Whether you’re renting out your home while you live overseas for a few years and intend to move back in eventually, or have upgraded to a new home and want to turn your former place of residence into a permanent investment property, there are a few things you need to consider before renting out your home.
Don’t assume that because you will have rent coming in you’ll have a whole lot of spare money to play with. You need to consider what turning your home into an investment will cost you. This includes things like property management and advertising fees, maintenance, capital gains tax and insurance, some of which are discussed further below. Before renting out your home, you should try to calculate the weekly income or deficit you will receive from the property so you can ascertain how it will affect your budget and lifestyle.
The benefit of a property manager
While some investors are tempted to manage their own properties, there are a lot of downsides to this approach and even more reasons why you should hire a professional property manager. A dedicated property manager will have a better idea of pricing, will manage any disputes and will help select a suitable tenant and conduct reference checks, among other things. Hiring a pro to manage your property will also help remove some of the emotion from the process, which can be hard when the space has been your home.
As a landlord you will need specific landlord insurance, in addition to your standard home insurance. You will need a policy that covers you for things such as tenant damage and rental default, which general home and contents insurance won’t.
Is your home ‘rentable’?
Just because you decide to put your home on the market, it doesn’t mean someone will snap it up right away or at all for that matter. You need to make your home appealing to the rental market. This could be fixing those repairs that you’ve been putting off, replacing that daggy carpet, ensuring it’s tidy in general and has curb appeal. These things can also increase rental price, if you play your cards right.
When you’re an investor, you’ll have access to a range of tax benefits that owner occupiers don’t. This includes property depreciation, where you can claim deductions for wear and tear to the property and its contents over time. However you should also consider how the Capital Gains Tax (CGT) you pay will be affected if the property is sold in future. Read more on what CGT is and what the rules and exemptions are here.
Your emotional attachment
Given that the property had been your home, it’s understandable that you will have an emotional attachment to it. However, when investing, it’s important to remove this emotional attachment to some degree. You don’t want to care so little about it that you leave any damage unrepaired and let it get into a state of disrepair, but you also have to be open to changing things at the property if reasonably requested by the tenant, even if it may not have been that way when you lived there.
The legal obligations
You need to ensure that you conduct your investment in a legal manner. This includes everything from the tenancy agreement to inspections, rent collection and terminations. This is why it’s a good idea to hire a property manager, as they will take this concern and liability away from you. Even so, it’s a good idea for landlords to have a basic understanding of the Residential Tenancy Act, to ensure they’re acting in a legally compliant manner.
What will be included with the property? This may differ if you’re renting the property out for just a year or two, or long term. For instance, will you include all furniture, just basics like the washing machine and couch, or no furniture at all? Furthermore, decide if certain assets will be off-limits to tenants, such as a spa or the garage you’re still using for storage.