Planning a move to a new city or a different house? Sometimes, due to changes in financial or personal conditions, it becomes imperative to move out of your current residence and shift to a new abode.

Considering your emotional attachment with your home and other financial criteria, are you in a dilemma whether to rent or sell your house? We understand that it is a tough decision and there can be no wrong or right here. However, we suggest you understand both sides of the coin and take a practical decision for a better financial future.

renting out or selling your property

What is the advantage of renting a house?

Mortgage repayments: If your property is located in a popular suburb, chances are it will give you a good rental yield. This can be used to pay your monthly mortgage payments, building your property portfolio without pinching the pocket.

Income: Renting your house is a good idea to create a steady stream of income and keeping the equity for your retirement fund. It is also possible to refinance your current home so that you can afford the down payment for the next one, and continue receiving the rent. Contact our mortgage brokers for expert advice on refinancing your home loan.

A temporary move: As you still own the house, you can come back anytime and start staying in it again. No capital gain tax is applicable if you have stayed in the house for over 2 years in a 5 year period prior to sale, giving you 3 years to rent it out before you decide to sell.

Tax deductions: It is possible to claim rental losses and other rental costs against your taxable income. It is possible to maintain a positive cash flow for a negatively geared property by taking advantage of the depreciation benefits. Tax deductions for depreciation coupled with deductions for rental loss on the property can actually yield you a return. Learn more about negative gearing here.


What is the downside of renting a house?

Repair costs: It costs money to make a house tenant worthy. Do you have so much cash available?

Unruly tenants: If you are unlucky and caught with unruly tenants, it can cost you approximately $3000 in legal fees and expenses to evict them. The cost for fixing any damages is separate.

Landlord’s insurance: If you decide to rent, you must take landlord’s insurance to protect against any potential damage caused by tenants. However, the premium is a cost to be borne by you.

The headache: Are you comfortable with someone else treating your house as their own? Do you mind receiving calls (and bills) for every small problem that the tenant faces? Managing a rental property is even tougher if you stay in a different city. Consider hiring a property manager to save yourself the trouble.


What are the advantages of selling your property?

Using the equity: For most home-owners, the only way to afford a 20% deposit for another property is to sell the existing one and use the equity as deposit for the next one.

A permanent move: If you know you are not going to return and your house is fetching you a good price, why not sell it and move on?

Capital gains: Investing in property is as risky as investing in equity. Going by the current boom, many economists predict a housing bubble in the future, meaning the value of your property could go down. If your property has received good appreciation and you need the equity for your next house, it is always a good time to sell when the price is good.

Peace of Mind: No need to constantly look for tenants and listen to their woes or spend time and money to keep the house tenant worthy year after year. Also, if you can’t handle a stranger living in your own house or are extremely finicky about the condition of the house, renting is not your cup of tea.


What is the flipside of selling your property?

Sales Price: If the properties in your area are going through a slump period or you expect the property prices to rise in the near future, it is better to rent out than sell.

Capital Gains Tax: If you do not plan the sale carefully, you could end up paying thousands as capital gains tax on your investment property.

  • Owning a property for more than 12 months can get you 50% rebate on capital gains tax.
  • Capital gains tax may not be applicable if you have stayed in the house for over 2 years in a 5 year period prior to sale

Renovation costs: If your house is old and rusty, tenants may ignore the condition, but buyers won’t. Major renovations before sale can cost you a bomb. Be prudent and only undertake necessary renovations or renovations that add value to the house.


Case Study

Sam and Joe own a property worth $450,000 on which they have a mortgage of $100,000. Their heart is set on another property that will cost them $650,000. They have 2 options.

Either, they sell their existing house and pay off the mortgage. Now, they are left with $350,000 to purchase their next home and only need to borrow $300,000 to own their dream house.

Or, they keep the existing mortgage of $100,000 and use their savings of $50,000 as deposit to borrow $600,000 for their dream home. Now, they own 2 homes and have 2 mortgages of $700,000, meaning much higher monthly repayments. However, renting their existing home can give them a rental income of approximately $2,000 per month. Coupled with tax savings on depreciation, the rental amount can go a long way in paying off their mortgage.

Both the scenarios present a happy ending; the choice ultimately depends on your financial goals and lifestyle.

If you have any questions and would like a general advice from an expert without sharing your details, drop your question on HashChing and our verified experts will answer your question within 24 hours without any cost or phone call to you.



Book a FREE consultation
with one of our experienced
mortgage brokers today!