Opinion - Sell to Develop or Hold and Wait

Hi Guys
Am absolutely amazed with this website and find myself spending long hours trolling this website for more advice.

I had decided that i was going to go one direction into my investing strategy, the market changed so i adapted, but now it leaves me wondering if it is the right move.

Essentially this is what has happened and your opinion would be greatly appreciated on what i should be doing.

My partner and i bought in officer in 2016, we wanted to get into the market and wanted a home not an apartment. We bought a 22sq home on a 392m2 block for 440k, Only owing around 395k.
It was built and we moved in march 2018 and valued at 580k with no landscaping or useable backyard.
We then leveridge some equity as i needed a new laptop for university and we wanted to landscape and build a pergola. We went to owing 430k.

Here we are now and this is where i am. The house we have been told by agents in the beginning is valued at around the 570-590 mark. Unfortunately it is opposite a trainline (Not an issue for us as its a 700m walk to the station from our front door). But this has been a polarising issue for families and buyers with our greatest offer being 535k. We have a future kinder and school being developed in our estate and officer is developing a town centre by 2021 which is 3 minutes from our house.

We never planned on selling but we are originally from croydon so being far from family and friends has played a part on my partner who wants to move back.

That area which is mooroolbark, croydon, boronia ect ect has seen a massive drop in which you can buy a sub divide block between 550-650k. These blocks peak 2018 were 100k to 200k more.

Originally i wanted to leveridge the equity and buy back in that area, but i am still in uni for another year and even then we want to begin a family so unsure what the work situation will be like.

But now i am at the goal of Selling this house (We have told our agent no less than 555k which with savings leaves us with around 140k) which means we can purchase a development block in the area we want, live in the front home reno and develop the back.

I am seeking opinions because the more i read these forums the less i see of people selling investments, I understand that houses double every 7.5 years but at the same time i dont remember the last time you could sell 392m2 and buy 800m2 in what i would say is a better area. By the time i can afford to leveridge the equity the market might have corrected and i am unable to move into that area anyways.

The concern for me is selling this property below what it is worth due to a trainline. Buying so low i will make money regardless but do i just sit on it for a while longer with the risk nothing changes and i miss out or do i move forward and laterally move in my journey now for quicker gains later.

I hope i make sense

 

Dont get this. Your place is worth less because of the trainline. Thats not going anywhere. How do you get what it is worth?

Buying to develop is a whole new set of risks. Borrowing capacity etc. also worrying that you had to refinance for a laptop.

 

Getting what it's worth would be leveraging equity via a bank valuation which values the house at the proper amount.

The laptop was not the reason for the refinance, it was an add in whilst I was refinancing for landscaping and pergola. Doesn't even need to be said.

 

Valuations from bank aren't 100% correct - it was also likely completed at a different time to the offers you have now.
Value of property is what someone is willing to pay, right now sounds like property is worth $535,000
Yes a lot of people don't like to sell investments, especially if they're not costing them anything/holding costs (only opportunity cost)
But this property is your PPOR - completely different scenario, your partner wants to move to be closer to family.

Have you looked at keeping existing property, extracting the equity to use as deposit for next purchase?

 

We have had paperwork to refinance recently at that pricepoint so the figures are correct when evaluating what the bank think its worth. As we were looking at extracting equity to use as a deposit. This is still less than the median price in the suburb.

We have had a look but i dont think we can make the borrowing capacity to buy back in that area. So its either sit and hold until we can, Or sell up and move laterally to a development block closer to family.

 

Afternoon,

Well done on being on the property ladder and proactively looking at options.

To me, it sounds like you've made the decision but want some support. Only you know what you want in the end. At the end of the day, you can invest and have all the assets but nothing is more important than family and....... lifestyle IMHO. =)

 

Haha its funny you say that because as i was writing the first post i felt myself justifying the decision and not being unbias. You are right i do feel what i am doing is the right way. I guess i ws double checking if there was something i missed when weighing the pro and cons of this.

Thank you for your opinion. Its greatly appreciated.

 

Don't think, KNOW - get a broker to confirm your borrowing capacity with a few lenders, better than making a decision based on assumptions.

 

Sorry my apologies, We know that we cant do it. Would require 70k P.A for the both of us. Something we cant achieve whilst im still at university.

 

For a start, get rid of that belief.
Some do, many don’t.
Values go down, sideways, and stagnate, as well as up.
Marg

 

That 7.5 yr belief is well and truly out of date. It does happen with some properties but the majority of owners would be happy with at least a 20% increase in that time frame. I know towns where properties have increased triplefold in 1 year but off a very low base and in places that are quite miserable to live.

 

Sorry i realise that with this being a forum that you have to be clear on your knowledge that no-one knows me personally.

I know that 7.5 year isnt a blanket belief and is dependent on location, future development and amenities. It was more that i understand property appreciates.

 

Sounds like you are running through life pretty fast - thinking of starting a family right after uni. Not a criticism, just observation.

It would be a good idea to work out a plan with a broker based on your circumstances and borrowing capacity over the next 5 years.

Buying a subdividable block to add value to by building at rear is a more active strategy than holding in Officer. It’s also positive that it’s in an area that your partner is comfortable with in the long term.

If that’s the route you are keen on, it would be worth determining timelines for being able to borrow to develop (after the initial purchase) based on your future income.

 

Thanks, you would think so haha but i actually went back to university as a mature age after working in the real estate industry so I'll be 28 when I graduate But thanks for your advice

Yeah I have discussions with professionals on what it would look like to organise. I guess it's just taking the leap

 

Ive had another thought, If our house is valued at say 580k by the bank (For equity extract), But only getting offers for 535.

Am i smarter

Selling at a loss (Smaller Profit than what i expected) and beginning the sub divide path?
Or
Renting it neutrally geared and renting in the area back home, Then when going full time and my borrowing capacity rises i can purchase the second investment? Only issue is market rises considerably and is out of my range, but then again theres always another area that is worthwhile.

 

If the market rises though your the place you hold will also rise.

 

True, But being in different markets i think the ideal market fell harder than the one i am currently in. Which i would think that it would mean the corrections are greater there than they would be here.

I guess in saying that i would not be paying agent fees, stamp duty which its alot of money saved.

I believe the tax deductible stuff in renting makes it more appealing aswel doesnt it ?

Sorry for lack of information im trying to learn on the run

 

I

I like the idea of renting it out and you renting back in Croydon. being neutrally geared is a big plus.

 

Renting out sounds good to me too - has to be an option worth exploring.