Hold Or Release – What You Should Know About Turning Your Home Into An Investment Property

To sell or not to sell is often a question many homeowners face when they realize they have outgrown their current home and need to upgrade. The thought of keeping the property as an investment is favourable, however also comes with many risks, such as not being able to tenant it or being subjected to fluctuations in the property market.

Yet most see that accumulating a property portfolio can be a very lucrative nest egg and is considered to be a desirable way to accumulate wealth, due to capital growth and the property hopefully providing additional income.

So how do you know when to hold or release?

When To Hold

 As they say quality over quantity! High performing assets ie. properties that are high performers are worth holding on to and homeowners are able to take advantage of capital growth on two properties, especially if the first property has seen an increase on value.

In an ideal situation, the property will be working for you and covering loan repayments through rental income.

As reported by Domain, according to the founder of Empower Wealth, Ben Kingsley, if it’s been a good performing asset and you’re looking to upsize, do everything you can to hold onto it,” he said. “Why would you sell the golden goose that keeps laying eggs?”

Mr Kingsley furthered that by adding that as long as individuals can manage the holding costs, the strategy can lead to a faster increase in wealth, provided the asset is investment grade. What this means is that often a property that might be suitable as a family home, might not be the best investment.

What Is Negative Gearing And How Could It Put Me At Risk

Negative gearing is found when the costs of owning the property far exceed the rental income. Although this loss can be applied taxable income deductions, it can end up causing problems because it causes cashflow restrictions.

People often get excited about tax refunds, however it is important to remember that the reason that you are receiving a tax benefit is because you are making losses not gains, and slowing market conditions can affect how quickly losses are able to be recovered.

This can be combated by applying long-term interest rate calculations of around 7% and incorporating a buffer.

When Should I Sell

At the end of the day, your decision to sell or retain a property relies on A) your financial situation and B) the property itself, but predominantly the former.

Large family homes do not always yield the best rental income and retaining a mortgage could potentially limit your borrowing power, which may have an adverse affect on your upgrade plans.

Obviously if you own the property outright or have a small mortgage, then this would be a desirable position, however you still will be taxed at the highest marginal rate of your income on any income you earn from the property.

The best thing to do at all times is seriously evaluate your financial position and speak to a trusted adviser.