Newbie needing advice

[sleepless]

I need some advice from people who know about such things:

I bought a house in the lower Blue Mountains, NSW last September. I grew up in the (upper Mountains) and I thought it was going to be the only opportunity I would have to own my own house. I am a sole parent of 2 children, who had been renting on Sydney's North Shore for a long time. I bought a nice house on 1600sqm.

To cut a long story short - I'm miserable here. I work in the city, I hate commuting, I hate some of the people around here, I hate being away from my friends and the proximity to activities you have in the city.

I got the real estate agent around today to value the house (have done a few things) and they thought 40-60k more than what I paid for it.

Would it be completely financially stupid to sell the house in order to move back to the city and rent?? The rent I would get here would not cover the mortgage, so that's not viable. I thought my best case scenario is having to rent in the city, but assuming I do make some money on the house, I could invest it elsewhere.

Please help, I'm soo confused.

 

[Amadio]

That's hard. I was in the same boat - bought a big house 40 k away thinking that the spaciousness and views would make up for everything and left my heart in the city.

We decided to sell, but it was financially the wrong move - had we turned it into an IP and hung on through the negative cash flow phase we'd now be sitting pretty with very CF+ and good CG, so do the numbers not just for now but for a couple of years into the future.

If that was your only chance to buy a property, will you have another chance?

Since you are on a property forum, you may be interested in turning that house into an IP, using the equity you have in it to buy another smaller IP and go rent in Sydney - it would depend on income and if you could manage the holding costs and other factors.

Life is too short to be miserable, so of course you will have to move back to the city - just take it carefully and unemotionally and work the numbers.

 

[wobbycarly]

Hi sleepless,
Sometimes it's not all about the money. So don't beat yourself up about THAT.

I agree with Amadio (of course, being a property investor, I would!) that you should investigate the possibility of holding this property as an IP rather than selling. Selling will generate agent's fees, and you may not have considered your stamp duty cost (did you have any in NSW for FHB?) in your "profit" calculation.

Be proud that you gave this a shot - it just didn't work out this time. I'm sure it's disappointing, and has probably set you back a little financially, but think about what you've learnt from the experience.

I hope this doesn't sound too glib. I wish you the best in whatever you decide.

 

[josko]

Hi sleepless,

I agree and feel you should try to keep the property, move back to the city and rent. You can claim your IP expenses as a deduction.

You need to speak to an accountant or work out your Negative Gearing to make sure you can afford to do this. We can help with numbers if you feel comfortable posting them.

Regards JO

 

[sleepless]

Thanks guys. I agree it would be better to keep it as an IP, but not sure I can afford to do so. I only work part time and don't see how I could possibly manage from week to week if the house was untenanted.
I borrowed 400k and interest rate is currently 6.26%. My repayments are $2038 per f/n. From researching rental prices in this area, I would expect the max I could get is $400 per week. That leaves me with a shortfall of 200 a week with the rfepayments.
I received FHOG but have now been here for over 6 months so don't need to pay that back.
The area where I wangt to live in Sydney will cost me approx $600 a week in rent.
Thanks for any advice - I need to get more savvy about this stuff.

 

[The Y-man]

Sleepless,

Keep in mind that because you live there, any profit on your sale will be tax free

What makes an investor IMO is not whether you sell it or keep it - it is what you are going to do with the proceeds.


Cheers,

The Y-man

 

[josko]

HI sleepless,

I think you mean per month?

Let's say you are short by $800/month.

This equates to $9600/year.

Let's say your income is 59,600k Gross? You would take the 9.6k from your Gross income and receive a Tax benefit of $2880pa.

This means your PPOR is costing you $560/month.

If your rent is $600/week then you are up for $729/week.

Could be alot, then again I don't know your income. If your income is alot more then your Tax break could be more significant and therefore the whole scenario more affordable.

You obviously need to do what you can afford.

Regards JO

 

[Kenster]

Change your bank repayment to Interest Only to ease out the cashflow.

 

[josko]

Hi Kenster,

It is Interest Only.

Regards JO