Is now the time to downsize?

Hi

We have a $3M property (our primary home) in the inner suburbs of Melbourne and are looking to downsize in the next 5 years. If we downsize now that will leave us with 1.3M to buy a smaller property (happy to rent for a while while the market settles) and $1.3M to invest (anything else but property as we want to draw down over the next 10 years.

Do we jump now? Are we better off investing the $1.3M or should we sit this cycle out and hold onto the property? Basically trying to understand the 5 year outlook of either.

Thanks for any input.

 

What other assets?

 

As Trainee asked, what other assets do you have?

It would be worthwhile investing some of the equity from your home to grow your asset base

Even while sitting on the sidelines, it does mean as time goes on you are losing opportunity to grow your assets

 

That’s basically it. Yes all our eggs are in 1 basket. The timing of when we jump back in to both buying a new home and investing is another discussion so we may be sitting on the sidelines for a while if we try to buy on weekness.

 

The thing is you will be new at say shares with a mill. Should have a plan for that.

 

When we decided to downsize 5 years ago we decided to rent an apartment first for a year to see if we could be happy in a much smaller space. We finished up living there for four years before we bought our current retirement unit a year ago.

For those of you who think at 63 and 59 we were too young to buy into a retirement village I would just say that what we have seen is many who do buy into a village leave it too late and are too frail to enjoy the benefits when they enter.

Being younger we can really take advantage of the cash now available to us that will allow us to travel for many years.

 

How old are you.

Is the 1.3 mill drawdown till super kicks in?

What other investments will support you., is your super enough?

Good luck with your decision!

 

Like @Vicki S a rough age/retirement guide would be good

There are gov incentives to downsize, stamp duty reduction and possibly others, all age dependant I think (may vary between states).

Do you own the ppor outright and looking to buy another outright in the same area?

 

What would you jump into?

Seems market sentiment is changing property and shares.

Was only recently share market lost 6 billion. Are we close to peak? its been a bull market for some time.

Property - we are seeing Melb and Syd cooling off. Last thing you want to do is buy in markets that will be flat for a number of years with woeful yields.

Do you want to expose yourself to other States? If so then start researching.

From what I am seeing at the moment there is no rush, sit back and watch and wait.


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You should maybe see a financial planner and get some advice about super. Also advise on how to invest your money, after downsizing, to provide an income stream that ideally preserves and grows your principal. You are in a great position and should look forward to the next stage of your life. There's no reason to hold onto a larger house that no longer suits your needs.

Property is not the only asset that appreciates. As an example I've being following the threads on older LICS that seems like a good option for a lot of people who want their money invested but need a regular income.

(Not advice)

 

We are 55 so not eligible for incentives (Stoffo) so are lucky to be considering this early. No kids so no estate but will have to fully fund our retirement. We have $600K in Super so this is mostly about the income stream $1.3M until 70. Have spoken to a financial advisor (PJG) so have a rough idea on what to do with the $1.3M. Our solution will need to very conservative for the first few years so as not to risk capital.

As per (Bashworth), we may rent for 1 year or longer if both markets show strong signs of a lengthy period of decline (MTR).

Looking at a 3-5 year window, are we better off with 1 house (Rent Free, Mortgage Free and no Capital Gains) in Inner Melbourne or split between smaller house (Stamp Duty) and investing (Capital Gains and Interest Taxed).

We still love the house so its about deciding with the head and not the heart.

 

Realistically 1.3 will get you 50k income. Split between 2 the tax isnt much.

What is your spending?

 

We are not big spenders at home. Living to the minimalist moto. Travel is our passion which does cost money even if you live in the community while OS. We think maybe we can live off $70K PA. Note that is owning not renting.

 

Then 1.3 is pretty thin.

 

Please take this with a Grain of salt as im just quickly thinking out loud if I was in that situation, and by no means am an expert.

Down size so your mortgage free on PPOR, split the left over 1.3m between 2x middle ring Brisbane properties, or 1x house in Melbourne & 1x Melbourne apartment. Both situations owned out right, both Yielding well @ $50k+ Pa to get you through to Retirement, and both have the potential for good growth in that time with being able to sell/access funds again by 65.

You could potentially have assets of 4.5-5M (2 investments + PPOR) with an income stream coming in to fund your travel, not to mention what your super will be sitting at by then and having $50k Pa coming in for the last 10yrs

 

Do you want to live in the same suburb as you currently live?

 

Get some tax advice as well.

Would you rather a $3mil asset growing in value tax free or a $1.3mil asset growing in value tax free?

Downsizing and freeing up cash may result in earlier 'retirement' though because you could generate more immediate cash flow.

Could you borrow against the property?

Buy a new property to live in, yet keep the existing one and rent it out?
Any subdivision potential?
Spousal sale strategy worth considering?

 

Being conservative, I think the 1.3mill PPOR plus 1.3 mil in shares plus your 600k in super puts you in a solid position right now to retire.
I'd go for that.

If you ever want to do some part time work down the track, you can.

Not knowing the specifics of your property, unless your current home is on huge usable land I think your 3 mill property will be harder to sell than a middle of the range 1.3 mill property when push comes to shove (less buyers at the 3 mill mark). I'd look at selling the 3 mill property now while the market is good and lock in the profits. But if the 3 mill home has amazing land that can be developed, maybe it will go up more. But then again, that's not guaranteed.

Edit: Re: Renting vs buying a 1.3mill property now - I'm not a Melbourne expert. But rental yields are low and I think you maybe heading to market peak for the non first home buyers segment. So with that line of thinking, it mightn't hurt to sign up on a lease for 6 or 12 months. Take your time and find something you are truly happy to buy that ticks all the boxes.

 

Yes I agree with this course of action, however it would be good to know your household salary per year and when you intend to retire.

$70k/year is a fair bit of money and a $3m house is a fair bit too so your pool of potential buyers will be reduced too. I believe the best way is to sell the place and put as much as you can contribute each year (max $540k for a three year period from memory but obviously haven't looked into this) to your super and obviously concessionary super contributions from your job should be factored into how much you should put in. You'll need to your own calculations but factoring in the $1.6m cap, the approx leftovers should be spread to a few high yielding (ones with dividends) stock just for diversification.

I would go to a Financial Planner with this general strategy in mind and they can work it out for you. Happy for you that you're able to buy well and be in this position at 55