Downsizing earlier than expected

Most talk of downsizing your PPOR usually seems to centre around those in their 50s, 60s or more. But we are 40 and are considering doing it now.

Our house in Geelong is probably worth ~650 and we owe 300 on it. That would give us around 350 towards a new one. We could sell it now and build something that ticks all our boxes in the new housing estate which is only 5 minutes down the road for about 450 tops. We could pay off the 100k in just a few years and be debt free.

But would we be silly to do it now and forego future capital growth as this is a much better location financially?

I'm sure there's heaps of pros and cons that we haven't considered yet, would love to hear them.

 

Personally I would do it if downsizing suits your needs and wants. With the low debt you have, even with part time jobs you'd be free to save a deposit and invest elsewhere when a good opportunity arises. Really depends on what you're comfortable with but if you buy a new ppor in Geelong, for example you could then plan to buy an ip later in Perth or elsewhere to catch more future growth.

 

Do it.. who is to say the other property may not also continue to accumulate.

Debt is only a means to an end.. if you can see an end that is closeby, then time to get rid of the debt!

 

what happens after you become debt free? do you have investments to live off?

 

Downsizing can get you out of the rat race years earilier. I suggest you do it asap.

But that doesn't necessarily mean not claiming the main residence CGT exemption on a more expensive property.

 

Thanks Terry, can you expand on that a little please?



We have an IP, worth 380 owe 290. And IP 2 is a H&L that we have signed up for but won't begin building until the end of the year.

Our combined income is about 150 and we live pretty frugally. We know we're still a long way off retiring or anything like that. But it would be nice to keep every dollar we earn.

 

You can utilise the 6 year rule to claim the main residence exemption on a larger higher growth property.

I have a draft tip on this strategy and will post soon.

 

And if you added an extra zero you can come to the casino formerly known as Sydney...

 

All depends on your goals... how could anyone possibly answer that....I know some are saying to do it but imho I don't understand how anyone can know to say that unless they know your goals. I personally believe some goals would lead me to not downsize and build your ppor right now. Also you said the location your currently in is much better than the one your planning to move to and build. So really it all comes down to what you want to achieve.

me 2 cents.

 

Fair point. We're not 100% sure what our goals are. Maybe I'll work them out when I grow up and become an adult!!

But I guess we like the idea of retiring early rather than later. We love to travel, but can happily do it on a budget. If we're debt free, that frees up cash to do what we want. Then the next consideration is time. If we could get to a stage where we can work part time by the age of 50, and free up time for leisure, that would be a simple goal for now.

We love the house we're in now. But it's only a house....

 

Something to consider...

Keep 650k property equity = 300k
New 450k property equity = 300k...same
But
For easy maths say both properties grow the same due to basically same location 10% a year.
Current property makes you 65k CG in first year
New house makes 45k CG in first year
20k difference something to think about. Second year another 10% is 22k difference.

 

So how does decreasing exposure and debt help with your goal?

 

Decreasing exposure on the PPOR. Doesn't mean we won't still be investing. But with a greater ability to service and pay down existing and future IPs.

 

We're talking about doing exactly the same thing. I figure being debt free would make such a difference to our capacity to continue to invest. I also quite like the house I currently live in, but if we downsize i figure the kids are at school every day, we're at work, and if I'm sans debt I can go overseas every winter for a few weeks and not analyse every sent I spend throughout the course of the year. I also like the idea of the profit on your PPOR being tax free. How long would you have to work for to earn $300k and how much of it would you lose in tax? Also if you continue to pay off the outstanding debt, how many years would it take and how much interest would you spend during the process? Surely there's better things to do with the interest money? I think it sounds like a sound idea to me!

 

What kind of investment are you referring to?
I assume you don't mean investing in property since that would mean you are back to not being debt free.

 

Just be careful with your thinking. You seem to lile being debt free. That will cost you.

 

I think it is a good idea to downside (sometimes) and pay off the non-deductible debt faster as this can propell people into investments much more faster and agressive and tax affectively too.

 

Good point Anthony, I meant to say free of non deductible debt. I like the idea of having no mortgage on my ppor so I can pour my income into deductible growth assets. Suspect it will get me to where I want to be much quicker than if I continue on my current path.

 

I think you have a clear plan @Jimmylt and you're in a great position. Some people in this forum have no idea and like anything in life, talk is cheap because it's free.

 

You have answered your own question.