LEAVE IT OR LIST IT?

Reception • February 23, 2020

First homes, like first loves, are important milestones in our lives representing more than just bricks and mortar. And like our first loves, most of us eventually move on from our first home. Needs change, families grow and we find ourselves looking for a new property.


This is often a time that property owners turn their thoughts to investing, looking to own an investment property as well as a home to live in. The simple solution would seem to be to hang on to your first home and keep it as an investment property, right?


Wrong!


In most cases, keeping your first home as an investment property isn’t advisable, especially if there is substantial equity in the home.

There are, of course, exceptions to the rules. As your personal financial specialist we can look at your unique situation and help you make the most financially sound decision for you.



A few points to consider…

CAPITAL GAINS TAX AND THE SIX YEAR RULE


When you sell a home that has been used only as a principal place of residence, it does not attract capital gains tax (CGT). Conversely, a home that has been rented out will attract CGT. However, under the six-year rule, a property can continue to be exempt from CGT if it is sold within six years of firstly being rented out AND you


DO NOT own another principal place of residence. We can recommend specialists who are best placed to advise you on CGT implications and obligations.

 


Capital growth potential


Understand the future value of your first home before making any decisions. Look into comparable sales in your area, and research planned developments and infrastructures that may impact its future value.


Again, advice from our financial and real estate experts will help you weigh up potential capital growth against potential capital gains tax and other considerations.

 


Rentability


Our first home is often purchased using a criteria that is different from the one we would apply to an investment property.

When moving on from that home, consider if it will be easy to rent long term.

Just because you have loved the home, it doesn’t mean renters will. Speak to local property managers and investigate supply and demand in your area.


It is worth remembering that rent is considered as income, and if your rent is more than the loan and property costs, you will pay the marginal tax rate on the income plus your PAYG income.
 


Renovations


Whether renovations (improvements) are required to bring the home up to a rentable standard is an important factor to consider, and one that may tip the scales on your decision. Landlords are required to ensure the property complies with safety standards and meets the requirements of a rental property. These standards and requirements may have changed since your home was purchased and could represent a significant financial outlay.


It is worth keeping in mind that only certain improvements will be deductible in line with a depreciation schedule.


Also note – If renovations or improvements are completed before the property is rented, the costs will not be tax deductible, as they will be considered as home improvements before renting. If the renovations are done after it’s rented, then the renovations are considered improvements on the property and may be tax deductible, but only for the time it is being rented. Your accountant is best placed to advise you here.

 


Home loan considerations


The decision of whether you keep or sell your first home is largely dependent on your ability to service the mortgages required. How much you are able to borrow (for one or both properties) will be dependent on:


  • how much equity you have in your first home
  • the total amount you need to borrow, and
  • your ability to service both loans.


Lenders have different criteria with investment finance and will generally only consider 70-80% of the rental income.

 


Using your equity to buy


The greater the equity in your current home, the more you can borrow to buy another home. In addition, when buying your second home, it is possible to use the available equity in your current property as your deposit.


Depending on the increase in value since you purchased your home, you may have more equity than you imagined. This can be used instead of a cash deposit when buying your second home. However, if you use the equity from your existing home, it will need to be identified separately because the original loan will now be considered as investment, most likely be financed as an interest only loan and will be tax deductible.

Disclaimer: This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply. © 2018

4 Tips For Finding That Perfect High Yield Property

By Kola Dev • March 19, 2025
Any property guru worth their salt will tell you that a dream property investment has nothing to do with a prestigious address or sleek amenities. The ultimate goal, is to find that perfect “high yield” property that will give you maximum returns for as little input as possible. Yield refers to the amount of cash a property produces as a percentage of its value and is calculated by the rental income you are receiving compared to the purchase price. There’s a lot more that goes into the calculations, which I’m happy to run you through, but to give you an idea on what to look for, I’ve put together some simple tips. 1. Do your research. There are plenty of stats out there that will give you the median rental yield for each suburb. This is a great place to start! 2. Look for dual income properties such as a house with a granny flat. You can potentially have two streams of rent coming in, meaning the chance for a higher rental yield significantly increases. 3. Have you thought about looking rurally? Country towns offer some great properties at a low price and because the cost of living is low, the rental yields tend to be higher. 4. Always think forward. Be on the lookout for up-and-coming areas and ask yourself if they’ll still be flourishing in five years time. At the end of the day, you need to be realistic. Just because a property has a high yield doesn’t mean it’s going to be a great investment. As a mortgage broker, I can talk you through your options for investment loans so you can see what your monthly outgoings might look like. Please call our team on (03)8657 8664 or email reception@futurefinancegroup.com.au to arrange an appointment.

7 Quick Ways to Upgrade Your Home

By Kola Dev • March 19, 2025
The continuing boom in property prices has tempted many homeowners to invest in renovations to maximise the value and then put their home straight on to the market. There’s no doubt you stand a better chance of enjoying a great return on your investment if you modernise your home. Properties that enjoy a mix of the traditional and the contemporary are in big demand among today’s buyers and nothing ticks the boxes more than a brand new kitchen or bathroom. Two increasingly popular features at the moment are a dedicated home office and a design that connects the indoors with a garden or entertaining area. But renovation projects of this size can become expensive. If your budget doesn’t allow for large-scale upgrades, there are plenty of ways to enhance the value of your home at little cost. Here’s a seven-point guide to upgrade your home. 1. Break out the brushes It’s amazing how a fresh coat of paint will improve a property. Don’t focus only on the walls but attend to the skirting boards, ceilings and architraves. Select neutral colours as these make rooms feel bigger. 2. Go green Small-scale improvements to your gardens work wonders. Focus on the front yard as this creates an all-important first impression. 3. That’s entertainment If your property lacks an area to entertain, this is a great low-cost project to enhance your property’s desirability. Consider adding a deck or a barbeque area. 4. Floor ’em A mixture of different floor types can make a home feel bitsy while a home with consistent flooring creates a great sense of flow. Replacing the floor can be a painful project but you’ll be amazed how much bigger your home feels. 5. Say it with storage You can never have too much storage. A bedroom without built-in robes is just asking for clothes on the floor. Think about storage in bedrooms, bathrooms, kitchen and laundry and looks at ways to create clever storage solutions in nooks and under the stairs. 6. Kitchen upgrades If yours is a little tired, don’t worry – you don’t have to rip it out and spend big dollars. Consider replacing only the doors, drawers and handles. You’ll achieve a transformation at the lowest possible cost and it will feel like new. 7. Unbeatable bathroom Like the kitchen, this can be an expensive renovation. You can avoid replacing tiles by using a professional company to spray-paint them. This treatment can also be applied to sinks, baths and showers. New tapware and shower screens complete the refresh for a fraction of the cost of ripping and replacing. Please call our team on (03)8657 8664 or email reception@futurefinancegroup.com.au to arrange an appointment. *This article is provided for general information only and does not take into account the specific needs, objectives or circumstances of the reader. Before acting on any information, you should consider whether it is appropriate for your personal circumstances, carry out your own research and seek professional advice.

7 Tips for Organising Your Finances Before You Buy A Home

By Kola Dev • March 13, 2025
There are many tips for buying a property, but there’s one essential element that no one can avoid - getting your finances in great shape before you start. Knowing what you can afford is a critical element of finding your first home or the next one that takes you higher up the property ladder. The most successful buyers begin their search with their finances in order and a pre-approval letter from their bank or lender. They know their budget and tailor their efforts accordingly. There’s no greater waste of time than visiting properties that are beyond your price range. Using a mortgage broker can help you shortcut the hours of research through various banking products and good brokers have detailed market knowledge and can offer an array of products. We can suggest the loans most suitable to your circumstances and assist you with paperwork, and review your credit history. We can also help you understand any grants or tax exemptions from state and federal governments that you may be eligible for. Below are a few tips for securing the finance that will help you find your dream home. 1. Clarify your finances If you’re a homeowner, you’ll need to obtain a valuation on your current property and provide proof of current earnings. A first-time buyer will ideally have 10% of the purchase price as a deposit to get the best interest rate and conditions for their first loan but the more the better. Money for legal fees, property inspections and taxes need to be set aside, too. Make sure your tax returns are up to date to prove your earnings. It will make life easier. 2. Low barrier to entry You can obtain a conventional loan with as little as 5% of its total as your deposit. Some government-backed loans do not require a deposit. 3. It pays to save The more you save, the less you borrow. And that means lower your monthly repayments for you over the term of the loan. 4. Go for a grant First-home buyers should research the current grants from various levels of government that are designed to encourage them into the market. 5. Credit crunch You’ll need a good credit history to be attractive to lenders. Check yours out by using companies such as Experian and Equifax. If your track record is not the best, we can discuss ways to address this. If errors appear in your credit history, dispute them immediately. 6. Find the right loan You can save thousands of dollars by choosing the right mortgage product for your situation. It pays to shop around and make a note of not just the interest rate but the fees that come with it and other services that may be offered. As your mortgage broker, we can guide you through this process. 7. Be pre-approved A written undertaking from your lender will help you focus on what you can afford, as well as signal to a prospective seller and their agent that you’re not kicking tyres. Watch out for lenders who will only “pre-qualify” you, as this represents only an estimate of what you can afford and does not offer any guarantees of intention to lend. Please call our team on (03)8657 8664 or email reception@futurefinancegroup.com.au to arrange an appointment.
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