Renting out a Owner Occupied Property?

Empharand on 19/01/2021 - 22:48
Last edited 19/01/2021 - 23:00

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.

Financial

Comments

  • bdl on 19/01/2021 - 22:53
    +7

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

  • netjock on 19/01/2021 - 23:23
    +1

    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.

    • arkie0 on 19/01/2021 - 23:34

      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.

      • c0nfus3d on 20/01/2021 - 01:31

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

        • arkie0 on 20/01/2021 - 11:39

          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.

          • c0nfus3d on 08/04/2021 - 23:43

            @arkie0: That's great! Also the other thing is if you were to look for third property loan, would the next bank look at your 2 loans, both at OO rates?

            • arkie0 on 09/04/2021 - 08:35
              +1

              @c0nfus3d: I've actually read there are other people who have been able to get more than 2 OO loan's using the same process. My guess is that the department processing the new loans, don't really communicate with the department which handles existing loans, if its a different bank at which you're applying for the 3rd loan more unlikely they will communicate. Either that or they don't care so long as profit is still coming in.

              You do need one of the houses to be a proper investment with rental income, this house would on OO rates as the original process , and the other being your PPOR.

              So - Apply for third OO loan, say you plan on moving from your PPOR to the new third house, so you will get OO loan for the third. Get a real estate agent to give you an estimate rental letter for your PPOR. Once the loan settles, don't say anything to the bank, do speak to land office and convert it to investment.

              You now have 3 OO rate loans.

              • c0nfus3d on 09/04/2021 - 10:10

                @arkie0: Sounds good, do you generally go via broker channel or direct to bank? I wonder how this could impact ATO/tax implications though?

                • arkie0 on 09/04/2021 - 11:30
                  +1

                  @c0nfus3d: I go through a broker, he doesn't care or looks the other way.

                  No ATO implications, you can still only have 1 PPOR at at one point for CGT… so you can only apply for a CGT exemption on 1 property at any time. The rate of the loan doesn't come into consideration.

                  • c0nfus3d on 09/04/2021 - 12:18

                    @arkie0: So I'd think CGT exemption cannot be applied on IP even if the loan is OO? Is that correct? When it comes to offsetting any income with interest (for gearing purpose), is that any difference to IP loan when doing taxes?

                    • arkie0 on 09/04/2021 - 12:47
                      +1

                      @c0nfus3d: So I'd think CGT exemption cannot be applied on IP even if the loan is OO? Correct
                      When it comes to offsetting any income with interest (for gearing purpose), is that any difference to IP loan when doing taxes? No difference.

  • Gunther on 19/01/2021 - 23:29
    +3

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

  • Quantumcat on 19/01/2021 - 23:35
    +1

    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)

  • SF3 on 19/01/2021 - 23:56
    +2

    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.

  • Porker on 20/01/2021 - 08:39
    +1

    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.

  • Seraphin7 on 20/01/2021 - 09:26

    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.

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