Moving abroad is difficult enough without having to decide whether to sell or rent out your home at the same time. Your particular situation will determine what you should do, but here are a few things to consider that you might not be aware of.
Pros and Cons of Moving Abroad: Selling Your Home
The majority of people who relocate overseas opt to sell their homes because they do not want the hassle of managing and maintaining their home while living on the other side of the planet. The majority of individuals in Australia keep their homes and rent them out in order to ensure that they will have somewhere to live upon their return to the country.
When deciding whether or not to sell your home in order to relocate overseas, some additional considerations to take into account include the following:
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Pros:
- Australians living overseas and other foreign residents will soon no longer be excluded from paying capital gains tax on properties that were once their primary residence. If the property is sold while the owner is a foreign resident, the six-year restriction will not apply, for example. Therefore, there will be a significant tax incentive to sell your home before leaving Australia if you think you might want to do so while travelling.
- Depending on the tax system you will be transferring to, there can be assets that are more tax-effective or asset classes that are doing better when you relocate abroad.
- Instead of renting an apartment abroad, you could wish to utilise the funds to purchase a home there.
- Your home's location, design, and other factors may make it challenging to rent.
Cons:
- Selling your Australian home may prevent you from keeping one foot on the property ladder and expose you to the risk of being priced out of the market while you are away, unless you have other investment properties.
- If you sell your property before moving abroad, you won't have a place to live when you return to Australia. When you return, you might want to move somewhere else for some people, including those with expanding families, while this might be quite an annoyance for others. When we went back to Australia, we discovered that not having a place to go made it much harder to adjust.
- Depending on whether you are an Australian resident for tax purposes or not, the timing of the sale of your property when moving abroad could have a significant impact on the tax ramifications. Depending on your circumstances, you might stop being an Australian resident for tax purposes the day you leave the country, in which case you might be subject to losing your main residence's CGT exemption. If you are relocating or living abroad, we strongly advise you to get personal tax counsel prior to selling your house.
The Benefits and Drawbacks of Renting Your Home When Relocating Abroad
Many people are afraid that if they rent their home to complete strangers, their property will be damaged, they will receive phone calls in the middle of the night about a leaking roof, or they won't be able to evict a tenant who isn't paying rent or is otherwise problematic. This is especially true for those who have not previously owned a property that was used for investment purposes.
In the twenty years that I have been a homeowner, I have never found myself in a situation in which I wished I had never rented out the house and instead kept it for my own use.
The vast majority of issues that people have can be easily remedied by procuring the services of an experienced property manager or making the appropriate insurance purchases.
When relocating to another country, what are some of the advantages and disadvantages of renting out your home?
Pros:
- When you relocate back to Australia, you can reside there again.
- If you want to avoid having to transport your furniture overseas, sell it, or store it, it is possible that you will be able to rent the property with some or all of its furnishings already included (for a somewhat higher rate).
- Take advantage of the prospective financial advantages that come with renting out your properties, such as rental property depreciation, tax deductions (for things like maintenance and property management), and negative gearing advantages that come from the ability to accrue any tax losses for use when you return to Australia. Take advantage of the tax advantages that come with renting out your houses.
- Still open to the prospect of a decline (or increase) in capital value due to fluctuations in the Australian real estate market.
Cons
- It can occasionally be challenging to find decent property management.
- It's possible that the house won't be taken care of as well as you would.
- Your demands might have changed by the time you get back to Australia.
- Land taxes paid by landlords who are foreign residents are rising in some state governments, especially in Queensland and Victoria.
There are eight advantages to buying Australian real estate while residing abroad
When would be a good time to make an investment in Australian real estate? That is never a simple question to answer. It would appear that all you need to do to locate two pieces that disagree about whether or not now is the ideal time to purchase a property is open the newspaper.
The truth of the matter is that while real estate prices in some regions of Australia may be at a cyclical low, they may be at a cyclical high in other parts of the country.
Just look at what's happening in Perth and Sydney. In contrast, property prices in Sydney have risen by more than forty percent since the beginning of 2010, while those in Perth are falling and have not seen a significant increase since 2008.
The fact that I believe real estate to be a good long-term investment in Australia does not mean that this will be the case with other types of property. If you are an Australian citizen living abroad and considering making a profitable investment in real estate in Australia, the following are some considerations you should give some thought to:
1. Keeping One's Foot on the Real Estate Ladder
Purchasing Australian real estate (in a location where you intend to live in the future) guarantees that you will continue to be vulnerable to price increases and may provide you with a place to live when you return to Australia. This is true regardless of the length of time that you plan to spend living outside of Australia.
In the event that property values rise substantially while you are absent, those who do not currently own real estate may find it extremely difficult to enter the market (and history demonstrates that prices can shift very swiftly at times). In the past, residential property in Australia's major capital cities that was situated in an area that was favourable resulted in significant long-term capital growth.
2. Rental Income
Rental revenue may make a significant contribution to the cost of maintaining the property, depending on your deposit amount, the kind and location of the property you buy. Your rent could, under certain conditions, be greater than your costs.
3. Tax Advantages (Australian Resident for Tax Purposes)
You shouldn't let tax benefits affect your decision-making when it comes to investments; instead, think of them as the icing on the cake. Those who choose to put their money into Australian real estate have significant advantages afforded by the nation's tax system (whether you are an Australian resident for tax purposes or not).
Let's say you've kept up with your tax obligations as an Australian resident. If this is the case, you may be eligible to deduct from your taxable income all of the expenditures associated with financing the property as well as any other expenses related to the upkeep and management of the property.
It's possible that the cost of your property's building and any renovations you've made can be discounted in Australia. Your tax benefit from depreciation is influenced by two factors: the age of the property and the value of the building, excluding the value of the land. For a building that is not too old and had a price tag of, say, $200,000, it is reasonable to anticipate that the annual depreciation benefit will fall somewhere in the region of $5,000 to $10,000. (excluding land value).
If your annual income falls into the highest possible tax rate, taking advantage of depreciation benefits might reduce your tax liability by between $2500 and $5000. In addition, if you have owned your investment property for more than a year, you are exempt from paying capital gains tax on fifty percent of the profit on the sale of the property.
For extra information on how to make the most of the tax benefits that your rental property offers through depreciation, please visit this page to read an essay that I wrote about the benefits of depreciating rental property.
4. Tax Advantages (Non-Resident of Australia for Tax Purposes)
Imagine for a moment that you are not considered a resident of Australia for purposes of taxation. In such a scenario, you can still deduct from the income you earned in Australia any of the expenses that were specified above (such as maintenance, property management fees, and depreciation). If your tax deductions are greater than your income from sources within Australia, you may be eligible to carry any tax losses over to consecutive income years.
If you are considered a non-resident for tax purposes, the exemption for the first fifty percent of any capital gains attributable to that time period will not be available to you if you are eligible for it.
5. Australian real estate offers a stable investment
Real estate costs do fluctuate seasonally (and it is possible to lose money on a property investment). Prices are significantly less prone to wild swings than other markets, such as the stock market, gold, or international currencies. Because of this aspect of the property, banks are ready to lend up to 95% of the property's value to customers at extremely low interest rates. However, this benefit is not always extended to overseas buyers.
6. Utilisation of Leverage
The fact that the property is a safe investment makes banks more likely to lend money against it, and if that's the case, you'll be able to satisfy the requirements for receiving a loan from the bank. When compared to other types of loans, such as credit cards, personal loans, business loans, and auto loans, taking out a loan to buy a house is one of the most cost-effective ways to finance a purchase, and you may be eligible to take out a loan for a sizeable amount of the home's worth (in some cases up to 95 per cent of the value of the property).
With the help of leverage, you will have the opportunity to make an investment with a greater degree of risk while contributing a much less amount of your own money. It is still possible for an Australian expat to secure funding, despite the fact that doing so is becoming increasingly challenging. Therefore, it would be ideal for you to speak with a mortgage broker specialising in expats loans.
7. Diversity
Every sensible investment strategy ought to include the creation of a diversified investment portfolio. We will proceed under the assumption that all of your investments are held either in managed funds, direct share investments, or superannuation. In light of the aforementioned circumstances, it is quite unlikely that your investment portfolio contains any residential real estate in the territory of Australia.
If you do not already own your own home, investing in Australian real estate, particularly residential real estate, can shield you from significant increases in rent as well as market volatility in the share and currency markets. This is especially true if you invest in residential real estate.
8. Being able to add value
One of the reasons why I choose to invest in real estate in Australia is because you have the opportunity to see a growth in the value of your property. An owner can raise the value of the investment they have made in their property by executing a significant refurbishment, a cosmetic makeover, subdividing the land, or landscaping the garden with a property selection that is appropriate. A shareholder or investor in a managed fund or share cannot raise their wealth through the same means as they can by increasing the value of their own property.
It is still possible for an Australian expat to fund and purchase a property investment from abroad.
How to prevent your house from being vandalised while you're living abroad
When I initially started investing in residential real estate, one of my major worries was that the tenants would ruin my home. Additionally, the tension may increase if you rent out your property for the first time when you relocate abroad.
In this essay, I offer the lessons I've learned from nearly 20 years of investing in residential real estate about how to prevent damage to your home while you're away.
1. Your Property Can Be Rented
Ironically enough, renting out your home is the best way to prevent it from being vandalised while you are working abroad. Many people I encounter leave their property unoccupied while serving an overseas assignment out of concern that the tenants may destroy it, yet they overlook that:
- When a home is unoccupied for 60 days or longer at a time, getting insurance might be challenging or expensive.
- They must keep the property so that it appears occupied in order to avoid drawing unwelcome attention.
- The interest on the mortgage won't be tax deductible if the property isn't being used to generate revenue.
- Rent can cover repairs and maintenance, and you can purchase landlord insurance to guard against things like deliberate damage from tenants.
- You could be charged with additional taxes if you leave your house unoccupied (e.g.Vacant residential land tax in Melbourne)
A lot of people also provide their homes to family members or close friends, sometimes at prices that are cheaper than market value and sometimes even without a formal lease. The recommendation that you should avoid lending money to friends and family members is similar to the recommendation that you should rent a home instead. What actions will you take if your friends or family do not make their monthly rent payment on time, if their dog ruins the garden, or if they do not maintain the pool? Before your close friends and family moved into your house, would you require them to sign a home condition report or make a security deposit?
If you want to keep your life as simple as possible, you should avoid renting out your home to close family and friends. If you absolutely must do so, you should have them rent it through a property manager and monitor their compliance with the rental agreement from a distance.
2. Find A Reliable Property Manager
I used to handle all of my own property management when I first began out investing in real estate. It's challenging work, and living abroad makes it extra harder. The value of your investment will be protected by a good property manager, who will also be able to handle the other issues I bring up in this essay.
3. Make sure a good tenant will find your home appealing.
Find the most suitable tenant for your home by considering its dimensions, its design, and its location while making your selection. Make sure that your property is well maintained and that it will appeal to the ideal tenant. If your property has a pool and the type of tenant you are hoping to attract is a young family with children, you need to ensure that there are adequate pool safety barriers and other similar structures erected. If you live in an area that has a lot of heat, you should make sure that your house has air conditioning, and if you are a single working professional who leads a busy life, you should make sure that your kitchen has a dishwasher.
You'll be able to collect a greater rent payment, have renters for a longer period of time on average, and have fewer vacancies in between tenants if you take the time to make your rental property more appealing to responsible people.
4. Get A Reliable Tenant
If step 3 is completed successfully, step 4 will be a piece of cake. A diverse group of potential renters will be interested in leasing a property that is desirable. Before selecting a renter, your property manager should call the prospective tenant's references and conduct background checks with the applicant's previous landlords. Your property manager should also look them up in databases that include information about difficult tenants. These databases will reveal whether or not previous landlords have lodged complaints about the tenants. Remember that these databases often do not include particulars if the tenant has a private rental history, so keep that in mind.
5. Obtain a Bond
You are permitted by Australian tenancy legislation to collect a bond prior to the move-in date of the renter. This is normally equivalent to four weeks' worth of rent, and it serves as security in the event that there is any damage or unpaid rent throughout the period of the lease. If you own a premium home, you might be able to seek a longer period of bond than the standard four weeks. The definition of a premium property differs from state to state, but in general, it is determined by the weekly rent (for instance, if the rent is over $1,000 per week, you may have the right to request a lengthier bond than four weeks).
6. Make sure to get a property condition report and to sign a lease
The rental agreement provides protection for both the landlord and the renter. It protects the renter by ensuring them that they have the right to occupy the property for a predetermined amount of time at a predetermined rent rate throughout the predetermined time period. The landlord is shielded from liability if they are given the assurance that they would receive a particular sum of rent for a particular period of time.
Both the tenant and the landlord might profit from the completion of a property condition report. It protects the landlord from any damage that the renter might cause to the property and it defends the tenant by prohibiting the landlord from using damage that was already existing as a reason to hold the tenant liable for it. Both parties benefit from this arrangement. A good property condition report should include both a detailed written description of the property (including the state of all walls, curtains, carpets, and appliances, among other things) as well as photos of the property.
Rather than going overboard with the number of photographs included in the report, I feel that a good property condition report should accurately portray the state of the property as a whole and call attention to any particular features or damage that was already present (like the one we got when we first rented and returned to Australia).
7. Regularly inspect your property
It is the only way for you to know if your property is being maintained properly if the property manager performs routine property inspections, which should take place at least once every three to four months according to my recommendations.
In the event that there are any problems, the management of your property can work to remedy them as quickly as possible, and if required, they can send a breach notice and begin the termination process.
Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.
8. Have backup landlords insurance in case everything else fails
By taking each of the aforementioned precautions, you will minimise the likelihood of having unreliable tenants and of suffering damage to your property. You should also consider obtaining landlord insurance to safeguard your investment against unforeseen events.
When you move out of your home and begin renting it out, you are required to give your homeowner's insurance provider notice that the home is being converted into a rental property. After that, you can make a modification to your contents insurance to cover the remaining items in the home, and you can also get insurance specifically for landlords to protect yourself from liability. There is a significant number of sub-options to consider when purchasing landlord insurance, which is offered by the majority of insurance companies.
You can acquire specialised insurance that will cover wilful damage caused by your renters, unpaid rent, loss of rent (in the event that your home becomes uninhabitable as a result of an event such as a fire or flood), and legal liability.
Because the terms of landlord insurance policies can vary quite a bit from one another, it is imperative that you carefully read all of the fine print and fully grasp the exceptions.
- Be Prepared for a Longer Sale. ...
- Invest in High-Quality Photos and Videos. ...
- Break Down Communication Barriers. ...
- Hire a Real Estate Agent with Experience in Foreign Transactions.
What happens to my mortgage if I move abroad? If you're planning on keeping your property for yourself, the good news is absolutely nothing will change. ... If you do decide to rent your home out however, you must let your mortgage lender know. They'll then convert you to a Buy to Let mortgage.