Sell IP to buy own home? 50 year loans? Who to go to for advice?

[li21]

Hi all,

In a bit of a tricky situation..

We currently own an IP in Salisbury, Adelaide (owe $216k, but its probably worth around $260-$290.. unsure). We've owned it for approx 15 months.
On a regular month we would be $300 or so out of pocket every month, but on a bad month, eg. bills come in or no tenants, we end up having to borrow more money to get through that month.

We live in sydney and have been renting for a while..
Now looking to purchase. Desperately need a place with more space.

Probably around $500k realistically , but probably more for a place we really want. Trouble is we have no deposit and things are tight enough on our monthly budget as it is. (Big apartments/town house Around North Ryde, Epping, Chatswood etc)

Because interest rates have fallen so much and prices are coming down, seems like a good time to buy. Its still going to be tough to make ends meet ..but if we didn't have an IP that might make things easier.
If interests were to go up in a few years we'd surely have trouble keeping both.

Question:

- Are 40-50 year loans ok to enter? Because it spread the loan so far, it might make repayments more affordable ?

- Should we sell the IP? Isn't the golden rule .. never sell? I'd really like to keep it but selling so soon seems like a waste.. (settlement fees, agent fees, stamp duty.. down the drain)
I think growth in Adelaide will be slow/nil for atleast the next 2-3 years.. but who knows ...

- Who can we go to for advice ? Is this the domain for a Financial planner / wealth planner? Can anyone recommend anyone around North Ryde, Chatswood who might be good to talk to ...

thanks!

 

[marg4000]

I would not be too quick to pay for advice. After all, you are only seeking one person's opinion, and I have lived long enough to learn that your own opinion is often just likely to be right.

Want proof? Get hold of a copy of a financial magazine from early 2008 and look at how wild and wacky some of the predictions now seem. In one early 2008 API, 7 out of 8 financiers predicted higher rates by the end of 2008.

Unless remarkably lucky with timing, to buy and sell a property within 18 months will mean you break even at best after allowing for all costs. This means you will probably realise a loss if you sell the IP now. Not saying don't sell, just be mindful.

If you want to keep the IP, make sure the loan is IO.

Not sure about 40-50 years, but the amount of principal you would pay off would be so minor you might as well go IP and look at making a cash contribution when you can, most IO loans allow this on restricted terms.

Consult your financial institution or a MB to see how much you can comfortably borrow (or more importantly, can afford to repay) if you were to buy a PPOR in Sydney.

It may be that you have to look in cheaper areas to get something you are happy with.
And maybe buy a "fixer-upper" so that you can add value as you go along.
Are you prepared to do this?
Is your family (?) prepared to do this?
You would have to look at a period of at least 5 years to make it worthwhile. Maybe less if the RE cycle is good to you, then you can afford to move somewhere more desirable to you.

Fixed rate loans will give you security of loan payments, but always with the risk that rates may fall further - but frankly I think we are near the bottom of the rate cycle, but that is just my opinion.

Do some serious number-crunching and have deep and meaningfuls with yourself and anyone else involved and decide what YOU want.

Once you have that clear then you can seek advice - and personally I think that you will get just as good on this forum than from "independent" advisors out there. Yes, you will get many different opinions, but each one will have some merit and will help clarify your thoughts. But just remember, no-one REALLY knows, and your crystal ball is just as good as anyone else's....

Good luck!
Marg

 

[Propertunity]

We currently own an IP in Salisbury, Adelaide (owe $216k, but its probably worth around $260-$290.. unsure). We've owned it for approx 15 months.
On a regular month we would be $300 or so out of pocket every month, but on a bad month, eg. bills come in or no tenants, we end up having to borrow more money to get through that month.

That's pretty 'normal' - especially in the first few years of IP ownership. Over time the rent grows and there is less cash out-of-your-pocket required to fund the shortfall. The $300 negative each month - Is this after tax? If not and if you have not already done so - get an income tax variation done - so you pay less tax out of your pay - use this to fund the cash shortfall.

We live in sydney and have been renting for a while..
Now looking to purchase. Desperately need a place with more space.
Probably around $500k realistically , but probably more for a place we really want.

How much is a $500K loan going to cost to fund each month? At 6% IO it will be $577 per week. Are you paying more than this in rent now?

Trouble is we have no deposit and things are tight enough on our monthly budget as it is. (Big apartments/town house Around North Ryde, Epping, Chatswood etc)

Well selling the ADL IP won't give you much of a deposit after selling costs - REA comms and CGT - even with your 50% discount for holding over 12 months.

Because interest rates have fallen so much and prices are coming down, seems like a good time to buy.

No argument from me - I agree but I delare an interest.

Its still going to be tough to make ends meet ..but if we didn't have an IP that might make things easier.

You have to revisit the reasons why you bought the IP in the first place. You've heard about delayed gratification I assume?

If interests were to go up in a few years we'd surely have trouble keeping both.

Locking 'em in at a low fixed rate for 10 years will fix this concern.

- Are 40-50 year loans ok to enter? Because it spread the loan so far, it might make repayments more affordable ?

Pretty much the same as IO - most investors do this anyway. Are you?

- Should we sell the IP? Isn't the golden rule .. never sell? I'd really like to keep it but selling so soon seems like a waste.. (settlement fees, agent fees, stamp duty.. down the drain)
I think growth in Adelaide will be slow/nil for atleast the next 2-3 years.. but who knows ...

Might be longer ? as you say who knows? Is that a reason to get out of what is a medium to long term investment of 5 - 10 years. If you are not committed that long - then you've chosen the wrong wealth vehicle in property.

- Who can we go to for advice ?

On this forum - but its only opinion - not advice. Centrelink has a financial planning area that can help - so do some of the charities like Salvos, etc

Is this the domain for a Financial planner / wealth planner?

Yes, but beware - many do not recommend direct property as an investment (some do). Many will recommend managed funds - they make commission on. For a proper financial plan you might be looking at $3-4K which could be money well spent ......or not.