Rent or Sell the Family Home – Investment Strategy Hypothetical

I have received quite a comprehensive list of questions regarding whether to rent or sell the family home from a listener to my radio segment on Emerald 4HI.

He has a home in NSW worth $500,000 and he owes $250,000 on it. He has recently moved to Emerald for a job on a 5-year contract and will live in a company-supplied house and enjoy an income of $110,000 per annum.

At the end of his 5-year contract, they intend returning to their hometown in NSW and if possible would like to keep their home there. He wants to know the pros and cons if they rent or sell the family home. He would also like to know about the investment strategy I would suggest to take advantage of his 5-year contract with a salary of $110,000 and housing supplied?

Firstly, as he intends returning to NSW in 5 years, I would not sell that house. Every time you buy and sell it costs you money. He is far better off using the equity of $250,000 to accumulate more property.

Income Tax Implications

If he rents his NSW house for the next 5 years, all outgoings like rates insurance, maintenance, loan interest etc. are tax deductible. Before his 5-year rental period expires, he might look at repairs and maintenance like carpets, curtains, painting etc. This would all be tax deductible in that financial year.

Other income tax deductions are the cost of travel and accommodation to check on his NSW investment property but I suggest he discuss this with his accountant.

What about capital gains tax if he is treating it as an investment property?

He would not be subject to capital gains tax because his original intent was to have it as a family home with the intention to return in less than 6 years.

What could he do for an additional investment?

He could consider buying one of my executive homes at North Harbour, Brisbane, using no cash but borrowing 100% plus legals, stamp duty etc.

Sample figures

A 5-bedroom executive home for $497,950 at North Harbour will rent for $480 per week. Borrowing 100% and paying it off, principal and interest, what will he have to contribute?

On a salary of $110,000 per annum his tax refund would be $157 per week with rent of $480 per week and allowing for a vacancy factor, his contribution would be only $154 per week to pay it off, principal and interest.

Is $154 per week a realistic figure?

It is more than realistic. All my figures are conservative and I have allowed $50 per week as a buffer to cover the possibility of a 4-week vacancy per annum plus allowing $700 per annum for miscellaneous repairs etc.

If he contributes nothing up front and only $154 per week, how much could he earn in say 10 years?

I don’t have a crystal ball but for the last 40 years, Brisbane house prices have averaged doubling every 8.5 years.

What wealth could he create if prices doubled in 10 years?

He outlays nothing originally so he has no equity. E.g. the house is worth say $500,000 and he owes $500,000. However, if in 10 years the dollar value of the house is $1 million, he would still owe about $400,000.

This means he outlays nothing up front, contributes $154 per week for 10 years and creates equity of about $600,000.

Hypothetically – over a 10-year period

$154 per week by 52 = $8,008 per year

$80,080 outlaid over 10 years

Equity gained $600,000

There are other variables like future rates of inflation, interest rates and so on but hypothetically this calculation is in the ballpark.

Are there any other investment strategies that can give a result like this but still be relatively safe and conservative?

My strategies have been scientifically compared by an accountant and financial advisor, to other strategies over a 15-year period and my clients were found to be way in front.

Here in Central QLD I have had clients for over 30 years and some retire with up to six beautiful homes and no debt.

If you are also wondering whether to rent or sell the family home or would like to know more about investment strategies tailored to your situation, please contact our office to schedule a free, no-obligation consultation.

Steve Taylor

If you prefer to listen here is my radio interview on Emerald 4HI:

At the helm of Steve Taylor & Partners, Steve Taylor has been delivering expert advice and product knowledge to clients for over 30 years. Steve Taylor & Partners provide individuals, couples and families with the right strategies to create wealth and change their lives with solid bricks and mortar.