Help for newbie- villa or house.

Hi all,
I've been browsing this forum for a while and find the advice really useful, so I'm hoping someone has some words of wisdom for me.

We are currently living in a two bed unit in Parramatta with our two children. I've just found out that I'm expecting my third so we are looking to move.

We are on a single income so we aren't able to borrow very much.
We want to continue living around this area. Our two options are to keep the unit as a rental and buy a 3 bed villa in Wentworthville/ Toongabbie for a maximum price of $380000. In about 5 years time I should be working, we could then look into selling or renting the villa and unit and buying a house.

OR, we could sell our unit and buy a house for a maximum price of $450000. For this we could get a decent 3 bed house around Old Toongabbie.

We have $120000 equity in the unit. We think it is in a really great location and are worried that we might regret selling it. If we go for option one we will have to pay mortgage insurance and then if we can't manage both mortgages we will have to sell and pay capital gains tax.

We are so confused, any advice?
Hope I've provided enough info...
 
Hi Charoc,
That is a dilemma - if it were me I would try to hold on to the unit an buy the villa, but you will need to make sure you can afford it without placing too much strain on yourselves, eg if the unit is vacant for a few weeks could you cope?
A bit more information would be helpful - what rent/wk could you expect for your unit? What is the current market value of the unit?
Be conservative with your figures, if you achieve better then that's a bonus - best to look at the worst case scenario.

Looking back, I wish we had kept our first PPOR, but at the time we sold it to upgrade to a better house in a better suburb, and couldn't have done so without selling.
Cheers,
Monty
 
Hi charoc,

If you're in a position to keep it, I would definately say don't sell. The costs of getting in & out of the property market are ridiculous in my opinion.

Can you put the 120K in a LOC & use it to pay an interest only loan on your current PPOR which will then be your IP? Any rent you receive could go into paying off your new PPOR. :D

Bit of a higher risk strategy, but it would allow you to hold your current property & get a new one too.

You're in the market now so I would suggest trying to capitalise on your current assets rather than sell & realise a small profit which you will then have to use to get back into the market. :(

Let us know how you go!

Regards,
M&M:)
 
I advocate selling where you are now and putting the proceeds into the purchase of your next PPOR.

Always work on reducing your non tax deductible debt first up.

If you are planning for the next PPOR to become a IP later down the track then I suggest you set up the PPOR loan with an offset savings account attached and make all repayments into the offset savings account.

By setting your finances up in this manner you will be correctly structured for the future.

I strongly recommend you run your situation past an IP Savvy mortgage broker to work out your borrowing capacity before you go out property shopping.

Charoc, from a local's perspective what is Wentworthville like? Im also currently looking in the Parramatta surrounding precincts.
 
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Thankyou for your replies. I will show them to my husband tonight, gives us a few things to think about.

That sounds really interesting M&M, will ask my broker about that.

@ Monty Python, our unit at been valued at $340000 to $350000. We could expect to get $350 to $370 a week in rent.

@ Rixter, are you looking to live around here yourself? Do you have children?
We love living around here. There are so many things to do in Parramatta. I don't have a car but am able to get around easily and do everything I need to by walking or catching the free bus around the city. I really like Old Toongabbie, Constitution Hill, Northmead and Wentworthville. There are some good schools around, they are fairly quiet areas and very close to Parramatta. There are some really beautiful homes and streets in Northmead, Wentworthville and Constitution Hill (unfortunately out of our price range at the moment) But I think for double income families they are reasonably priced.
I'm very happy to stay around this area.

And I will have to run your scenario past a broker to be explained more- I confess I do find it a bit difficult to get my head around finances.
 
Hi Charoc,

Some quick basic calcs and scenario (not advice, just throwing some numbers around!):

Your unit - if you keep it, with an IO mortgage of $220k, your annual interest bill @ 8% will be $17,600; your net rent (assuming 25% expenses) will be $13,650; your tax saving (50% of the loss offsets your husband's tax @ say 30%) will be $593 - per week the unit will cost you $65.

New villa - assume use equity from unit for deposit - P&I mortgage 25yrs on $380k @ 8%, repayments are $676/week; suggest also use a 100% offset account.
(Better result would be if you could get an IO mortgage with offset, considering you wish to later rent out this property, use the offset acct to buy your future house, remaining IO mortgage on villa is tax deductible)

In 5 years, assuming avg 5% growth per year, your unit will be worth $434k, the villa $485k; your debts will be $220k+350k; your net equity has grown from $120k to $349k.

You need to be comfortable with weekly outgoings on the properties of $740 approx.

If not, then you should sell the unit, set up an IO mortgage on your new villa with offset account with a view to keeping this property as an IP, deposit all your cash into the offset account, and using the offset funds as deposit for your future house in 5 years time.

Anyone, please point out any errors in my calcs, I'm still learning! :D

PS. It is most important that you don't place yourselves into financial stress, considering you have a young growing family, you can always catch up on the property ladder when you return to work.
 
@ Rixter, are you looking to live around here yourself? Do you have children?
We love living around here. There are so many things to do in Parramatta. I don't have a car but am able to get around easily and do everything I need to by walking or catching the free bus around the city. I really like Old Toongabbie, Constitution Hill, Northmead and Wentworthville. There are some good schools around, they are fairly quiet areas and very close to Parramatta. There are some really beautiful homes and streets in Northmead, Wentworthville and Constitution Hill (unfortunately out of our price range at the moment) But I think for double income families they are reasonably priced.
I'm very happy to stay around this area.

Charoc, thanks for the information. I am looking for a villa and/or townhouse IP. Have 2 primary school age kids.

Whats the demand level like for people looking to rent in Wenthworthville, Parramatta precincts?
 
It's a lifestyle choice. Where to you want to live? Villa or house? You've got the option of both.

I'd be selling the unit and buying a house. You've got kids who'll want to run around the backyard.
 
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