Renting out a Owner Occupied Property?

Hey everyone,

Just a quick question.

Would there be any issues in renting out a 'Owner-Occupied' property in full? I currently own a property (mortgaged of course) which I want to rent out in full and move elsewhere. I have owned the property for almost 3 years. I'm the sole owner of that property.
I would ideally like to sell the property and move elsewhere but there isn't enough equity in the property at present (due to the market crash in 2019 and as a result of COVID) so it wouldn't be financially smart for me to sell at a loss (As it's worth less now than what I paid for it due to the current climate)

What I'm concerned about is that if I try to get another loan down the track (eg. When (and if) I start a family and approach a loan with myself and my SO) and the banks disregard the other property and equity as they would see it as a 'Owner Occupied' property and refuse another loan as a 'Owner Occupied' or whether they would provided you can support a stable rental income

Apologies if the above has come across as an inept request, but I'm just very unsure how the banks approach such a circumstance and I'm worried that it could come back to bite me

Thank you in advance.

Comments

  • +7 votes

    It won't be owner occupied after you move out :)

  • Banks don't check between banks and you can have more than 1 owner occupied loan but not more than one owner occupied with the bank.

    • but not more than one owner occupied with the bank

      You can get 2, you tell them you plan to new property and plan to rent out old property. New loan comes in as OO, old house gets estimated rental income.
      Once you settle, just don't move. Need to inform which ever department which handles stamp duty that you have changed your mind and pay the investment stamp duty instead of OO.

      • Wouldn't the bank see 2 OO loans under your name if you do so?

        • I'm not sure about all banks but it is the case for CBA, surprisingly they see it but don't do anything about it. I've requested rate drops for both so they do look at it but don't question it.

          The biggest test is if I can pull of the same trick to get 3 OO rate loans.

  • If it was the same bank, all they would do is update the other loan to an Investment Property rate when they finally noticed.

  • Are you sure the value is down? Property around here is selling for a good 10% more than you would expect (a family member just sold his house for 950 at auction when the agent said he would be mad to not take the first offer of 801, and the new house he got he paid a lot more than he was expecting to but had to grab what he could)

  • +2 votes

    You can only have one owner occupied property (as bdl mentioned).

    Once you rent it out, I believe it becomes an investment property.

    The part you want to be watch out for is, when you do sell in the future, it would still attract CGT, it would be from the period of when your rent it out to when you sell. (e.g. you own total 5 years, first 3 years you occupied it, 2 years rented out, the last 2 years would have a CGT).

    Now the tricky part is, it might be worth more now (as Quantumcat mentioned) than when you purchased it, if so, you should get an formal price evaluation, so that you pay a lessor CGT (e.g. $200K initial purchase, at year 3 $250K, at sell time $300K, the CGT would be the $50K difference if you got a formal eval done, otherwise your CGT would be based on a $100K gain). You should check with your accountant too, so see if you can depreciate anything fittings (for negative gearing), so that you set yourself up properly, there is no going back to backdate when it comes time to sell and you haven't done your prep work.

  • As other have said, once you move out to another address, the original home is no longer owner-occupied.

    Depending on which state you're in too, you'll have to factor in Land Tax. In Victoria, you can only have one Principle Place of Residence (PPR) such that you'll be paying land tax on the original home once you're not living there and living elsewhere.

    So if you rent another property to live in, the original home is land taxable and banks will generally see it as an investment property.

  • The equity in your existing property is not the primary consideration for lending. Your net income and therefore your loan serviceability are.

    Once they have assessed your serviceability, they will then determine whether or not you have sufficient equity (whether in property or cash) to provide the loan, in other words to get the LVR to an acceptable level. At this point, the amount they may be willing to lend you will only go down, not up.