Tips for turning your home into a rental property
In order to successfully flip your principal place of residence (PPOR) into an investment property, you'll need to take a few factors into consideration. John and Emily had a chat about when you might consider it and some details to work through so you do it with the best chance of success! Check out the episode below:
First up - timing
When is it best to flip your principal place of residence to an investment property? Best case scenario is:
when you’re looking to upsize to a larger property, or
when you’re looking to rentvest - an example could be when you’re moving cities for work.
PRO TIP: don’t convert your property solely for the purposes of cashing in on first home buyer incentives and grants! Discounts and grants are not a strong enough reason to get entangled in property (although they are enticing offers, and yes, cash in on them if buying property is already one of your long term goals). Ideally you’d want to buy your PPOR with the view of renting it out BEFORE you buy it. This impacts a number of details like your lending set up, the kind of property you buy and the area it’s in, the way you maintain and update the property, and so on. Use your long term plan to structure how and what you buy and utilise the grants and concessions available to you - but don’t rely on them as your primary reason for buying.
Secondly - make your property competitive
Get to know what kinds of properties are in demand in the area and line up your property competitively. Do not over capitalise on renovations just to gain more potential income - sometimes focusing on keeping it neat and clean is more effective in meeting your business goals. Also consider what level of fuss the property could add to your life - do you want to deal with all that? Because there will be fuss! Do what works for you and the level of drama you want (or don’t want) in your life.
Thirdly, let’s talk money
Chat with your mortgage broker to work through the lending implications. Get to know your lending capacity for your new place, and the holding costs associated with your old property and the new property simultaneously. Ensure you can handle those costs.
Chat with your accountant - chat through tax implications such as deductions and capital gains tax down the line. The use of the property has changed so your accountant can help work through what is impacted as a result.
Have cash buffers! Please! Set up an emergency fund for your property management so if the roof caves in you have a fallback. Don’t forge ahead without a cash buffer - if something needs cash you’ll likely dig into your day to day cash and that could become pretty stressful.
Prepare for the worst case scenario so you’re as prepared as possible. Chat with someone who’s ahead of you in the property investment game and learn from what went wrong! Prepare for those possible outcomes so you aren’t shocked when or if something goes wrong.
Fourth - plan your management logistics
Organise a property manager - seriously! You’ll be doing yourself a huge favour by having an external, non-emotional and hard-working property manager on your team. You may be hoping to cut costs by managing the property yourself but there can be complications - sometimes being too close to your property can lead to poor decision making because you’re too emotionally involved. Remember you’re running a business and sometimes being a little distanced from the property can help make the best decisions for your situation.
Select good tenants - protect your property by choosing the tenants who will care about it! In an ideal world you create a nice ecosystem of great property + great tenant = consistent rent, maintained property, maintained property value, less overall drama. Consider your tenants carefully and most importantly take care of them! Don’t smash them with unreasonable rent hikes - when it comes time to increase rent, work with the tenant to find a compromise where both parties win.
