Turn your Mortgage into a Rental Property

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Learn how you can profit from a Rental Property

Taking out a home loan and moving into your new property is one of the most exciting occasions in one’s life. What’s even more exciting is the less known prospect of building equity over time, taking out a second mortgage, moving into another home and turning your original home into a rental property. The potential reasons for why homeowners may decide to turn their current residence into an investment property are far and wide ranging. From wanting to upgrade to a bigger and more lavish mansion to wanting to downgrade to a smaller more easily manageable townhouse, to being forced to move due to changes in professional circumstances, could all be the principal factors causing a home buyer to move into a new property while renting out the former.

The good news is that as soon as the property is no longer your principal place of residence and legally becomes an investment, any interest paid as part of the loan repayments for that property qualifies as a tax deduction that is calculated at a rate of 2.5% per year in the 40 years following construction for costs of add-ons such as garages, patios or any other structural improvements on the property. So for instance if you had a two year old investment property worth $500,000 the deduction that could be claimed on annual basis would be $12,500 for the remaining 38 years, or for the proportion of the period the property remains owned by the particular tax payer.

Another important thing to bear in mind, and perhaps the most important of all, is the six-year rule. If you leave your principal place of residence with the intention to inhabit it at some point in the future, this rule will let you rent it out and make tax claims for income and expenses without incurring the capital gains tax when you are ready to sell the property. If you leave your property on rent by someone else for more than the six year period, then the capital gains tax starts to affect you. In order for the six year rule to take effect, the property you are renting out to someone else has to have been your principal place of residence from the date you acquired it and the property must not have been a rent property from the beginning.

Being able to save on interest amounts in investment properties and the six year rule are both incentives for home buyers to start thinking big in terms of profit making. At SwitchMyLoan.com.au we find our clients the best deals with the cheapest interest rates on the market so as to give them more options to start thinking about having investment properties of their own.


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