What should we do now?

[jman]

Hi All,

After buying our property for 3 years we have finally paid it off. Hurray!!
*we were lucky to structure our loans properly after reading it off a forum like this one back then. 80% loan with a 100% offset account.

Need advise on what we should do now based on our situation.

we are in our late 20s / just turned 30 this year. My Mrs is getting the baby fever so we are looking at buying a bigger place. Anyway to cut the long story short below are our "situation"

Bought a place which is our PPOR for around 520K in 2010. This involves getting a loan from the bank at 80% (416K) and taking out a loan from my parents 100K.

Refinanced it in 2012 with a valuation@ 610K thus our 80% loan is now 488K.

So at this present moment we have 488K sitting in the offset account.

we are looking at a place that is asking for 840K and i think it rents out for 750/week (does that sound alright to you?).

We are located in Sydney (Auburn) not too sure if this area will appreciate in the future.

Which option will you take?

Option A
We sell our current place and move into the new place
Pros: low debt level, actually getting the capital gains tax free since its PPOR
Cons: lost of an opportunity to have an investment property

Option B
We move across to the new property and rent out our property @600/week.
This means we will convert our PPOR to an IP = getting someone to value the house to get a cost base for future CGT and for depreciation.
Question: from what we understand since we took a loan from my parents (*got bank transfers and a signed paperwork to prove)we can actually return that extra $72K that we got from the refinance to them and -ve gear the whole 488K?
Pros: we now have an investment property that might be CF+
Cons: we are unable to tap on the capital gains we got to reduce debt of PPOR. Higher PPOR debt.

Option C
We keep staying in our current place until we get a baby then move over to the new property. In the mean time we will keep that as an IP.
Pros: we will be able to depreciate the new property.
Cons: The property is currently in really good condition and tenants will probably destroy it.

we had people telling us its best to buy and sell on the same market and that its "safer".

Some has also suggested for us to wait. But obviously we didnt listen to them in 2010.

I feel the sydney area is kind of real hot at the moment but as a novice we are not sure if what we are seeing is an overshot where the market will correct itself or if this is the start of a steady growth.

Thanks in advance guys!
Cheers!

 

[Rolf Latham]

Welcome

pointless taking heed from generalist advice, and you are aware of this from the content of your posy

Although this forum is a great resource, only you can work out what your comfort level is.

One persons "safe" is another's prison...............

ta
rolf

 

[jman]

Welcome

pointless taking heed from generalist advice, and you are aware of this from the content of your posy

Although this forum is a great resource, only you can work out what your comfort level is.

One persons "safe" is another's prison...............

ta
rolf

Thanks Rolf. What I am seeking is advise from experienced property gurus in this forum. I am guessing there would be someone being in my shoes 5, 10, 20 or even 30 years ago.

 

[Rolf Latham]

Thanks Rolf. What I am seeking is advise from experienced property gurus in this forum. I am guessing there would be someone being in my shoes 5, 10, 20 or even 30 years ago.

some will say wait

some will say go slow

some will say go fast

some will say sell and buy shares

some will say sell and buy commercial

some will say sell and buy gold

Some will say sell and go on centrelink


Some will say the markets are cold

Some will say the markets are hot


the challenge is that each and every one of those opinions is correct through the lens of the purveyor of the advice...............

so how do you filter that for your own use ?

Imnot saying your quest for advice is good bad or whatever, just trying to see how you can analyse and make use of disparate opinions

ta
rolf

 

[alexlee]

Financially, the best option is probably to move out, rent somewhere cheap and build up the investments.

In practice, this is not so easy with a family.

You need to decide just what you're willing to sacrifice.

 

[Darlogus]

You have done very well so far, so maybe just keep doing it. The details will work out if you spend many hours over months reading books and this forum to formulate a investment strategy.

 

[BayView]

Having a PPoR paid off opens up many more choices.

Staying and using the equity for other IP's ensures the debt is deductible.

Having one baby takes up no extra room for the first couple of years, so moving because you need more room won't factor yet.

We lived in a 1 bed apartment in L.A for about 18 months with a 4/5 year old boy, so it's definitely doable.

Given you have paid the house off so fast, I would assume you have a ton of expendable income, so the easy next step is buy another IP and use the combo of rent and your incomes to smash the loan.

Buy something bigger, so that it may also convert to your next PPoR in a few years should the need for space arise, continue to smash the loan as you have done.

By then, you may have little/no loan left to pay down which becomes non-deductible when it converts to your PPoR, and lots of equity to reuse for further IP's or business etc, which is deductible..

Then, repeat....maybe 2 in 4 years or something like that.

That's a reasonably safe way to proceed.

 

[JacM]

Hi JMan

Selling your place and moving into a new PPOR doesn't necessarily exclude you from investing. It is possible to get 100% finance for certain properties.

There is also the matter of the absent Option D; sell your place, rent wherever you fancy living, and put all available cash into investment properties.

As has been mentioned, you need to weigh up how convenient it would or would not be residing in a rental. One pro is that you could rent almost anywhere you fancy for far cheaper than you could buy. One con is that when children are of education age, you probably need to be stable and not on the move, because you do not want to fall out of the catchment zone of your preferred schools.