Turning Your Home Into An Investment Property

one way of investing in property and building up your portfolio is to kind of household so you purchase your own property to live in yourself you might renovate it while you’re there and then you might upgrade or move to another area and you convert that home into an investment property that’s a way that a lot of people do it simon everingham from pumped on property who i got on the line today is currently doing that at the moment so today we wanted to talk about some of the things to think about if that’s your strategy as well as some of the pros and cons of doing that sort of strategy so hey simon how’s it going yeah really good thanks for having us on the show man no worries so you originally purchased two investment properties that you haven’t lived in and you’ve just purchased your third which is your own home that you’re going to be living in with your partner it’s currently under some renovations at the moment but you did mention in our previous episode which i’ll link up down below where we’re just kind of chatting about life that you said you may eventually turn it into an investment property in the future so i thought it’d be cool to think about okay what are some of the pros and cons in that and what are some of the things that i guess you’re thinking about and people should think about if they’re going to do something similar so do you want to give us a bit of the story and and why did you opt to purchase your own home for your third property rather than buying an investment property yeah so my plan was always to secure my base level financial independence first so that’s exactly what i’ve done with my two investment properties in brisbane i bought two affordable properties in really great locations that i’m planning to convert into dual occupancy homes and basically the idea there is they’re going to replace about 80 to 100 000 worth of passive income once i own them outright so that’s going to allow me to sit comfortable for the rest of my life it’s going to give me choices it’s going to mean that i don’t have to go to work if i don’t want to it’s going to mean that i can take months off it’s just going to give me the freedom that i need now i’m not going to be able to you know send my kids to the private schools and go on overseas holidays all the time and things like that but it’s going to make make it’s basically my insurance policy so that was always my plan so it’s like if you lose your job or something happens or say you don’t want to work anymore you can kind of just cruise around the sunshine coast you can still get coffee you can go to the beach you can drive your affordable car and you can live life and be okay on like those two properties and what they’ll deliver once they’re paid off exactly man like just live a simple life that i’m more than happy to live um now knowing that i’m young 27 knowing that i have a lot of investing left in me i just wanted to keep things a little bit open so my third property was always going to be my own home but always keeping that investment cap on always making sure that i’m focusing on something that’s in the right area that’s focusing on the right fundamentals so that if i decide to move out of that property at some point in time i have the potential to convert it into an investment property so it’s basically ended up the perfect situation there because the property is in an up and coming suburbs probably one of the last suburbs on the southern side of the sunshine coast that’s got a beach it’s got a lake really close by but you can still buy properties under six hundred thousand dollars so i knew that because of that ripple effect eventually it’s going to get to this suburb so that’s why i really valued it as well now in terms of the fundamentals i stuck to all the same things that i did with my first two properties which is buy on a nice quiet family friendly street by a nice big piece of land by close by solid amenities so there’s a great school locally there’s shops locally it’s got the beach a couple of kilometers down the road it’s got the lake a couple of kilometers down the road easy access out to the bruce highway it’s only about 10-15 minute drive out to the bruce highway down to brisbane so it’s in a really really centralized location so this has a potential to easily be converted into a an investment property i don’t know if i’ll be able to do the granny flat strategy on this one plain and simply because the sunshine coast doesn’t allow you to do it at the moment but in the future that may change yeah so i think a few things that people can take away from that is that when you’re looking to purchase your own home if you’re considering that okay this may be a stepping stone to my dream home i may convert this into an investment property in the future you want to be looking at all of those fundamentals so you want to be looking at the market where is it at in the market cycle you want to be looking at the area and whether the suburb in that area looks like one of a suburb that’s set for growth not one that’s going to decline you want to buy you know the right property on the right street with you know the right things that the demographics in that area want so if people in that area mainly rent houses not units then you know maybe you want to opt for a house also want to look for larger blocks of land because the land is going to go up in value over time and so again locking in all those fundamentals is super important and then also i think having like here it’s a bit more ambiguous as to what your strategy is because you really are purchasing it for a home and you’ve got those fundamentals in place so it’s giving you options for the future so it’s a bit different to the two property strategy where you’re like okay like the finances and the strategy is so clear that i’m going to either knock this down and build a dual occupancy or build a granny flat it’s going to deliver this yield which i’m going to pay off like it’s a lot more ambiguous than that is that correct 100 because i don’t know if i can do the dual income strategy on the sunshine coast plain and simply because of the town planning laws but i live on the sunshine coast and i want to live on the sunshine coast so i just needed to make sure that i ticked all of those other goals to make sure that this one was still as i said ticking all of those boxes which which it really does yeah so regardless if i can do the dual income or not it’s still a very solid investment property yeah so it’s less you don’t know exactly how this piece is going to fit into i guess your overall financial freedom but you know that you’ve got the fundamentals down pat so you’re purchasing an investment property so you don’t have to pay rent you’re paying a mortgage now instead interest rates are super low it’s probably similar to what you’re paying in rent anyway i would imagine and so i guess you’ve got that cash flow neutral sort of situation there because you would have been paying rent and you know that you know over time if you hold this for a while it’s probably going to perform pretty well get you some capital growth which like it just gives you options in the future it’s not like okay this property is going to deliver me financial freedom but it’s like okay maybe i’ll keep it and rent it out maybe i’ll do dual occupancy if it’s allowed in the future or maybe i’ll sell it for some profit and use that money to then purchase another investment property or use that profit to which you know capital gains so many options that it’s going to give me you know i can sell use the capital growth no cgt to move into the next one or exactly use the equity to then buy my my next dream home so it does give me options and that’s a major part of my investment strategy as well is having options so the house itself gives me some options in terms of renovation as well so what i’m planning to do what i am doing at the moment is just a very small uh cosmetic renovation um so we’re going to end up spending about 20 to 10 to thirty thousand dollars on it um and we’ll be adding about sixty thousand dollars worth of value through that because i’m trying to get uh two dollars out of my one dollar for those renovations um but yeah just spending a little bit of money there getting it into a position where we’re going to be super house proud and excited to live there and getting it set up for the next three to five years so then i’ve got three to five years now where i’m living in a home where i’m super happy i’m very comfortable i’m in a great spot and then in three to five years i’ll then go okay well are we going to convert this into our dream home or are we going to turn this into an investment property and move into our dream home or are we going to sell this in order to move into our dream dream home so we’re just doing a very basic renovation at the moment if we decide that we want to stay in it forever then we’ll be going and spending a lot more money on it but if we decide to turn it into an investment property we probably won’t be doing too much with it yeah and so that’s i guess one of there’s a couple of benefits that came up there of purchasing a house that you plan to convert into an investment property or using it as an investment one of them is capital gains tax so we’re not accountants but you can talk to your accountant about this but obviously some benefits of if it’s your principal place of residence then you may not have to pay capital gains tax on if that property goes up in value and you sell it so there can be a major benefit there if you buy well as well as the opportunity to renovate that property if you’re leasing out a property it’s very difficult to renovate while there’s tenants in that property or if you’re renovating it you can’t really take your time because it means you’re not getting any rental income coming in but when you’re living in it yourself you can like renovate it to a standard that you like and you’re happy with but you can also renovate it over time and make improvements over time so you might do a cosmetic overhaul before you move in simon but i’m sure over the next couple of years there’s going to be things that you add on the weekends or maybe you’ll put a pool in or maybe you’ll put you know some change the gardens up or paint things or change the curtains you know yeah that ability to renovate it over time while you’re living there that can also be a benefit and increase the value of the property as well 100 and as i said before you know every single time we’re deciding to add value to the house yeah we’re emotionally attached to it because it’s our own home there’s certain things that i want that tenants don’t need um so i’ve just got to make sure that if i am planning to turn this into an investment which that is probably the highest likely chance from this particular property i just need to make sure that when i am choosing to do these renovations or landscaping adding value to the property i need to be making sure that i’m getting about two dollars out of my one dollar which can be pretty damn hard but i do have a lot of friends that work at mates rates and and that definitely makes it a little bit easier i’m not the most handy guy i got a good mind but not the best yeah i’m the same but yeah that idea of just you keep your investor hat on when you’re making these decisions because otherwise you can overspend on things and if you do eventually rent it out as an investment property the things that you spend a lot of money on tend to deteriorate and lose their value and so you can lose a lot of value by over renovating a property so i guess that’s something to think about i guess one of the negatives of buying your own home that you plan to invest on property because it’s not going to be your home forever you’ve got to keep that in mind so you can’t just make the emotional decisions well you can but i guess it’ll cost you some money exactly what else was it gonna say um another thing to think about as well is i guess how you structure the mortgage now neither of us are mortgage brokers or accountants as well um but obviously when you have an investment property the interest on that investment property how do i even say it with that it’s hard isn’t it but yeah you can use it yeah well that that that interest cost can offset income from the property and if you own your own home and you pay down a lot of the debt and then convert it into an investment property and you no longer have any interest to pay then there’s less to offset so it’s just something to think about is to okay how much debt do i actually want to pay down on this property or would i rather put that money into an offset account and then move that money so i’m not paying interest on it but then move that money across to my new offset account on my new home when i have that to maximize the tax benefits but yeah i guess i’ll leave it at that you can talk to an accountant about that one but definitely something to be aware of and think about because some people have you know paid down too much debt on their own home and then regretted it and wish they hadn’t i think ben’s done that in the past yeah exactly so that’s a beautiful thing about offset accounts so yeah talk to your mortgage broker about that and use them to the benefit that’s exactly what i plan on doing myself but my goal long term is a passive income goal so i know that i need to pay off the debt anyway because until i paid off the debt i’m not getting the passive income so i don’t have a tax benefit strategy i don’t see a tax benefit strategy as a long-term strategy because the government could change that whenever they want but i’m working on a passive income strategy so i need to own my properties outright so in that sense it doesn’t matter as much but definitely i’m going to utilize the benefits of that offset account to have once again choices and options yeah and it’s just i guess kind of maximizing what you can so that you can make as much as you can allow you to pay off debt faster you know some people get really complicated with their debt repayment strategy to maximize everything some people just like to keep it simple and realize that you know you may lose a couple hundred bucks in interest or something but it’s like you know it’s too complicated or just not not worth it but definitely something to think about is there anything you think we haven’t covered when it comes to buying a home that you may plan to turn into an investment um i think at a high level we’ve got it all at least what my plans are you know i haven’t even moved into the property yet it’s all happened over the last couple of months so um you know this is a long term plan i haven’t been putting too much thought into it i’m just super super excited to get in there yeah i’m super excited for you as well it’s going to be super cool that you’ll have your own little pad up there all renovated and ready to live in got a spare room for you mate so when you don’t when you come out you don’t need to stay in the airbnb oh awesome yeah i was gonna say what are you gonna do with four bedrooms when it’s just you and tay i’m gonna turn one into my little nfl playstation room nice little office and we’re only gonna have one spare bedroom at this point in time that’ll be cool yeah well congratulations again on the purchase if you guys are out there and you’re interested in purchasing an investment property whether you’re using the two property to financial freedom strategy or you know looking for something else then simon and the team over at pumped on property do offer free strategy sessions so you can talk to them about where you’re at where you want to be and what sort of property strategy could get you there so they’re free you know you can get on the phone with them talk to them and just get clear on where you’re at and how to get to where you want to be and then you can decide to go and implement that strategy yourself or you can hire the team over there so go to on-property dot com dot a u forward slash strategy and you can learn more about those sessions and book a time over there but yeah thanks so much for your time today simon and until next time everyone stay positive

Watch The Video:

One way of building a property portfolio is to house hop. Buy your own home, live in it for a bit and then when you move convert that property into an investment property.

Book a free property investment strategy – https://onproperty.com.au/strategy/

0:00 – Introduction
0:39 – Simon’s latest investment, his own home
2:50 – Focus on the fundamentals
5:20 – The strategy is more ambiguous
7:35 – Buying your own home makes it easier to renovate
11:35 – Structuring the mortgage

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