When you buy a new home, you might want to keep your old place as a rental. This can make good sense.
There are significant costs to buying and selling property. By holding on to your property you avoid these costs.
But not all properties are suitable as rentals. You need to assess your old home against your Investment Property Criteria. What sort of yield or capital gain will you get? As you didn’t buy your old home as a rental it will most likely not have a high yield. In other words the rent will not cover the mortgage. If the old home doesn’t pass your criteria, then sell it and down the track buy a rental that does.
Right Tax Structure
You will want to put as much debt as possible against the rental as this debt is tax deductible. However, you cannot simply put new debt onto your old family home and make it tax deductible.
The way around this is to sell your existing home to an LAQC (company) owned by you. The LAQC buys the home at a fair market price and then borrows 100% against it. You provide a personal guarantee to the lender using your new property as additional security.
The proceeds from selling the property to the LAQC are used to clear the old mortgage (in your personal name) and the net proceeds are put into the new home. In other words we have successfully moved the equity from your old home to the new property.
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When you sell your old home to the LAQC this is a genuine sale and purchase of the property. It will require conveyancing and new mortgage documents. Solicitors will charge between $900-$1,500 to manage the transfer of the property for you.
At the same time you are doing all of this you may want to consider whether a Family Trust is also right for you.