Turn current house into investment or sell?

[thegoat]

Hi,

I just wanted to get the opinion of some people on the forum. I hope I'm posting in the right area.

We currently own a townhouse, owe about $240,000, would probably sell for around $450,000.

We definitely want to buy a new house early next year, but are also at the stage in our lives where we want to start investing.

We have thought of 3 options:

1. Keep current house, using equity that we have as a deposit for new house. I think we would have around $150-$160,000 to use for next house
2. Keep current house, but my wife would sell her 'half' of the house to me. Without going into too much detail, advice provided to us by a property accountant has told us that doing this will mean we will be better off than just using the equity as per option 1 for tax purposes but would only have around $110-$120,000 to use for next house
3. Sell the house and use the money from the sale to buy a new house. We would have around $200,000 to use for next house.

The next house we buy will be the one we live in for the next 15-20 years, so we want to make sure it's the 'best' house we can buy. In order to spend more on our next house I'm thinking it would be better to have the most deposit we can in order to lower the repayments we will have in the house we move in to. In this sense, option 3 would be 'best', however it would mean putting off investing and my fear is that we may not be able to invest for a long time in the future if we take this option.

However I also think this would be a good opportunity to turn our current house into an investment property because the rent we get from the property would cover the mortgage repayments. If we take this option though our repayments on the house we move into would be more.

As I said, I'm hoping for some tips/advice/info from some other forum members.

 

[Rolf Latham]

Hiya

maybe a debt recycle strategy or a spousal sale will help to regear the old PPOR and thus make that decision so much easier

ta
rolf

 

[Terry_w]

1. Keep current house, using equity that we have as a deposit for new house. I think we would have around $150-$160,000 to use for next house
2. Keep current house, but my wife would sell her 'half' of the house to me. Without going into too much detail, advice provided to us by a property accountant has told us that doing this will mean we will be better off than just using the equity as per option 1 for tax purposes but would only have around $110-$120,000 to use for next house
3. Sell the house and use the money from the sale to buy a new house. We would have around $200,000 to use for next house.

This doesn?t seem to add up
$450,000 / 2 = $225,000, i.e. each half is worth $225,000

Half the existing loan is $120,000. This is how much your spouse would pay out to the bank to buy your half (or you hers/his).

So the new deductible loan would be $120,000 + $225,000 (100% of the half) = $345,000

You would pay your spouse (or she you) $225,000 for her share. She would have $225,000 cash. This cash could be used as deposit for the new property.

You also potentially have access to a bit of equity for the new house too if needed.

 

[thegoat]

This doesn?t seem to add up
$450,000 / 2 = $225,000, i.e. each half is worth $225,000

Half the existing loan is $120,000. This is how much your spouse would pay out to the bank to buy your half (or you hers/his).

So the new deductible loan would be $120,000 + $225,000 (100% of the half) = $345,000

You would pay your spouse (or she you) $225,000 for her share. She would have $225,000 cash. This cash could be used as deposit for the new property.

You also potentially have access to a bit of equity for the new house too if needed.

Hi Terry,

Thanks for the post. This is the part which I haven?t fully clarified with the person that gave us the initial advice, but this was my initial understanding:

As you mentioned, my wife would need to pay me $225,000 as this is half the value of the house. Assuming she borrowed this money from the bank, our current loan would then go up to $465,000 (original amount of $240,000 plus the money she?s just paid me of $225,000).

So I now have $225,000 sitting in the bank that she?s just paid me. Out of that $225,000 I would need to pay off her half of the loan of $120,000. This would reduce the loan to $345,000 (as you mentioned), but would leave me with only $105,000 sitting in the bank as deposit for our new house.

Is that correct?

 

[Terry_w]

Sorry I forgot to minus her loan which would need to be paid out, so it would be just $105k left.