About to spend a lot of money

Hi

So my partner and I have a unit in wolli creek near Sydney airport which I purchased maybe 4-5 years ago

It's done pretty well and with extra repayments we've got about 430k equity

Looking to buy something with more space for a family and found a new build 4 bed townhouse for just under 1.1m in roselands which will be finished in 15 months

I've barely been able to sleep , signing contracts next week if we go ahead

Do we:

- Sell and move back home so we're selling in the same market as we're buying and put it straight on the new mortgage

- Pull the equity out and put it on the mortgage and hope for more growth

- wait until settlement and decide

So much doom and gloom in the news but I remember it was the same thing back in 2012 when I bought too...difference is if wolli drops and I've overpaid for the townhouse it's going to be tough

Thanks

 

Hmmm. That's a tough one.

I will say it sounds like you are looking to buy a new PPOR.
I hope all your Wolli Creek money is in offset....

If not in offset, and you really do want to upgrade, I might be tempted to sell it. I think the value of it may go sideways for a few years, but that's only my opinion. On the other hand, there's a chance the one you are looking to buy might fall in value (go through a correction) or not go up in value either in the near future, but at least it has some land content which imo makes it a better purchase than the Wolli Creek unit

Sorry this isn't too helpful... and it's only my thoughts. I could be completely wrong and the Wolli Creek unit could do better than I thought over the next couple of years still.

I suppose the question is how much ongoing supply and demand those units have and if it's much of a drain on your hip pocket if you hold. And it sounds like you don't have too much non deductible debt on it, and you are trying to buy a PPOR... which is bad.

 

If it's going to be your home for the next 10yrs and you aren't looking at investments / drawing equity etc - it really won't matter. Just check the price In 10yrs and ignore every bump in price in the meantime.
Unless you need to sell, price fluctuations are irrelevant as a home owner.

 

As Gockie said, if you're extracting money from an IP to be used in a PPoR there are huge tax implications. You cannot use equity from your IP to fund a PPoR and have that portion of the loan (interest payments) remain deductible. I have just written an article on this on our website. It's reason enough alone to never pay principal into an investment loan. If you want to "pay it off", put it in the offset account for the same net cash flow effect without the future tax implications if you want to use that money.

I would suggest getting some tax advice prior to making any decisions as aside from the purchase itself, this can impact things in a big way.

 

Thanks, its not in an offset unfortunately. I originally bought it as a ppor back when I was single, never expected it to go up as there are hundreds of new places being built here

If we keep it, its going to be very tight financially (strata is 1500/quarter alone) but then i'd hate to see them keep climbing and be priced out of getting another investment.

May have to see an accountant, good tip!

 

Don't buy new builds.

Find the best piece of land you can afford - don't worry about the house on it (the poorer the condition the better actually).

Fix the house over time as you can.

At least then the value of your property is increasing relative to the market.

Buy new and the opposite happens.

I know that area very well - for $1.1M you can do much better than a townhouse.

 

Even for something to live in? All the blocks with crap houses are around 900+ . Realistically, I dont think we'll be able to renovate after spending that much, and its tough to 'downgrade' while spending so much...the unit we're in is really nice

the townhouse is 167sq internal and another 60 odd outside, ensusite, bathroom + downstairs toilet. garage , storage etc.

 

Hi fomo,

I agree wit @Tonibell
You got out of Wolli Creek ok this time, but if you keep pushing your luck with high priced OTP, it will not end well one time.
Consider very carefully before committing.

 

Why do you need to buy a PPOR immediately? I would sell your current unit personally, as I'm not confident of units (especially in those kinds of areas) retaining value in the near future. Hold on to the money and buy when you find a good deal. There's no need to rush into something else straight away. Just my 2 cents

 

We want to have kids and just dont think the unit is great for that. May sell and just pay down the mortgage. I dont think property investment is for me, too much stress and guesswork!

 

fairly simple if you take a basket case
say properties drop 20%, interest rate 5-7% can you handle it?
if not then you need to sell up and reduce the risk

Remember leverage is a 2 edged sword, it magnified your gain but also magnified your loss
Properties investors hasn't seen a correction in living memory so they assume it always goes up
but always plan for the event when it outside your control and properties tanks

that how I usually structure my finance, I plan for semi-bear case scenario if I can't handle it I am over-committing, but I it also give me the flexibility to acquire asset cheap when other struggles with an event outside their control

 

I don't agree this is good advice. You might never be able to buy back.

 

With almost half a million in equity? Are you joking?

 

Regardless, keeping money in the bank or under the pillow (if you meant that) is hardly a wise choice.

 

Did I say to do that long term? Lol I accept donations if you don't want to put it in the bank

 

I'd also consider
- how much has the apartment gone up in value compared to the overall Sydney market since you bought it.
- long term there are plans to build 5,000 homes at Kogarah Golf Course and residential development around Princes Highway / Forest Road.

 

1.1m for townhouse in roselands? lol what a joke, that place is crawling with lebs. Not exactly a neighbourhood to be looking to let your kids grow up in.

Just sell up and go to Perth or Brisbane. With 450k equity, you'd be able to semi-retire and buy a nice big house with a backyard for the kids in an ok area with good public schools.

 

interesting, didnt know that

really? how do you know my background? thanks but i'll take my chances in the areas ive grown up in as opposed to the racist bogans in Perth or Brisbane

 

Choice of new townhouse for 1.1m or old house for 900k.... with my investor mindset I'd take the old house any day.

 

This. Or even better, go regional/rural