What would you do? Take a profit?

[Lily House]

A couple of years ago, we sold our PPOR and an IP, so that we could upgrade to our dream PPOR debt free. Have not regretted it.
Every day I come home to my lovely home, I am so happy that we made the right decision.

Yes, from a purely monetary point of view, it will get you to retirement quicker if you have more properties now, but how do you want to live in the meantime, and which house would you prefer to raise your family in?

If I am reading your posts correctly, if you sell your current PPOR and the one IP, you can buy your dream home outright (debt free), and still own a further 3 IPs plus some shares. That is a wonderful position to be in at your age. As you have got yourself into such a great financial position with your investing, then enjoy your dream home and just continue doing whatever you have been doing up until now.

Or you could do as Bayview suggested, buy keep all the IPs, buy the dream home and have a reasonably small debt on it to pay off.

Best of luck with your decision making. Please let us know how you go.


Caroline

 

[Player]

The contradictions I see is between the name 'wannaretire', 'dream home' and 'time'.

Compromise is possible on one, but at the expense of the others.

Eg to retire sooner you're better off with a more modest home and more non-home investments for income.

Agree.

Whilst with a US slant, although with relevance to us here in Aus, the authors of the book The Millionaire Next Door have a formula on determining one's welath.

Multiply your age times your realised pre-tax annual household income from all sources except inheritances. Divide by 10. This, less any inherited wealth is what your net worth should be.

Conversely getting the dream home may mean putting off retirement.

As indicated in that book alluded to above, high status artefacts and chasing trophy homes (perhaps beyond one's means) is not likely to augur well to financial independance or retirement as Spider has expressed in his post

Leaving aside the super-rich, Australia's class structure is pretty much as follows:

Poor people have almost nothing and are very likely renters.

Rich people own assets (real estate, shares, businesses) of which their own home is only a small proportion. Unlike one's own home these assets can provide income and hence financial independence. This obviously beats being poor!

Most middle-class people have their own home, a bit of super and maybe some other investments. But mostly it's their own home and their spending is a bit too high. It's this lopsided asset allocation that prevents financial independence - ie too much tied up in their own home and too little in the non-PPOR assets that will provide their only source of future income (ie IPs, shares, businesses etc).

Hence there is a risk that buying a better home (if that's all one does) moves one's financial profile away from the rich towards that of the middle class. Which may not be conducive to financial independence long term.

Precisely

Now it might be possible to come up with an arrangement that allows the trifecta - dream home, early retirement and achieving this soon.

But then there's a 'risk' factor to worry about to get the higher returns needed to achieve all three.

Great post Spider. Whilst there is nothing wrong (or right) with chasing a "dream home" if the intent is financial freedom and no other active strategy is employed to create the cashflow (preferably from rent and not equity), then it will be difficult.

Wannaretire, if you have not done so, The Millionaire Next Door (Stanley and Danko) is a great read and may give you some different perspective to ponder your situation and how you wish to move forward.

Nevertheless, good luck on your aspiration and looking forward to some other insights from your further reflections and what you decide. This is an interesting thread.

 

[wylie]

Only you can decide whether to sell two properties to buy one "dream home".

We have been tempted several times by a "dream home" but each time have decided that we will stay in our "very nice" home and keep the rental income coming in.

Now we are 51 and 50, that "dream home" just doesn't have the same appeal as it did ten years ago. We are now aiming to stay in our current house until the youngest leaves school, when we have nothing holding us here.

We may then buy a "dream apartment" at Southbank or West End or anywhere that takes our fancy, or we might just stay where we are.

I suspect the large dream home we would have bought ten years ago would be too big for us when the boys start to leave home.

The other thing is that hubby has resigned from his job, which he could not have done had we upgraded a few years ago. The fact that I could say to him (I do the figures on our financial position), "just resign" was something so satisfying to both of us.

We still have a huge debt, but it is being serviced by IPs (not that many, either).

So, there is no right or wrong, but your decision very much depends on so many things that you have to weigh up.

 

[weg]

Have you factored into your sums the money you lose in buying and selling costs (alot on 3 high priced properties).

The other option would be to spend some money on your existing home and turning that into a better/dream home. This way not only do you get what you want but your existing PPOR value goes up to.

 

[wannaretire!]

Gools - sorry you've found my posts a bit hard to follow, I know my financial situation back to front but have found it a bit hard to put it down in writing! Yes, we are only getting $470 a week rent on a house valued at $850k (well that's my estimate of its value, the council rates notice has it at $780k). And it is only a 3 bedroom, 1 bathroom house. That's what I mean about crazy prices at the moment. That IP was our PPOR for at least 5 years and wasn't our dream home by any stretch of the imagination, but it is worth so much now. So to rent a dream home in that area (which isn't where we would like to live anyway, we lived around there for 13 years and are over it) would cost more like $800 to $1,000 a week. Plus I'm not too sure about renting and being at the mercy of those lousy landlords!

Intrinsic value - thanks for your suggestion, yes we have thought about selling the shares if we sell the unit to offset the capital gain, then buying them back again, and wondered if this made sense. It's good to know that you had the same thought!

Bayview - thanks for your post, I am pretty much thinking the way you are, including selling the shares. My husband is on the side of keeping them as he would hate to take a loss, but I am not against selling them at all for the reasons you suggest, especially as the loss can be carried forward.

Caroline - thanks for your post, you have understood our situation perfectly and it is nice to hear of people who have done what we are considering doing and have no regrets!

Player - thanks for the "Millionaire Next Door" suggestion, I read that book a long time ago and we have actually been following the principles. We bought the 3 bedroom 1 bathroom IP house worth $850k now for $330 in 2001 and lived in it for a number of years. Even now if we do buy a house for $850k total, it would still not be our absolute dream home in our dream suburb - if we liquidated all of our assets we probably still wouldn't get that as Melbourne prices are so high at the moment. That is why our current PPOR is much further out, it is a larger block and larger house but isn't our dream home. We are looking to buy our dream home out this far rather than closer in, in order to be able to not have all our equity tied up in our PPOR. Some of our friends have homes worth around $1.5 million in expensive suburbs closer to the CBD (Balwyn, Surrey Hills etc), but we don't really want to go down that path.

Wylie - thanks for your comments. It is so hard to know what is the right thing to do! We really feel like we are at the crossroads at the moment and our financial future may depend on what we decide now, so it is great to get opinions from other property investors on this forum.

Weg - yes we have (hopefully correctly!) factored in our selling costs and also CGT where applicable. Unfortunately our current PPOR will never be our dream home, as we are really after a more modern house with an open plan kitchen/dining/lounge that looks out onto an outside entertaining area and backyard. Our current house is a bit oddly laid out. We have a galley kitchen, and only the bedrooms are near the backyard. We are doing cosmetic renovations at the moment such as painting the mission brown throughout the house, plastering the upstairs rumpus room that is totally wood and resembles a ski chalet, and general "de doilificiation" (as my husband calls it) of the place, in order to hopefully get more money from its sale and make it more enjoyable to live in until then.


It is so fantastic to hear from all of you, my husband and I have so much to think about!

 

[Thesnowyforest]

Couldn't agree more. I'm in this kind of Delma with my girlfriend... She wants to buy a house in the inner west (marrickville for example) but entry is like $650 - 700k for a first purchase which to me is just insanity with a deposit under 100k.

I have $120k equity high I'm trying to turn I to my 1st million in the next couple years.

Home ownership to me is the easy part and is not on my radar. I want a nice place later in life.

Give me debt to allow others to live in A box ANYDAY!

The contradictions I see is between the name 'wannaretire', 'dream home' and 'time'.

Compromise is possible on one, but at the expense of the others.

Eg to retire sooner you're better off with a more modest home and more non-home investments for income.

Conversely getting the dream home may mean putting off retirement.

Leaving aside the super-rich, Australia's class structure is pretty much as follows:

Poor people have almost nothing and are very likely renters.

Rich people own assets (real estate, shares, businesses) of which their own home is only a small proportion. Unlike one's own home these assets can provide income and hence financial independence. This obviously beats being poor!

Most middle-class people have their own home, a bit of super and maybe some other investments. But mostly it's their own home and their spending is a bit too high. It's this lopsided asset allocation that prevents financial independence - ie too much tied up in their own home and too little in the non-PPOR assets that will provide their only source of future income (ie IPs, shares, businesses etc).

Hence there is a risk that buying a better home (if that's all one does) moves one's financial profile away from the rich towards that of the middle class. Which may not be conducive to financial independence long term.

Now it might be possible to come up with an arrangement that allows the trifecta - dream home, early retirement and achieving this soon.

But then there's a 'risk' factor to worry about to get the higher returns needed to achieve all three.

 

[Tesla Rules]

Hi WT; I am a long time lurker and it is your post that has tipped me over the edge to register.
The range of responses you have elicited is amazing. And of course everyone has responded with a perspective based on their own values. As am I:
My 2c worth: Embrace that new dream home.
From your post and subsequent replies, You are hard working and an astute, informed and yet cautious investor.
I dont detect your want the dream house as just a trophy house - you want a "home" that you can love and have as an emotional centre.
Spider is right in identifying the apparent contradiction: retirement V dream home.
But is life just a series of very clinical investment decisions - or is there room for folly and fun?
Is the decision either/or (retire//dream home)
Is there not also the path where the "folly" of a dream home can also, longer term, become viewed as an astute investment decision.
You have observed the self-imposed discipline of having an original PPR which has become an IP.
Is this decision/ time of life where you treat yourself?
Life can be unpredictable.
Balance is optimum.
Frugal, sensible, restrained (which is what you have practiced to get where you are now), so how about a little "rewarding".
I agree with another poster that you have the sense and discipline to get any non-deductible PPR debt reduced pretty quickly.
Enjoy your hard work. Have your dream home.

 

[wannaretire!]

Hi Tesla,

Thanks so much for your post, sorry it's taken so long for me to reply. It was lovely to read it and you have some wonderful points. I especially love this:

Is this decision/ time of life where you treat yourself?
Life can be unpredictable.
Balance is optimum.
Frugal, sensible, restrained (which is what you have practiced to get where you are now), so how about a little "rewarding".

You are so right, and we are definitely thinking along those lines. We're actually going along to an auction tomorrow and will bid if the price is right!

 

[recruit2]

Yeah just to throw in another response, I would totally be upgrading to the dream home. And well done / congrats - this is a fantastic position to be in and I get the impression this is the result of years of diligence and hard work.

I have noticed that *many* (not everyone) of the people who gain their wealth purely from property investing, often retain crappy lifestyles, living off an oily rag and lose sight of the bigger picture. Where as some people may actually have a job they don'd mind or are even passionate about and would continue working anyway. The lifestyle benefits from the dream home can be enormous and even very good for your health and well being. You have to cash in sometime and realise the gains of all your hard work.

I am pretty much of the anti-sell attitude too, but often think that if I did that forever, nothing ever eventuates from all the years of hard work. For me personally, I love my job and would continue doing it even if I was living in my dream home, so if I could get the dream home with either nil or a relatively small mortgage, I would absolutely be taking that approach.

 

[MdrnPhilosophy]

Just a suggestion

Dear Ivy,

This may not be what you are wanting to do but i just wanted to put a thought out there.

If your house is in need of repairs and there is a possible development site behind you. depending on your area you may be able to do a joint venture with a developer (if you do this do your research) to get both your land and the land behind you, then do townhouses or something. This should allow for more profit. But of course this all depends on the area and if the numbers would work.

Also, I have been hearing and reading much of a drop in property values expected over the next 2-3 years, a significant drop especially in the higher end properties due to baby boomer retirements and economic difficulties. I would personally with this knowledge, sell now, go on a small vacation with the cash. Then rent for a year and watch the market and purchase the type of home you want to buy after the market heads south.

Just my personal opinion.

May you prosper from any choice you make.

p.s. have you looked into how much your house could sell after a renovation? You may be able to make some more cash from just a few months work.

 

[wannaretire!]

Update

Hi everyone, just thought I'd give you an update as to what we ended up doing.

We bought our dream home for just over $800k in September, sold the unit for $495k in October and sold our current PPOR in November for a bit over $710k.

Plus most importantly, we had a little boy in October!

So we have been really busy, but happy that we've gone down the path of selling the properties to get our dream home. We think we paid a reasonably good price for the dream home and it is pretty much perfect for our requirements - we had to pounce on it as these sort of properties don't come up very often.

Come January our position will be that we own our own dream home, have 3 investment properties with net equity of around $650,000, shares worth around $125,000 (although we will sell those pretty soon to get the capital loss to claim against the capital gain from selling the unit) plus cash of around $60,000 after paying all costs including capital gains tax from the unit.

Our plan is to keep the 3 investment properties and get back into property investing next year once we've moved into our new home.

We've had to pay a lot of capital gains tax over the past couple of years, and it's been a lot of stress especially renovating our current PPOR, but we're starting to see the light at the end of the tunnel and it has been worth it. And looking back on my first post, I'm really pleased that things have worked out so well and as we had hoped/planned/estimated!

Thanks again everyone who posted for your advice, I really appreciated it!

 

[evand]

This thread reminds me a bit of this great quote from Warren Buffett:

"Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway"

 

[pennyk]

Well done, wannaretire. It sounds like you are in a really good financial and "emotional" position... congratulations on both the new baby and the new house. Make sure you take some time to enjoy both!
cheers Pen

 

[Lily House]

Congratulations Wannaretire.
I can feel your happiness from the tone of your post, which means you have made the right decision.
Enjoy your new home and your new baby.
Thanks for the update. It is lovely to read a happy ending/beginning.

Caroline

 

[recruit2]

Congrats wannaretire. A huge well done. Sounds awesome and like a great balance now.. Exciting times..