A quick question for the MBs and other forumites..
A couple family members of mine in the last 12-18 months have been in this situation and I'm baffled as to why they've done what they've done. I'll outline the situation of one of my family members briefly..
- married couple with 2 kids
- combined income easily $150k + (not the kids)
- very good savers
- PPOR worth around $450k (not sure of LVR but it would have been under 70%)
- drive very modest cars. Own no other properties or major assets.
They sold their house for around $450k so that they could buy land and build elsewhere. They only paid ~$300k for the land and $300k for the build so not a great big jump.
Their house sold straight away and now they are renting back and have been for 12 months, with another 9 months before the house is finished. They are paying more in rent than they were on the P+I repayments.
Now why couldn't they just pull out the equity in their existing PPOR to buy the land and pay for the build? They would have access to the same amount of cash/equity (they would only access say 80% of the equity.. but they lose some of their equity when they sold due to agents fees, legal fees etc anyway so they didn't get access to 100% of it), they would be paying off the property and it would have been more cost effective than renting, and in the meantime their property has increased by $50k or more so they would have received those gains as well.
Have they just received very bad advice from their bank/broker? Or am I missing something blatantly obvious here?
Cheers
A couple family members of mine in the last 12-18 months have been in this situation and I'm baffled as to why they've done what they've done. I'll outline the situation of one of my family members briefly..
- married couple with 2 kids
- combined income easily $150k + (not the kids)
- very good savers
- PPOR worth around $450k (not sure of LVR but it would have been under 70%)
- drive very modest cars. Own no other properties or major assets.
They sold their house for around $450k so that they could buy land and build elsewhere. They only paid ~$300k for the land and $300k for the build so not a great big jump.
Their house sold straight away and now they are renting back and have been for 12 months, with another 9 months before the house is finished. They are paying more in rent than they were on the P+I repayments.
Now why couldn't they just pull out the equity in their existing PPOR to buy the land and pay for the build? They would have access to the same amount of cash/equity (they would only access say 80% of the equity.. but they lose some of their equity when they sold due to agents fees, legal fees etc anyway so they didn't get access to 100% of it), they would be paying off the property and it would have been more cost effective than renting, and in the meantime their property has increased by $50k or more so they would have received those gains as well.
Have they just received very bad advice from their bank/broker? Or am I missing something blatantly obvious here?
Cheers