The Pros and Cons of Living in Your Investment Property in Australia
Investing in property can be a great way to build wealth and generate income. But you may wonder, “Can I live in my investment property? Is it possible?”
Australian property investors and expats often question whether an investment property can later be used as a primary residence and what implications that change may have.
The answer is yes, you can live in your investment property in Australia. However, there are a few things you need to know before you make the move.
Can You Live in Your Investment Property?
Yes, you can live in your investment property in Australia, but doing so may affect its status. If you live in the property, it becomes your primary residence, and you may lose certain tax benefits, such as negative gearing and some capital gains tax (CGT) exemptions.
How Long After Buying an Investment Property Can You Live in It in Australia?
There is no set time you must wait before living in an investment property in Australia. However, moving in changes its status to a primary residence, affecting tax benefits like negative gearing and capital gains tax (CGT) exemptions.
Steps to Take to Live in An Investment Property
To live in your investment property, follow these steps:
- Notify Lender: Inform your mortgage provider, as moving into the property might change your loan terms.
- Assess Tax Implications: Understand the impact on negative gearing and capital gains tax (CGT) exemptions when the property becomes your primary residence.
- Update Property Status: Change the property’s status with relevant authorities (e.g., notify the Australian Tax Office).
- End Lease Agreement: If the property is rented, legally terminate any lease agreements with tenants.
- Update Insurance: Adjust your insurance policy to reflect that the property is now owner-occupied.
What Are the Tax Implications of Living in My Investment Property?
When you live in your investment property, it becomes your principal place of residence (PPR). This means that you can no longer claim tax deductions for expenses related to the property, such as interest on the mortgage, council rates, and property taxes.
However, there are some exceptions to this rule. For example, you can still claim tax deductions for expenses that are directly related to your rental activities, such as advertising costs and cleaning fees.
You should also be aware that if you sell your investment property within six years of moving into it, you may be liable for capital gains tax. However, there are some exemptions to this rule, such as if you sell the property because you need to move for work or health reasons.
What Are the Pros and Cons of Living in My Investment Property?
There are a number of pros and cons to consider when deciding whether or not to live in your investment property.
Are There Benefits Of Moving Into Investment Property?
- You can save money on rent or mortgage payments.
- You can build equity in your property faster.
- You can claim tax deductions for expenses related to your PPR.
- You can enjoy the benefits of homeownership, such as having a sense of security and stability.
What Are the Drawbacks Of Moving Into Investment Property?
- You may have to give up your rental income.
- You may have to pay capital gains tax if you sell the property within six years of moving into it.
- You may have to deal with the hassles of homeownership, such as repairs and maintenance.
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How Do I Convert My Investment Property into My Primary Residence?
To convert your investment property into your primary residence, you need to notify the Australian Taxation Office (ATO). Here are the steps on how to convert your investment property into your primary residence in Australia:
- Notify the Australian Taxation Office (ATO). You can do this by completing a change of address form on the ATO website.
- Update your home insurance. Make sure that your home insurance policy reflects that you are now living in the property.
- Change your address with your bank and other financial institutions. This will ensure that you receive important mail and statements at your new address.
- Update your driver’s license and other identification documents. This will help to avoid any confusion if you are stopped by the police or need to show identification for other purposes.
- Start claiming tax deductions for expenses related to your PPR. This includes things like interest on your mortgage, council rates, and property taxes.
It is important to note that you can only convert your investment property into your primary residence once every six years. If you sell the property within six years of moving in, you may be liable for capital gains tax.
If you have tenants in the property, you will need to give them notice to vacate. The amount of notice you need to give will depend on the state or territory where the property is located. Additionally, if you have made any improvements to the property while it was an investment property, you may need to adjust the cost base of the property for tax purposes.
It’s important to speak to your accountant about the tax implications of converting your investment property into your primary residence.
Can I Move into My Investment Property and Rent a Part of It?
Yes, you can move into your investment property and rent a part of it. This is known as “part-time occupancy”.
When you move into your investment property, it becomes your principal place of residence (PPR). This means that you can no longer claim tax deductions for expenses related to the property, such as interest on the mortgage, council rates, and property taxes.
However, you can still claim tax deductions for expenses that are directly related to your rental activities, such as advertising costs and cleaning fees.
You will also need to apportion your capital gains when you sell the property. This means that you will only be liable for capital gains tax on the portion of the property that was not your PPR.
The amount of the tax deductions you will be entitled to claim will depend on what portion of the property you rent out. For example, if you rent out half of the property, you will only be able to claim half of the expenses related to the property.
Considerations When Moving into Your Investment Property and Renting a Part of it
Here are some additional things to keep in mind when moving into your investment property and renting a part of it:
- You will need to make sure that the property is suitable for both living and renting. This means that you will need to provide separate living spaces for yourself and your tenants.
- You will need to comply with all relevant tenancy laws. This includes things like giving your tenants a written lease agreement and providing them with a copy of the Residential Tenancies Act.
- You will need to be prepared to deal with the hassles of being a landlord. This includes things like collecting rent, dealing with repairs, and evicting tenants if necessary.
If you are willing to put in the work, moving into your investment property and renting a part of it can be a great way to generate income and build equity in your property.
Owner Occupied Loan for Investment Property
If you’re wondering owner occupied vs investment property or considering switching your investment loan to owner-occupied, Odin Mortgage can help you through the process.
We have a team of experienced mortgage brokers who can assess your individual circumstances and recommend the best course of action.
Benefits of Switching an Investment Loan to Owner-Occupied Loan
Here are some of the benefits of switching an investment loan to owner-occupied with Odin Mortgage:
- You will be able to claim tax deductions for expenses related to your property, such as interest on your mortgage, council rates, and property taxes.
- You will be able to access lower interest rates, as owner-occupied loans are typically more attractive to lenders.
- You will have more flexibility with your repayments, as you will be able to make changes to your repayment schedule without penalty.
What You Need to Switch
Here are some things to keep in mind when switching an investment loan to owner-occupied:
- You will need to make sure that you meet the eligibility criteria for an owner-occupied loan. This typically includes having a good credit score and a stable income.
- You will need to be prepared to pay a valuation fee, as Odin Mortgage will need to have the property valued before they can issue you a new loan agreement.
- You may need to make some changes to your home insurance policy, as owner-occupied properties are typically insured differently than investment properties.
Switching an investment loan to owner-occupied with Odin Mortgage is a relatively straightforward process.
Contact us today to get started.
FAQs about Moving Into Investment Property
Can I live in my investment property in Australia?
Yes, you can live in your investment property in Australia. However, there are a few things you need to keep in mind:
- You can only convert your investment property into your primary residence once every six years.
- If you sell the property within six years of moving into it, you may be liable for capital gains tax.
- You will no longer be able to claim tax deductions for expenses related to the property, such as interest on your mortgage, council rates, and property taxes.
- You will need to notify the Australian Taxation Office (ATO) of the change in your circumstances.
If you are considering living in your investment property, you should speak to your accountant or financial advisor to discuss the tax implications.
Is it allowed to reside in investment property?
Yes, you can reside in an investment property, but it changes the property’s status to a primary residence, potentially impacting tax benefits like negative gearing and capital gains tax (CGT) exemptions.
What are the benefits of living in my investment property?
There are a few benefits to living in your investment property, including:
- You can save money on rent or mortgage payments.
- You can build equity in your property faster.
- You can claim tax deductions for expenses related to your PPR.
- You can enjoy the benefits of homeownership, such as having a sense of security and stability.
What are the drawbacks of living in my investment property?
There are a few drawbacks to living in your investment property, including:
- You may have to give up your rental income.
- You may have to pay capital gains tax if you sell the property within six years of moving into it.
- You may have to deal with the hassles of homeownership, such as repairs and maintenance.
How do I convert my investment property into my primary residence?
To convert your investment property into your primary residence, you need to notify the Australian Taxation Office (ATO). You can do this by completing a change of address form on the ATO website.
Once you have notified the ATO, you will be able to claim tax deductions for expenses related to your PPR. You will also be exempt from capital gains tax if you sell the property within six years of moving into it.
Is it worth having an investment property in Australia?
Yes, having an investment property in Australia can be worth it due to strong capital growth, rental income potential, and tax benefits like negative gearing.
However, it depends on the location, market conditions, and your financial situation. High demand in major cities makes it an attractive option for many investors.
Is Australia a good place to invest in real estate?
Yes, Australia is a good place to invest in real estate due to strong property market growth, high demand in cities, and stable economic conditions.
Investors benefit from capital appreciation, rental yields, and tax incentives like negative gearing, particularly in popular locations like Sydney, Melbourne, and Brisbane.
What is the tax benefit on investment property in Australia?
The main tax benefits of investment property in Australia include negative gearing, where rental losses can offset taxable income, and depreciation deductions for property wear and tear.
You can also claim deductions on expenses like loan interest, repairs, and property management fees, reducing your overall tax burden.
What is the average return on investment property in Australia?
The average return on investment property in Australia varies by location but typically ranges between 3-5% for rental yield and 5-10% for capital growth annually.
Major cities like Sydney and Melbourne offer strong long-term capital gains, while regional areas may provide higher rental yields.
Can I move back into my investment property to renovate?
Yes, you can move back into your investment property to renovate. However, this may change its tax status from an investment to a primary residence, potentially affecting tax benefits like negative gearing and capital gains tax (CGT).
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