I also need urgent advice - please help

Discussion in 'Investment Strategy' started by Karen2019, 28th Mar, 2019.

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  1. Karen2019

    Karen2019 Member

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    Hi - I am married with 1 child and in our early 40s. We are renting an apartment in Sydney. We bought a property few years ago. It was tenanted but 2 years ago we decided that we want to demolish and rebuild to make it our PPOR so we engaged an architect. At the time it was the height of the boom, we thought we couldn’t afford anything we would want to live in. Now, the plans are still not approved but we have spent close to 80k in various fees.

    Now I’m unsure whether we should continue with the build. The market is falling and the market value once built will at best match what we spent on it. At the moment I think there is at least 300k in capital gains.

    However my husband and I are really struggling cz on one hand we spent so much money this is probably 2 years of our savings but I’m worried about spending more $$ and time into this project and at the end of the day having no capital gain and a massive mortgage to repay. There has been so many issues with the plans and we haven’t even started building. I’m really stressed about it all and want to give up but I really want a PPOR.
    Shall I
    1. Forget about the $ spent and stop the project, keep as IP and buy a cheap PPOR later as markets are cooling
    2. Sell property now and upgrade to a new PPOR
    3. Finish the project as planned

    Thanks.
     
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  2. TSK

    TSK Well-Known Member

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    Keep as ip, buy cheap ppor, keep dream alive and wait for opportunity to build ppor of your dreams as finances improve?
     
  3. Trainee

    Trainee Well-Known Member

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    Sounds like you will struggle with 3 because of the mortgage payments?
     
  4. Karen2019

    Karen2019 Member

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    It will be manageable but I won’t be able to save at all.
     
  5. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    If you can't save at all, I'd suggest that's not manageable.

    If you feel stressed now, that will only increase if rates were to go up, or repairs, or anything out of left field.

    Let's imagine for a moment you hadn't spent $80k on this current project. Would you still proceed?

    It doesn't necessarily have to be an amazing capital gain if the emotional gain is there - it's nice when you make money off a PPOR, but it's not the only consideration.

    I think I'd be looking to offload it and buy a different PPOR that won't leave you with such high mortgage payments.
     
    Last edited: 28th Mar, 2019
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  6. The Y-man

    The Y-man Moderator Staff Member

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    As per @Jess Peletier I am curious to understand why the capital gain is an issue?

    IMHO a PPOR is to a large extent a lifestyle choice primarily, and NOT (necessarily) and investment choice.

    I am sure you do not buy a car and expect it to go up in value?

    On the other hand, if the argument is about being able to afford it, totally different issue altogether.

    The Y-man
     
  7. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Where in Sydney are you building? How much is construction? What are you building specifically? How long do you plan to live in the property?
     
  8. Karen2019

    Karen2019 Member

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    I think you are right. Things will be very tight. TBH - I’m more stressed about the process of planning and building as opposed to the mortgage repayments atm. I’m worried that something will go wrong during the build and I have to cough up more $.

    If I didn’t spend 80k - no, I would definitely not start this now. Now I know what is involved, I know it is not worth the stress, time and effort and I’m not capable of handling it.

    I think I want emotional security of a PPOR and lifestyle but I also worry about investing and making $ from real estate.
     
  9. Karen2019

    Karen2019 Member

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    So I guess you consider new construction similar to a car as building is a depreciating asset right. I guess I was hoping to have some capital gain because I will have to sell eventually and upgrade later. I dont think I will live here forever considering my age. Also, I will be paying off a huge mortgage and won’t save much at all so at least I would want my home to appreciate so it is worthwhile. That was the way I was thinking but maybe it is not the right way.
     
  10. The Y-man

    The Y-man Moderator Staff Member

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    Hoping for the best is ok, but plan for the worst.

    The Y-man
     
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  11. Karen2019

    Karen2019 Member

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    It’s in LNS. It’s around 1m and will be a 3,3,1 attached dwelling. I think I would live there for maybe 5-7 years.
     
  12. MWI

    MWI Well-Known Member

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    I know what you are going through, twice in my life I paid full cost of DA (and one for BA) and never proceeded with the actual build...for various reasons.
    Impossible to advise only you can make that decision.
    Building or developing and starting out can be quite stressful, and usually every project goes beyond the budget, especially this being your PPOR, hence more emotional decision rather than investing decision.
    Property is a long time investment, not short term gain, requiring discipline to manage your finances.
    Whatever you decide, perhaps learn to manage or budget finances better, that may help. Seek out strategies... there are so many that may help....and read Barefoot Investor for families!
    At the end of the night you need to answer you own questions, what will make you sleep better at night, whatever you decide?
     
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  13. samiam

    samiam Well-Known Member

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    I can relate - it is a very stressful and emotional process (which I am not enjoying at the moment) and yes you have to cough up more $.... even with a cookie-cutter home.
    Unless it is a designer home, 80k spent upfront before approval seems a bit too much for me - are you including 5% deposit paid? how far are you from the approval/submission?? DA approval usually last 5 years.
     
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  14. Stoffo

    Stoffo Well-Known Member

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    Wow, $80k on plans :eek:
    Still no approvals :confused:
    Some lawyers are cheaper than that o_O
    If you thinks the first stage has been expensive just wait until the builder starts talking variations :oops: (those plans will look rather cheap then).
     
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  15. hammer

    hammer Well-Known Member

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    Can you move into the IP? Not the mega mansion....The actual property that is there right now?

    If you did, how would that impact your financial position?

    Could you put in a new kitchen, bathroom, give it some paint? Would that tide you over for the time being (as in next 5 years?)

    Just trying to throw out some more options....
     
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  16. Joynz

    Joynz Well-Known Member

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    Have you gone out to builders to get a cost for the build yet? Architects are notorious for underestimating costs.
     
  17. Blueskies

    Blueskies Well-Known Member

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    There is a principle in economics called sunk cost fallacy. It basically means that people have a bias once they have spent a lot of money on something feeling that they have to continue even if the numbers don't stack up. You need to stand back and look at the investment from a forwards looking perspective only, putting aside the path taken to get where you are.

    FWIW, I don't know that I would let the future state of the Sydney property market influence your decision too much, no one has a crystal ball, who's to say that we're not at the bottom right now?
     
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  18. kierank

    kierank Well-Known Member

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    My experience in PPOR design/build is very limited. We have only ever done it once, starting design in September 2010 and moving in May 2012.

    On day 1, we had a “back of a cigarette packet” estimate of $x. When we moved in and finalised the numbers, it was very close to $2x.

    And this does not take into account the thousands of hours we spent on the project.

    Design/building one’s PPOR is a very time-consuming and emotional journey. We found it very hard to keep to s budget when we had no idea what we were doing.

    But we love, love, love our new home ;).
     
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  19. Clyde

    Clyde Well-Known Member

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    Hello Karen , it is hard to say what is best to advise as the numbers are a little vague.

    Can you tell me how much you expect it will cost to build this property ?

    I would also be curious as to know what robbers have taken 80k in fees from you , but to have no approved plans yet ? Why are they not approved ?

    It may be better to take the capital gain and then just buy a ppor, you need to do the sums. You need to remember if you sell this, there is selling costs and capital gains tax, there will then be buying fees to purchase another ppor. On the upside, you may take a capital gain before prices fall further, do not have the hassle and stress and continued costs with renting while building ,and could move straight in and be done. You need to do the sums, be realistic and do not overextend yourselves.
     
  20. Blueskies

    Blueskies Well-Known Member

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    If the property was sold with with building plans and an approved DA in place could the $80k plus be added to the capital base to reduce the CG liability? Some consolation perhaps?
     
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