PPOR paid off....wife wants to upgrade

Hi Everyone,

Just looking for advice from the good people on here.

A little about me…. 40 years old, wife and 2 kids. Just paid off our PPOR valued around $850K. IP valued at around $350K with a IO loan of $350K owing against it.

Now that the PPOR has been paid off the wife wants to look at upgrading our home. New home valued will be around $1.2 million

Couple of options I am looking at:

• Sell PPOR, rent while we purchase a bigger/better home. Would mean we have to take out a new loan of around $400k

• Turn PPOR into IP2 and attempt to get a new loan of $1.2 million for the bigger/better PPOR, not really sure if the banks would give us $1.2 million being 40 years old

• Build a granny flat (costs $120k) on our current PPOR block turning into IP2 with a granny flat. Rent them both out and try to get a $1.2 million loan

• Spend $100-$150k on renovating PPOR so the wife is happy with new kitchen, bathrooms, etc etc and continue living in PPOR

Really kind of stuck on which direction we should head and implications I might be missing on these options.

Thanks in advance
Ben

 

One of the biggest considerations for me would be to try and think of how you feel having a debt free PPoR and how it may feel to get back on the mortgage ladder. Peace of mind can generally have a $$ attributed to it, sometimes it’s priceless.

 

Have a read of this
Strategy: 11 Strategies for when you move out of the PPOR and keep it
Strategy: 11 Strategies for when you move out of the PPOR and keep it

 

If by doing this you move into a better area, it's worth it. It doesn't have to be far either.

My mum was never really happy in their first home but my dad didn't want to move. He was always "improving" the old house, but he's no architect and it turned into a large but disjointed house. Finally when I was in uni they moved, and luckily they moved somewhere where the transport was better. It was only to the next suburb... Anyway, I see it was a positive, my youngest sister ended up getting 96 in the HSC, she went to a better high school than her sisters due to the move... just be prepared, the type of kids birthday presents from her friends skyrocketed even as a young kid and she started getting gifts worth like $100, not $20… her classmates were the type with double doctors as parents….

 

change wives?

 

With 2 kids & a portfolio, that'd be an expensive option and no chance of a tax deduction.

 

too late

 

Is 40 too young or too old for the loan ?

If you can renovate and be reasonably happy - go that way.
You will probably add more value than you will spend and can spend at a slower pace.

Lot of cost in upgrading.

 

Dont underestimate the cost of moving. The stamp duty alone is nuts. Then if you sell then agent fees and so on. Ages of kids and schools, friends etc.
Staying may be a more cost effective outcome and when you reno it makes any financial benefit tax free on top. The cost to reno may equate to the costs to move, refurnish and repaint decoate and selling costs etc.

You should consider the long term issues with taking on a fresh debt and compare debt (or low debt) vs a new high debt and that loan term. Renting the old house will mean taxable income as there is no deductible interest. You cant borrow against it and claim any interest deduction as the new loan would be used to buy a private home.

Do some basic cost comparisions of the keep and renovate v new loan and keep it rented and and project it 5-10 years.

It really depends whether the area and a renovated home will keep a happy family v happy life

 

If you’re otherwise happy with the house and location I’d just do the kitchen and bathroom update.

 

....and hold off selling until the market settles again.

 

this is the easiest one to solve, because its not based on your preference and there is a yes or no answer.

find a good mortgage broker and get them to assess your max borrowing.

dont really understand why this is even a question. First step to any property transaction should be a call to a mb.

 

I guess any upgrade is only for vanity reasons anyway. Our current PPOR is fine but when you look at all the modern houses in the new estates its very tempting.

Thanks Rolf.

Hahaha! Costly.

Very true. Stamp duty alone would be $50k. Good way to look at it. Thanks

Thanks heaps Paul. I do feel the costs of moving as a waste. Your right that moving costs would be close to the reno costs.

True that those figures do need looking at. I guess a mortgage broker can look at those figures more closely.

 

I would be more inclined towards keep the current PPR as an investment and upgrade, the key is if you can afford it, its worth it as its for the family (may be the same area with a bigger house or more modern or nearby suburbs, whatever rocks your boat)

I like to always focus on my next PPR and hence the prospect of getting into a new PPR excies me (I still love my current PPR), the idea of an upgrade keeps me on my toes, allows me to aim for bigger and better (still within means) and expands my portfolio.

Its a big decision, so apply your SWOT analysis to Stay Put vs Hop Out scenarios.

Good luck.

 

Its not all about the return, tax savings or financial efficiency.

The purpose of investing is to enjoy life so It must be worth doing even if it doesn't make financial sense.

 

Thank you! I think this is exactly what I needed to hear. Makes perfect sense and really sums “life” up once you have paid down your PPOR. Thank you