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From: Anonymous


Should I buy a new home or rent for a bit?
From: Mike
Date: 9/15/99
Time: 4:15:21 PM

I would appreciate some good advice.

I live in a unit in near Bondi, on which I owe approximately $70,000. It has nice sea views, and we are told that we can rent it out for about $400 per week. The area has experienced good capital growth in recent years.

We are expecting a second child soon so we have to move.

I suppose the obvious thing to do is to get a bigger mortgage and buy a house. I could go up to about $50,000. However I wonder if there is any merit ( in the long term financial sense ) in renting out the unit and renting a house, instead of increasing the amount I'm paying to the bank? Or is that a dumb idea?
 
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Les

Reply: 1
From: Anonymous


Re: Should I buy a new home or rent for a bit?
From: Les
Date: 9/19/99
Time: 12:09:23 PM

G'day Mike,

There is an old saying "The rich get richer" - I think Robert Kiyosaki would say "The financially literate get richer". And you are on your way to financial literacy by asking questions. Good for you.

My thoughts re your situation are these:- First, I would guess you would have substantial Equity in that Bondi flat (around $300,000 maybe?) - so that is a great starting point for your next move. With that kind of Equity, you could be buying 2 or 3 properties - or more!!

BUT, it would depend on your Debt Servicing capabilities. i.e. how much debt can your wage handle from the Lender's point of view? Reread Jan's book(s) and see whether you might be able to purchase 2 or 3 more rentals, then rent a house for yourself.

Your Bondi flat will be providing Taxable Income, AND I think (?) you may lose CGT benefits by making it a rental. So it may be advisable to look at selling Bondi, release the cash (no CGT since it has been your home), and buying 2 or 3 other properties.

But get financial advice first !!! This business of changing an existing home into a rental can be fraught with DANGER!!!

Other thoughts:- You mentioned "going up to $50,000" - is this a typo?

Consider buying a rental in Brisbane (I have two there) - prices are lower, demand is good (check the area in which you buy, of course), and rental returns are 6% - 9% And, you may legally claim the cost of visiting each of your rentals (twice a year?) and meeting with the agent handling the property - and have a week off on the Gold Coast while you are there!!

Keep asking questions, too - and good luck on your path to financial freedom.

Les
 
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Mike

Reply: 1.1
From: Anonymous


Re: Should I buy a new home or rent for a bit?
From: Mike
Date: 9/20/99
Time: 4:33:02 PM

Thanks Les.

$50,000 was a typo of course. I meant $500,000.

Your use of the word DANGER!!! is good. I shall indeed seek further advice. If anyone has any further comments in the meantime I will be very interested to read them.
 
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