For many reasons your first home is the one you want to hang onto, sentimental reasons or cost saving or simply moving onto the next step. But what, if anything, do you need to do when you’re moving out and keeping the old place as an investment?
Theoretically you don’t HAVE to do anything with your existing loan, but, you may WANT to do something. If you’re borrowing more money against your home for a new home then your broker will sort it and explain everything in the process, however, if not you may WANT to:
Switch to interest only repayments on your current loan, which helps with cash flow and keeps your loan account nice and tidy. Note here is you have to have an exit strategy – how will you pay the place off eventually - or will you sell it to repay the loan? Great time to also health check the home loan)
Change your banking structure so no money is coming out of your (now) investment loan other than for investment purpose. Preference in most cases is to use an offset account against your new loan, or, if not other debt against this loan but avoid taking money out of an investment loan for any other purpose. Your accountant will not love you if you don’t heed this advice.
While you’re at it you need a good accountant, if you haven’t got one ask for a recommendation. You want one who makes suggestions, not just writes down what you’ve already done.
Get a valuation done on the home to quarantine it’s current value for capital gains purposes
Get in touch with your accountant and confirm with them any additional changes. This is particularly true if you’re tossing up between renting and buying a new home, there are some essential timings that come into play around your purchase. Knowledge is power.
While you’re in contact with your accountant ask about a depreciation schedule, this could help you back up the valuation of your home & its possible you could claim depreciation for the building / renovation and the fixtures in your home. The depreciation schedule has a cost so you weigh up the potential benefits vs the cost.
Article for the Western Weekender