Downsizing earlier than expected

you should probably have a mortgage on the PPO to secure a loan which you will use for investment purposes. If you don't you will be paying more in interest!

 

I really do appreciate you taking the time to reply. And I am open to any suggestions or criticism. But with all due respect, your short cryptic answers aren't helping me much. Could you expand on what you think I should or shouldn't do.
Again, I'm not trying to be rude, I'd genuinely like to know.

 

I second that and would like to know in the interest of learning.

 

I don't think you can measure this decision in just $$$. There is a lot of emotional value in not having any PPOR debt....

 

Being debt free can be emotionally rewarding, but financially detrimental. Property only beats other investments like shares because of leverage. If you are downsizing to repay nondeductible debt so that you can take on more deductible debt, that might be fine. If you downsize, become 'debt free' without a plan to re-leverage, you might enjoy the emotional high of being 'debt free' too much.

Its hard to explain because its all in your head, and its about the cost of things you dont do. You may not realise that youre hurting yourself in the long run by not taking on debt, because being debt free feels so good. Thats where having goal and a plan to kick yourself is useful. Without a strong enough goal, experience or discipline, your going to take the 'feel good' route. Your friends will probably say how great is it that your debt free. That doesnt mean its the best for you financially.

 

As long as your are practically investing in some way, or plan to make sure you do, why not?

We don't live forever, live a life you want to, as long as you are doing enough to safeguard your future. If going debt free is a high you feel will make you feel good each day, I would take that over the more advisable carrying on of debt any day. Emotional satisfaction can boost your health, well being in ways no future planning can provide for.

 

Is debt free an emotional high that has consequences? Do you understand what those consequences are? Will you accept those consequences? Thats a personal thing. Old cliche but think before you leap.

 

I believe that it is fine to pay off a PPOR. If the OP wishes to take out debt in the future to purchase assets, it is easily done. If he doesn't, he can still invest without taking on any debt. In the current season of flat or minimal growth in real estate, buying IPs isn't going to be as much of a wealth creation scheme as it was in the last few decades. There are other assets to acquire which do not need massive debts and leverage. His goal is more about lifestyle than wanting to buy other properties.

 

To the OP: think for yourself. Decide whats important for you, both short term and long term. Most decisions go one way short term, another way long term.

 

You own property in central Geelong? Geelong is booming, hold on!

 

Appreciate the reply. So basically you're saying that I shouldn't downsize my PPOR to become free of non deductible debt, because I might not have the discipline to reinvest the increase in disposable income.

I am confident that won't be a problem. Like I said, we live pretty frugally, and while it might mean a bit better holiday each year, we still have our eyes on longer term goals.

Cheers.

 

Yeah, I know what you mean. That's part of the dilemma.
But with some planning, I might be able to do both. The lots at Armstrongs Creek won't title until well into 2018, perhaps 12 months from now. So if I put down 5-10k on the block, with the balance not to be paid until it titles, I can get another year of growth on this place before having to sell it, might be up above 700k by then.
That's all best case scenario of course, I don't have a crystal ball, and could be completely wrong.

 

You might not have the discipline to realise you need to get back into debt to reach your goals.

Budgeting is not the same as investing.

 

Thanks.

 

It's really good that you have that alternate point of view, so OP can really consider both sides and make a decision.

 

If you like, you could hold the central Geelong property and turn that into an investment. Central Geelong yields are excellent. Voila, the bad non deductible debt turns into happy friendly deductible debt. I own in central Geelong and the interest on a P&I loan is entirely covered by the rent - and I haven't got anywhere near as much equity as you guys have.

Use the considerable equity in your home to buy a PPOR house in the rapidly rising Bell Post Hill/North Geelong type areas at around the 300-350k mark, and focus your energy on paying that debt down.

This way you can have your cake and eat it too - eliminate PPOR debt whilst still having investment debt, and you don't have to lose exposure to the hot market, or downsize for that matter!

I'll be honest with you, the strategy that you've proposed sounds like the kind of thing a well meaning grandparent would tell you to do...and we are here to advise you that it's probably not the most financially sound way to go.

 

Debt free is a great place to be!

I like the semi-retired living in SE Asia model. You could work on whatever job/business/income generating hobby takes your fancy, stay for extended periods in locations that have lower costs of living and come back to Earth when you need a break.

No mortgage or rent frees up (or reduces!) a huge chunk of your expenses which can be used to either spend elsewhere or buy back your time.

 

Yeah, I certainly don't think my plan is fool proof. I don't want to live in the northern suburbs though.

Any tips on a really good local broker or planner that specialises in this sort of thing?