The Emotional Investment

The excitement of buying a new home for some can be slightly offset by the angst in letting go of their existing home. A common “solution” is to keep their existing home as an investment rather than selling it.

The merits and downside of doing so, vary from case to case but are worth assessing.

The primary consideration in keeping your former home as an investment property is deciding whether you can emotionally detach from it. The reality of being a landlord is accepting that no one will care for the respective property quite like you do, as the owner.

This is not to say that tenants or property managers would wilfully neglect the property, but the upkeep of properties is sometimes a labour of love. Particularly character homes and the management of the gardens.

An owner is much more likely to overlook imperfections of a property than a tenant. Therefore, address the issues in your home that a tenant would not and does not have to accept. If not, the property manager will simply be dealing with the respective issues early on in the lease term.

To keep your existing home as a rental property having purchased a new home can sometimes mean you own an “emotional investment”. An emotional investment being defined as a property that logically you may be better off selling but prefer to keep for largely emotional reasons, for the time being. People who inherit a property often go through the same thing too. Do we keep it in the family or divest? When a property has been in the family for several decades, selling it is difficult even if the business case to do so is apparent.

Those that find themselves taking a work contract out of town and let their primary residence for the period they are away, also find themselves with an emotional investment of sorts. Clearly selling the primary residence for the purposes of a temporary job transfer is impractical. Hence the reluctant need to lease the property for a period.

Before deciding to keep or part with a property that means a lot to you, answer the below questions:

• What is the net dollar income (after running costs) the property will generate for you on an annual
• basis? Will the mortgage and maintenance costs
• absorb the income?
• What are the growth prospects in terms of capital growth and rental value?
• The tax implications in regard to Land Tax, Capital Gains Tax and Income Tax?
• Will the rent cover the mortgage on the investment property?
• What are the opportunity costs you will forgo by having the equity tied up in the investment property?
• Does the investment property offer diversity to your overall portfolio or unduly concentrate it in property and/or location?
• Based on the value of the property, what does the rental return represent as an annual % yield on the property?

Over time the pull of an emotional investment subsides and becomes more a logical investment play. By sitting down to answer the above questions, you will be better positioned to understand the basis for keeping or parting with the respective property.