Renting out my house

LKenny Powers on 10/01/2023 - 13:36

Hi all,

So I'm am going to be moving out of my house and moving in with my partner who is renting. I have decided to rent my place out due to her work commitments, not allowing us to live at my house which is in a different town. A few details regarding the house

  • Its a two bedroom house which I have renovated
  • Has a large yard with lawned area and established gardens
  • I have a small mortgage on it (the rent will easily pay the repayments)
  • I have a few repairs to do before renting it out

Just wondering for any tips on renting it out such as claiming tax etc

With the repairs that are required before renting out such as broken windows to be replaced and new carpet, can I claim these on tax?

Any other tips would be greatly appreciated.

Thanks in advance!

Financial

Comments

  • Muzeeb on 10/01/2023 - 13:48
    +12

    My tip is to meet up with an accountant asap to get the tax and capital gains issues sorted from day 1.

    The fee they charge is tax deductible and a lot cheaper than having a massive tax bill next FY because you took advise advice from a bunch of internet randoms.

    • Kenny Powers on 10/01/2023 - 15:31

      Yes will get onto that ASAP, thanks

  • Gunnar on 10/01/2023 - 13:48
    +3

    Speak to your accountant who will tel you that you need a depreciation schedule.

    A depreciation schedule will cover the renovations you have done to the place. This will allow you to claim depreciation on your renovations and other items on the house in tax (existing and proposed).

    Speak to someone who does these in your area and then you can ask them about the other items that need attending to and the best way of claiming them.

    • Kenny Powers on 10/01/2023 - 15:32

      Thanks for the info!

      • Gunnar on 10/01/2023 - 17:29
        +2

        Where are you located?

        And how attached are you to the house? Do you plan on moving back in there?

        One of the hard things about renting a place you’ve owned and lived in is seeing others not look after it the way you do. The biggest tip I can give you being a potential landlord is don’t be attached to how your house is when you were in it because it probably won’t end up that way

        If you’re planning on moving back into it specify that to the estate agent letting it out. Also specify what kind of tenant you want.

        If you want someone long term and stable (but not necessary with the highest rent offer) ask that. If you just want the highest rent and not care if the place gets trashed then specify that too.

        Personally I ask for tenants who are going to be low maintenance and will look after the place (they are not always the ones who will give you top dollar). Especially if you’ have a small mortgage then get someone who wants to be there long term (you have quite a few charges when you have to retennant the house) and will look after it for you with minimal fuss.

  • AustriaBargain on 10/01/2023 - 14:01

    You should probably get a RA. They charge 10% or whatever, but those greedy bastards will help you wring more than 10% extra out of tenants than an honest gentleman like yourself would be able to. They will know the income and expenses of the tenants from the invasive application process so will know exactly how much to gouge them when lease renews.

    • Kenny Powers on 10/01/2023 - 15:32
      +1

      Certainly planning to do this. There is no way I want to deal with the tenants directly. Thanks

  • Donaldhump on 10/01/2023 - 14:11
    +2

    I believe you can keep it as your PPOR for up to six years, but get an accountant.

    • HardQuiz on 10/01/2023 - 18:49

      Without living in it ?

      • Hearthstone on 11/01/2023 - 09:52

        yes, you can rent out for 6 years and move back in and still claimed it your PPOR

  • RockyRaccoon on 10/01/2023 - 14:26
    -1

    Rent is not tax deductable when you pay it.

    Unless there is good reason, like location etc. The smarter thing would be to live in your house and have your partner pay something to the mortgage.

    You cant offset the rent she pays with the rent you receive, so you will pay tax on that income while you dont get any deduction on the rent you pay out.

    Plus you have the hassle if you get a bad tenant, and like bad landlords there are a number around. And the bad ones know how to play the system better than anyone and often leave you with a big repair bill.

    • Kenny Powers on 10/01/2023 - 15:36

      No, I wasn't expecting to claim the rent I will be paying in my partners house. We can't live in my house due to her work commitments and it being in a different town. Thanks for the comment

    • AustriaBargain on 10/01/2023 - 15:38
      +2

      I think OP was talking about deducting expenses for the house he wants to rent out, not the house his partner is renting. They can't live in the house because it's too far from the partner's work. And surely OP will get landlord insurance to offset the risk of tenants trashing the place.

  • thatonethere on 10/01/2023 - 14:43
    +3

    Include a gardener in the package - otherwise say good bye to your garden.

    You will need to make sure everything is working - physical remove anything that is not working. eg that old heater in the spare room that is fixed to the wall but is broken? Remove it. Old solar hot water system you bypassed but kept on the roof - remove it. Hot water system a bit flakey but you reset it and it's good - replace it. Otherwise it just generates repair requests.

    • Kenny Powers on 10/01/2023 - 15:37

      Very good idea re gardener.
      Most things are reasonably new but I will make sure everything is in good nick before renting out

  • Duckie2hh on 10/01/2023 - 15:03
    -5

    Pm me for discussion on this.

  • oscargamer on 10/01/2023 - 16:00
    +1

    Depreciation schedule and insurance

  • jv on 10/01/2023 - 16:23
    +1

    moving out of my house and moving in with my partner who is renting.

    Much cheaper to find a new partner that lives closer to your house.

    • GOMOOTYPRO on 10/01/2023 - 16:41
      -1

      JV is back from holidays!!!

    • Kenny Powers on 10/01/2023 - 17:04

      Might be cheaper but certainly not easier haha

  • Meho2026 on 10/01/2023 - 17:05

    You cant claim any repairs you do before you rent it out but you can if you fix them when the tenants are in.
    As others have said get a depreciation schedule and that is a way of claiming tax on the life of a lot of items you fix beforehand.
    I use BMT, for depreciation schedules and recommend them.
    You might want to consider landlords insurance. I use Terri Scheer for that.
    If you think you are unlikely to move back into the property in the next 6 years, then it might be worth considering restructuring your home loan before you move out so that you have the excess funds in an offset account rather than paid off the actual loan. Thats probably the most important thing you should do.

    • Kenny Powers on 11/01/2023 - 11:39

      The ATO site confuses me, it state that you can claim repairs if you are intending to rent the property out.

      I've had the place for almost 5 years now and am not looking to buy anything within the next year so I'm assuming the six years will be up next year even if I am renting the place out, even if I don't plan to move back into it?

  • Lunarboogie on 10/01/2023 - 17:40

    If you can, try to organise it all yourself and manage the lease. There should be a tenancy template and condition report from legal aid in the state you're in. And bond lodgement form too. This way you can visually eyeball and select tenants yourself.

    There is a bit of work initially but once it's set up, you shouldn't be hassled any more than you would through an agent. Ie if the shower rose busts the tenant will contact you directly, instead of the agent doing so 7 days later. Tenants often prefer this. I've found that a good property looks after itself.

    I've rented out multiple properties in this way for 16 years and would never countenance out sourcing this to an agent. But I'm a hardcore OzB so ymmv.

  • DoctorArd on 10/01/2023 - 20:10

    Thanks for the post, OP. I am in a similar situation now and hadn't considered all the extra elements of changing the home to an investment property. We found one friend to be a tenant and then the two of us advertised on flatmates.com.au to fill the other two rooms. Possibly because of our reasonable price point and proximity to the CBD, I was absolutely inundated with messages for the first 72 hours and had the other two rooms easily filled within one week. It has made my head spin filling out all the paperwork but I have actually enjoyed the process of learning all about this, and the joy of not having to deal with any real estate agents or property managers as we are fortunate to have access to our own maintenance person. Are you aware that you need to change your type of home loan too?

    • bobbified on 11/01/2023 - 01:55

      We found one friend to be a tenant and then the two of us advertised on flatmates.com.au to fill the other two rooms.

      …changing the home to an investment property.

      If you were to rent it out privately and not changed your own address…

    • Kenny Powers on 11/01/2023 - 11:36

      Wasn't aware of changing my home loan type but after some research have found this to be true. Thanks!

  • miwahni on 10/01/2023 - 22:04
    +2

    Get an appraisal done on the property before you tenant it - or better yet an actual valuation rather than just RE appraisal. This will be required if / when you sell the property even if you end up moving back in down the track. You need to determine the base value as at the time it becomes an investment, for calculation of capital gain.

    And if you do end up moving back in, get another appraisal or valuation at that point. The difference between these two amounts (less any capital costs) will be the capital gain on which you'll be taxed at sale.

  • freefall101 on 11/01/2023 - 08:21

    As others have mentioned, talk to an accountant, but there’s the 6 year rule on keeping it your main residence and not pay capital gains tax for that period (so long as it’s your only main residence, ie you don’t buy another house with your partner).

    So for long term plans, good idea to decide what you want to do with it within the next 5 years or so. But for now, little capital gains issues.

    • Kenny Powers on 11/01/2023 - 11:40

      I've had the place for almost five years, does the 6 years count even if I rent the place out? I don't plan to ever move back into this property but am also not looking to buy within the next year

      • freefall101 on 11/01/2023 - 12:55
        +1

        You’re allowed to keep it tax free for 6 years that you’re not living in it, i.e the 6 years starts the day you move out, not when you bought it.

        So your first 5 years it’s your main residence, the next 6 you can keep it your main residence even though you’re not living it, after that it starts being taxable for capital gains (based on the increase in value from 2029 to whenever you sell it).

        Accountant will probably explain it better than I can

  • OnlyifMyPrice on 11/01/2023 - 09:17
    +1

    Also consider home and contents insurance. You should retain your home insurance but could cut down contents to say $10K for a 2 bedroom house.

    The tenants should take out their own contents insurance for their stuff but you’ll need it for curtains, blinds, floor coverings etc that usually aren’t part of the home buildings insurance. Check your policy to see what’s included under home/buildings in the event of a total loss.

    My insurance company offers $20K of contents insurance within the home insurance policy with them for tenanted properties. So ask them then you might not need separate contents.

    Someone else mentioned only being able to claim expenses after the tenants have moved in. You might be able to negotiate with them to give 1-2 weeks’ free/half rent for the inconvenience of having repair jobs to do in their first 1-2 weeks. They will usually be happy to oblige and you get to claim the repair costs on tax.

    • DoctorArd on 11/01/2023 - 09:45

      Which company offers $20K of contents insurance within the home insurance policy?

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