategy, selling of the asset unnecessarily may turn costly in the long run.
As each individual has different needs and goals, there are several mortgage strategies that can be applied when turning your home into an investment property based on your circumstance.
Your mortgage and property plan should always be long term, there’s no such thing as overnight success in property.
Structure/Benefits
Having a positive geared investment property is like having surplus money, you can keep the profits in an offset account to reduce any non-taxable debt such as your owner occupied home and maintain the full tax deductions of the investment to minimise your tax payable.
However a negative geared property is also not a bad thing if you’re able to afford it and the property has the potential of substantial growth.
Put Extra Repayments Aside
It’s not always a good thing in making extra repayments into the loan if you’re planning to convert it into an investment. You would rather make minimum repayments and ensure the extra repayments are in an owner occupied offset account.
This is to maintain the full tax deductions once the home is converted into an investment and its more appropriate to transfer the extra funds to your new Owner Occupied offset account instead as the interest expense is not tax-deductible when you are occupying the property so this helps to reduce the interest expense.
If you made extra repayments into your home loan, you cannot redraw on the original home loan and put it forward to your new property and also claim the full loan ( which is now and investment loan) as tax deductible, This redraw cannot be claimed as a tax-deductible.
Whether interest is deductible or not is dependent on where it originated from and what is the “usage” for it.
Put it Simply, the “purpose” of the funds used, determines if it’s tax deductible or not.
