To Rent out or Sell?

Would really appreciate some advice for some family friends have found themselves in a precarious and complicated position.

HOUSE
They have a large, but old 5 bedroom house on a large block worth 1.2-1.5 million ++ with a small mortgage so the LVR is favourable. It has been unoccupied for several years but was once a PPOR and owned solely by a recent widow. It is currently for sale and had attracted a little bit of interest, mostly by investors looking to rent out to students or property developer.

They are of the mindset and have been advised by their accountant she sells the property and put the funds into superannuation to provide an income to the current owner. She doesn’t reach the aged pension limit and most likely would not pass the asset test.

They have a strong emotional attachment and would of course like to keep it in the family and hand to the adult children. I am trying to make them realise that the market doesn’t value the house as they do, and unless it is rented out the market will factor that in. I think this is substantiated by the interested buyers being investors or developers. A young family is unlikely to buy a house of such age and size and live in it for 20 years.

Many questions have arisen.

Capital Gains tax
Property is built early 70s (Pre 1985) so would it be subject to CGT if they were to sell now? It has transferred sole ownership to the widow. The advice they have been given is it isn’t.

If it still has a CGT free status, has never been a revenue producing investment property, would it lose that exemption if they turn it into income producing investment now and sell it later on?. Furthermore, how would that CGT be calculated for the gain made from the current value to the eventual sale price.

Renting
I have suggested to at least consider renting it out and to its maximum potential ( ranging as is from $450 per week up to about $600). Refinance to Interest only and then make a decision under less pressure, It is old but liveable, functional,clean and ideal for students or a larger family. It is close to a major university and hospital. It even has potential to split levels down the track with some internal walls and renovation.

Ownership Structure
Another challenge is the ownership structure. I understand stamp duty is payable if the ownership is passed to her adult children whilst she is alive and then renting it out would incur a tax liability to the children if rented out. At this stage I acknowledge this is a complex issue.

The 2 goals I forsee is the following:

1) A cash flow surplus in the short term after the holding costs are paid. I estimated with such a favourable LVR and the ability to pay interest only in the short term they can generate a decent monthly surplus as an income for the owner. That also allows for increased cash flow and more ability to get a small loan from the bank to do a minor renovation to maximise the rental potential rental returns.

2) Get the family as a whole to understand and value the importance of income producing assets and seeing the whole picture of having the renters pay their holding costs and complete a full tax cycle so to see the benefit of being business owners.

We are going to seek professional advice however and help or guidance in this early stages is appreciated. I think it should be rented out, make it a going concern making it easier to refinance and worry about any ownership issues later. Any recommendations for a reliable property accountant or adviser that I could engage with to help clarify this situation would be greatly appreciated.