VIC Hawthorn - hold as investment or sell

Hi everyone, longtime lurker first time poster

Young family, just upsized and bought a house in Camberwell, Vic. $3.2m.

Existing house is a pretty, single fronted 3 bed Victorian in Hawthorn. 230 sqm. Great condition, everything a recently married couple/young family would want and no more to spend. Agents tell us $1.8m+. Mortgage is $800k.

Really tussling over whether to hold onto or sell the existing house.

Rental appraisal for our Hawthorn house is $750/week. That's a low yield. But could transfer the property between us (spouse-spouse), which means stamp duty payable (no exemption since won't live in it for 12 months) but loan would at 100% - $1.8m and tax deductible (can use equity in new house, and funds after paying existing mortgage will reduce balance of new mortgage) and interest only (2.5% with CBA). With the equity we'll have in the new house, could even draw down investment loan further for property expenses and so more tax deductible debt and less impact on our cash flow.

Main concern is impact on our cash flow and the general stress/risk of being more highly leveraged which is not insignificant. We're fortunate to be on high incomes, but don't want to spend the prime of our lives worrying about every penny or the stress of needing to maintain these. If we borrowed the general rental expenses each year (land tax/rates/maintenance) and after allowing for tax deductions, the net annual cost of keeping our existing home as an investment is amazingly very minimal (~$1,000). This means it would be very cheap to keep ownership of a $1.8m asset. Seems like a no brainer if we think this particular property will have capital growth of more than 2% per year on average. Have budgeted expenses of $14k per year for tax, land tax, insurance, maintenance.

Thoughts? Are we stupidly exposing ourselves by having two properties totaling $5m in Boroondara and at the mercy of the inevitable interest rate rises? Or are we being smart, making a modest sacrifice that will set family up in the long term? Or given we're paying stamp duty anyway to hold onto our house (so we have higher tax deductible debt), should we sell our existing house high, and buy a more modest investment property with a better yield.

Very interested in your thoughts.

 

Very good point.

In theory we’ll buy a cheaper investment property in the next 12 months. But what I really don’t know is if our existing hawthorn house is, to an expert, a simply absurd concept as an investment property (given the high price we could otherwise sell it for) and we’d be better of buying a property in xyz, or if it’s at least middle of the road as an investment and given we know it well and will save ourselves the sale costs and hassle associated, a sensible decision to hold.

 

If you sell and buy another investment, how much will you spend on transaction costs?

It’s also difficult to ascertain if selling your original ppor and replacing it with another IP will perform as well.

I’d certainly sell if I was intending to invest in another asset class, but would be thinking carefully before replacing it with another residential IP.

Do you have a buffer in place to cover an emergency including job loss etc?

 

Hope you decided to keep your place in Hawthorn. Both Camberwell and Hawthorn are excellent suburbs!